Look to Europe to Catch the GPS Beat

If you're kicking yourself for having forgone a navigation system upgrade when you bought your car, you may be in luck. A number of quality personal navigation devices can now be bought off the shelf at prices starting just above $500, significantly less than the standard luxury-vehicle upgrade. The devices are selling so well, it appears to be a compelling investment opportunity as well.

While a handful of companies compete in this arena, two clearly lead the pack: Kansas-based Garmin (GRMN - commentary - Cramer's Take) and the Dutch company TomTom.

Recently, Jim Cramer named Garmin a "'mon back" stock, one that investors should load up on at its current level. He also correctly dubbed it a "gadget stock" -- it's a company that traders should try to catch during its most dramatic growth phase, not necessarily one they'll be gifting to their grandchildren one day. Garmin's numbers are certainly compelling: Though earnings surged 50% in its latest quarter, the company trades at a forward P/E of only about 20 on the basis of 2006 estimates that are likely to prove too cautious.

TomTom is an even more interesting stock. If you've heard the name before, you probably caught one of the company's new radio or television ads. It's making its first push into the U.S. market, and that could dramatically expand sales.

Which Way to Play?

Garmin's numbers are impressive, but investors who want to get involved in portable GPS solutions may not be interested in its other businesses: Garmin makes everything from fish finders and marine and aircraft radar systems to weather-reporting instruments. While this land, air and sea strategy makes Garmin a more well-rounded company, these aren't sexy, high-growth markets, despite their higher margins. If investors are going to get revved up over Garmin, it'll likely be the portable GPS segment that does it.

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At the time of publication, Hanlon was long TomTom in client accounts, although positions may change at any time.

Charles P. Hanlon focuses on non-dollar investments. He is currently the president of Delta Global Advisors. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Hanlon appreciates your feedback; click here to send him an email.