It seems like every new car, even those under $25,000 have built in navigation systems, and those that don’t, offer it as an option. I live in Los Angeles, where driving is like eating – everyone does it, so it is not uncommon to glance at the car sitting next to you in traffic and see a GPS navigation system on the dashboard. But nationwide, navigation systems have a market penetration of less than 10%. The two players worth a gander in this space are Garmin (GRMN) and Navteq (NVT).

Garmin (GRMN) - Garmin manufactures navigational devices based on global position system. Its products include automotive products in cars and trucks, recreational products used by adventurists, hikers and athletes and aviation systems used by aircrafts. Navigation systems are a fast growing segment of consumer electronics, growing faster than digital cameras and flat panel televisions. Last year alone, Garmin sold 5 million units with 2007 sales growth projected be 40%. The company has over 50% market share in the US automotive market.

Earlier this year, Garmin began to sell lower end units at Wal-Mart (WMT), which will only help its numbers going forward. Additionally, it has growth opportunities in the marine and aviation segments.

Garmin reported earnings this morning and analysts expected earnings of 73 cents per share. However, not surprisingly, Garmin beat this number handily mainly on a 300% increase in sales over this quarter last year. For fiscal 2007, the company is projected to sell 25 million units in US and Europe. Despite lower prices forecasted as we approach the year-end shopping season, which will result in lower margins, the company increased this guidance for the year. To meet the increased demand of their products, a third factory is currently being built in Taiwan.

The stock has been a star performer over the last couple of years with gains of 215%, with a 48% gain just in the last 2 months. I recommended this stock back on May 25th under my Top 10 US Stocks to Buy, and before that on May 4th, March 12th and for the first time back in March 2006 when I first started blogging. Depending on when you bought it, you are up at least 45% and as much as 135%. With no debt and earnings projected to grow 25 to 30% over the next 3 years, I think the stock is good here and recommend accumulating on pull backs.

Navteq (NVT) – Navteq reported earnings last night and they reflect the strong growth in this sector. Navteq provides the digital maps and software used by mobile phones, navigation systems and technologies like Google Earth. Revenues were up 49%, while earnings grew 72% over last year’s second quarter. In other words, they crushed estimates by 14 cents (52%). Navteq also increased their 2007 guidance by 20% over the guidance given at the end of the first quarter.

The company has no debt and is pretty much one of only two players in this market (the other being UK-based Tele Atlas). Google, Yahoo, Traffic.com, Garmin and a host of technologies use Navteq’s digital maps and navigational software, which has information on 12 million miles of road in 69 countries. From satellite images to aerial photography, Navteq has used an extensive number of sources to ensure accuracy.

One of their key selling points is their user feedback. Their program called Map Reporter, allows customers to report any inaccuracies. Additionally, Navteq has over 700 employees who dedicate a good amount of their time driving around, capturing 225 different attributes for every block of road including one-way signs, turn restrictions, lane information, obstacles in the road and points of interest that may include hotels, gas stations and restaurants among others.

With the advent of GPS on mobile phones like Rearch in Motion’s (RIMM) new 8830 World Phone, Navteq has the opportunity to target a market that has less than 1% penetration. The future seems bright for Navteq and I recommend buying the stock.

-- Faisal Laljee
Full Disclosure: I own RIMM but my positions can change anytime without notice.