Don't miss out!

With that false imperative out of the way, let me explain. I suspect you're familiar with Apple's (NASDAQ:AAPL) iPod, or Research In Motion's (NASDAQ:RIMM) BlackBerry. Demand for such electronic trinkets has powered these companies to absolutely market-smashing returns over the past five years, even though each device is under relentless competitive attack.

Well, the next "must-have" electronic toy is just now creeping into public awareness: the Personal Navigation Device (PND). Combining global positioning system (GPS) navigation capabilities with preloaded maps featuring millions of points of interest, as well as turn-by-turn voice instructions, expect PNDs to be huge sellers this holiday. Who stands to benefit most from PND adoption? Champion device maker Garmin (NASDAQ:GRMN): the international stock to own in 2007.

Global reach
Wait, isn't Garmin a U.S. company? Well, no, although it doese have a strong presence here. While the bulk of the R&D staff is in the U.S., the company is incorporated in the Cayman Islands, and manufactures most of its products in Taiwan. The most recent quarter saw PND sales grow nearly 200% over last year. Garmin increased its U.S. market share to around 60%, and is a strong No. 2 to Netherlands-based TomTom in the European market.

North America

Asia

Europe

Revenue ($millions)

$911.4

$78.2

$492.5

Revenue Growth (%)*

48.3%

75.3%

82.4%

Revenue Share (%)

61.5%

5.3%

33.2%
*Trailing 12 months, year-over-year comparison.

Where's the moat?
According to Frost & Sullivan, "[GPS] product development and product runs are becoming shorter in duration ... [putting] more pressure on R&D and manufacturing." This aligns beautifully with Garmin's competitive advantage of in-house engineering and manufacturing. Because of lower costs and its ability to reengineer or launch new products quickly, Garmin is unafraid to cannibalize itself -- as evidence, look no further than the company's steady (nay, aggressive) stream of new products, on track to hit 70 this year. Moreover, 61% of the most recent quarter's revenues were from products introduced within the last 12 months. Garmin sets a blistering pace for the competition. Frankly, the competition's not keeping up.

R&D spending as % of Revenue

Garmin

TomTom

TTM (Q3 FY06)

6.9%

2.2%

2005

7.3%

1.2%

2004

8.1%

2.4%


Creating value
Garmin earns returns of around 50% on its invested capital, a stunning number. A key reason behind Garmin's outperformance is management motivation. Former CEO Gary Burrell and CEO Min Kao (the 'Gar' and 'Min,' respectively, of the corporate name) founded the company, and remain its two largest shareholders.

Executive pay and option grants are a relative pittance compared to other companies, and CEO Kao paid himself a $203 bonus last year (yes, you read that right). Management aligns itself with shareholders in receiving extra compensation through dividends. And while analysts may gripe that PND margins are falling as mass market adoption moves into focus, management has been telling investors to expect this for years, and that the greater sales more than outstrip margin erosion.

Why now?
Simply because it's one of the world's great stocks. Since its 2000 IPO, Garmin has grown sales at an annualized 30.6% clip. We've seen that growth accelerate over the past 12 months to 59.5%. But growth is not just top-line. My free cash flow estimate has grown at a compound rate of 38.9% since 2000, which provides Garmin with scary flexibility. All growth initiatives are completed using cash on hand. Need a new European headquarters? Done! Another new production facility in Taiwan? No problem. Want a nice bolt-on acquisition? You get the idea.

Garmin offers the perfect combination of "it-product" growth, shareholder-aligned management, international exposure, and high-quality earnings. The company is a cash machine, recently doubled its dividend, engages in opportunistic share repurchases, sports $461 million in cash and short-term investments, and has no long-term debt.

It has the best-regarded PND products, and dominates Amazon.com's (NASDAQ:AMZN) pre-Christmas best-seller list. It also dominates the aviation GPS market, and produces a myriad of other GPS-related products for marine and outdoor/fitness applications. There are so many great things about Garmin that, unless shares get absurdly overvalued, I'm happy to tuck them away for the long term. My conservative discounted cash flow valuation places a fair price around $51. Relaxing some of the more cautious assumptions, I can make a reasonable case that Garmin is worth $58 to $60 today.

The Foolish bottom line
Garmin is the best international stock for 2007 -- at least, I think so, and hope you agree. Let us know what you think in Motley Fool CAPS, our new service that brings together great investing minds. If you think Garmin will outperform the S&P 500 in the future, rate it an "outperform" (I have). Or if you disagree, rate it an "underperform." It's that simple, and even better, it's free. To get going and make your voice heard, click here. Based on your responses, we'll declare 2007's best international stock early next week.

For more on our best international stocks, click here.

Garmin and Amazon are Motley Fool Stock Advisor picks.

Fool contributor Jim Gillies owns shares of Garmin. He also owns Garmin $27.50 Jan08 calls, and is short Garmin $17.50 Jan08 puts, and Garmin $52.50 Jan08 calls. Drop him a line if all this sounds confusing. The Fool has a disclosure policy.