David DriscollLittelfuse Inc.LFUSHOLDOct 12, 2018

Data centre business is getting traction. Fuses and sensors. Will be in demand with any electrification. Small cap, so it's catching momentum. All its businesses starting to hit on all cylinders. Yield is 1.01%.

Tariffs on cars have pushed LFUS down lately, because they supply fuses for cars. Still likes it. Small caps will be volatile, but now is a buying opportunity with a small tranche, if you believe the car industry will come back. There are claims that Canada and Mexico dump car parts in the US, but 75% of car workers are American, so this is industry won't disappear. At some point there will be resolution in tariffs.

Small cap, so higher rates have impacted WACC. Secular tailwinds around EVs, data centres, alternative energy -- they all need fuses. Auto sales still weak, but pivoting to data centres with room for significant expansion over time.

All the energy that's about to be consumed through electrification needs fuses. Smartphones have not been growing, but if Apple's iPhone with AI has traction, should see a pickup. A lot of automakers are struggling, and that's 2/3 of its business.

Still generates free cashflow and turns profits into 100% free cashflow. Financial flexibility to get them through these slower times. If stock price falls so that the portfolio position falls to 2%, he buys more to bring it up to a 3% weighting.

LFUS is $6.1B market cap, trading at 29X earnings with a 1.04% yield. Net debt is about 1X cash flow, and EPS growth has been decent, though a decline is expected this year before about 30%+ growth in 2025. Versus a group of Bloomberg peers, it is cheaper on P/E but has a lower return on equity and much lower growth (at least this year, -6% vs +16%). Its yield is average versus peers. All-in, while we don't have a lot really against it, with some debt and less growth it just does not compare so favourably with peers. 
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Carmakers have been slumping (i.e. Tesla), so consider car suppliers instead. LFUS makes fuses, which cars (and other products) need. It's had a good run in recent years and will offer good exposure to EV trend in coming years.

It provides fuses, silver protectors to the automotive, industrial and data centres as well as other component parts for electrification of the world. Data centres are an important part of AI technology. It has done well in growing the business at 10 to 12% on a yearly basis and we're looking at a dividend growth rate of 12% per year.       Buy 2  Hold 6  Sell 0

We all use fuses, including for EVs. He's owned this for 10 years. They also make sensors for cars and LED lights. The stock hit highs last September, but is cheaper than. Trades at 22x PE, but historically it's 14x. The market expects earnings growth.