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Motorola Solutions (MSI) Has Fallen 15% in Last One Year, Underperforms Market

Alex Smith
·5 min read

If you are looking for the best ideas for your portfolio you may want to consider some of Wedgewood Partners top stock picks. Wedgewood Partners, an investment management firm, is bullish on Motorola Solutions Inc. (NYSE:MSI) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Motorola Solutions Inc. (NYSE:MSI) stock. Motorola Solutions Inc. (NYSE:MSI) is a communications equipment company.

On July 16, 2019, Wedgewood Partners had released its Q2 2019 investor letter. The investment firm said that it established a position in Motorola Solutions Inc. (NYSE:MSI) stock in Q2 2019. The stock has posted a return of -15.5% in the trailing one year period, underperforming the S&P 500 Index which returned 20.5% in the same period. This suggests that the investment firm was wrong in its decision. On a year-to-date basis, Motorola Solutions Inc. (NYSE:MSI) stock has fallen by 5.1%.

Last month, we published an article revealing Wedgewood Partners bullish investment thesis on Motorola Solutions Inc. (NYSE:MSI) stock in its Q2 2020 investor letter. This suggests that the investment firm has been bullish for a long time on Motorola Solutions Inc. (NYSE:MSI).

Wedgewood Partners fund posted a return of 4.3% in the second quarter of 2019, in-line with the S&P 500 Index which also returned 4.3% in the same quarter. Let’s take a look at comments made by Wedgewood Partners about Motorola Solutions Inc. (NYSE:MSI) in the Q2 2019 investor letter.

"We have established a position in Motorola Solutions. First, we need to point out that this is not the old Motorola mobile handset business. The Company spun that business off into a separate company in 2011 and sold it in 2012. This potential confusion is an important point, as we believe this company has flown under many investors’ radars due to MSI’s former ties to the mobile phone business.

This new Motorola, known as Motorola Solutions, is the world’s leading provider of highly secure and reliable communication networks, products, and services for use in global police and emergency services, a variety of government and military applications, and other commercial and public safety applications where security and reliability are of the utmost importance. This business is known as Land Mobile Radio (LMR) and involves building the infrastructure for customized, secure networks for their customers, providing handsets and other devices, and layering in a variety of software and services.

The nature of their business and the nature of their customer base make this a very steady, somewhat non-cyclical business. For example, a municipal police force will not turn off its first-responder communications network in a recession, and it will need to maintain the network, at least. To be fair, though, such a customer might choose to delay upgrades or additions of ancillary services if the municipal budget is under some constraint.

Between the expansion of its installed base of network/handset customers, and its ability to sell new software/services/analytics into this installed base, we see Motorola as a consistent high single-digit percentage revenue grower, and at least low double-digit percentage profit grower over the next several years – all with relatively less economic sensitivity than most technology companies. We expect organic revenue growth to account for roughly 4-6% of the revenue growth, with regular acquisitions rounding out the rest of the expected growth.

Valuation is very attractive considering this steady growth profile, and we see an opportunity for valuation to expand. Additionally, we believe the stock has been under the radar of most investors, with many investors still thinking the Company is a broken mobile phone business. We believe investors’ knowledge of the company, estimates of the company’s earnings potential, and valuation multiples all have the opportunity to expand over the next few years."

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Ken Wolter / Shutterstock.com

In Q1 2020, the number of bullish hedge fund positions on Motorola Solutions Inc. (NYSE:MSI) stock decreased by about 17% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with Motorola Solutions' growth potential. Our calculations showed that Motorola Solutions Inc. (NYSE:MSI) isn't ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Currently, investors are pessimistic about commercial real estate investments. So, we are checking out this contrarian play to diversify our market exposure. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

Disclosure: None. This article is originally published at Insider Monkey.