The latest email ad from Stansberry Research entices us into believing that Stansberry’s got the next gargantuan gainer, like Amazon or Apple…
“Nearly two decades ago, one of our analysts covered an obscure online bookstore called Amazon…
“And it went on to change how we shop forever.
“Today it’s one of the biggest companies on the planet, has minted countless millionaires, and the stock has since soared 3,100%….
“MarketWatch hailed one of our analyst as ‘The Advisor Who Recommended Google Before Anyone Else.'”
Which means now’s a good time to remind you that “covering” an obscure stock does not mean you get to take credit for all of its subsequent gains — Porter Stansberry did start his flagship newsletter back in 1999, and maybe he liked Amazon at the time, I have no idea… but there isn’t a Stansberry analyst who’s been recommending holding Amazon for the past 20 years, or even the past ten years. According to their own scorecards, the past couple times I’ve seen occasional updates that readers have shared with me, their best-ever trade remains the 990%-ish returns that Steve Sjuggerud reported on the gold explorer Seabridge Gold a decade or so ago.
So yes, if you had bought Amazon 20 years ago you’d be sitting on 9,800% gains… and there are plenty of points in the intervening years when a buy would have put you at 3,100% gains as of today, but whatever analyst Brett Aitken is pitching here did not publish a recommendation of “buy and hold” on Amazon that persists to today. If he did, we’d never heard the end of it.
That isn’t unusual, of course, and this kind of “if you had bought XX stock 15 years ago you’d be sitting on life-changing gains” claim pops up in ads very frequently, despite the fact that there’s rarely any real indication that the newsletter in question actually recommended that particular trade. Lots of “you could have earned” statements, not “our subscribers did earn” statements.
Newsletters tend to be pretty skittish and don’t like to show losses, so they don’t often hold stocks through 50%+ declines, and Amazon has had several of those along the way… the only widely-followed newsletter pundit that I know has been recommending Amazon all along, from the crazy early days through the dot com crash, without selling, is the Motley Fool’s David Gardner, and he’s got a pretty famously strong stomach for sitting through those occasional 50-80% drops in his growth stocks… which is made easier by the fact that his newsletter portfolio often includes 100+ stocks. Most newsletters like to keep a smaller list and much more activity in their portfolios, going in and out of stocks far more frequently and rarely holding for five years, let alone 20, partly because their customers are always advocating for something new.
The new service Aitken is selling, Stansberry Innovations Report, isn’t even featured on the Stansberry website yet — it seems to be mostly a set of “Special Reports” so far, perhaps they’ve cobbled together recommendations from their other newsletters for this entry level offering, but there’s no name on the masthead yet. We’ll learn more as readers have a chance to sample it, I suppose.
From what I can tell, that analyst he’s referring to that picked Google in 2005 must be Louis Navellier, a longstanding “quant” growth stock pundit who has been in business for almost 40 years (he started his first newsletter in 1980), and with whom Stansberry has done some co-marketing… though I wouldn’t call Louis Navellier a Stansberry analyst unless things have changed, he’s still got several newsletters of his own that are published by Investorplace and his firm manages private accounts, and though his Navellier-branded mutual funds have disappeared he does still subadvise a mutual fund.
Maybe another Stansberry person wrote up Google back in 2005, but I never noticed them getting credit for it from Marketwatch — Navellier did recommend Google shares in the fall of 2005, according to Mark Hulbert at Marketwatch, and the stock was still not all that popular back then. I don’t know if or when Navellier sold Google (now Alphabet) along the way, though if he held it the gains would have been impressive — almost no newsletter would hold it for that long, not least because they wouldn’t want to show that 60% 2008-2009 drop in the shares in their portfolios, and stop losses are a handy way to cleanse a portfolio of losing positions so you don’t have to look at them anymore. (I bought Google shares for the first time in February of 2005, as they dipped while the IPO insider selling lockup period ended, and those initial shares I’m still holding are showing a 1,172% gain right now… despite the fact that no one really felt like bragging about owning Google shares when they went essentially nowhere from 2008-2013).
So we don’t really know which analyst we’re buying into with this Stansberry Innovations Report, but it’s an “entry level” newsletter at $49/year that will likely be designed to get you primed for Stansberry’s pricier offerings in the future — for a newsletter publisher, getting you to pay something is the biggest hurdle they face, once they’ve got you on board to pay even $20 or $50, they know how to bring you into the fold and convince you to buy $2,000 and $5,000 newsletters.
But even if we don’t know much about the letter yet, I imagine we can figure out what huge potential gain they’re hinting at if we do a bit of Thinkolating… so what is this huge technological revolution we’re being sold?
Here’s a summary from the ad:
That probably means the folks who are talking don’t remember what things were like before electricity… but I digress.
“Tech insiders are already claiming the impact of this new technology will be like the printing press, the internet, and the steam engine.
“And ‘it will have an impact more profound than electricity.’
“This technology is, without a doubt, the single most extraordinary thing I’ve seen in over a dozen years of technology research.
“In our opinion, no other technology will have a more far-reaching, truly immeasurable global impact…”
What is this new technology? They say it’s following the past three industrial revolutions (the steam engine, electricity, and the digital age/internet explosion), and that these massive revolutions create the greatest fortunes.
So have you guessed it yet? Yes, the spiel is about 5G — the next wireless technology, currently in early rollout and testing, which is supposed to speed up wireless data transmission almost exponentially, enabling newer and smarter technologies to finally work well enough to make an economic difference (artificial intelligence, driverless cars, virtual and augmented reality, “always on” connections for internet of things gadgets and “smart city” stuff).
In short, as Aitken says…
“THIS is the technology that we’ve been waiting for… the one at the center of the next generation of mind-blowing advances…”
And that’s not a shocking out-of-left-field statement, that’s basically the consensus in the tech and telecom community — it might take longer to roll out than originally expected, and it’s not exactly clear who’s going to shoulder the costs or how it will evolve and which applications, beyond new cell phones, will be first to get widely adopted… but pretty much everyone expects huge things from 5G over the next several years.
So what does Aitken and whoever this Stansberry analyst is think we should buy? Here are some clues:
“… as 5G takes the world by storm and ushers in a new technological revolution, the greatest potential for life-changing profits comes from one area in particular…
“Invest in Chipmakers.
“If you think about 5G as the fuel of the future, then microchips will be the engine.”
And then some clues that get a little more specific…
“The key to success in the coming revolution will be to own the companies developing the critical chipsets — the ones going into smartphones… tablets… computers… medical devices… virtual and augmented reality devices… autonomous cars… city grids and infrastructure… artificial intelligence and more.
“Among them, we’ve found one company perfectly positioned for success.
“This firm is quietly signing deals with all the biggest corporations…
“Already, it’s inked long-term partnership deals with the three biggest Internet technology firms: Amazon, Google, and Facebook…
“Four of the biggest wireless carriers AT&T, Sprint, T-Mobile, and Verizon.”
And some more name dropping…
“signed deals with 18 of the biggest electronics hardware suppliers, including HTC, LG, Vivo, NetGear, Fujitsu, Sharp, ZTE and more.”
There aren’t a lot of other specifics, but we do get this:
“… this company has amassed over 130,000 worldwide patents and other intellectual property rights so their technology is protected.
“In fact, this company’s products are so important to the development of 5G, it’s been considered a matter of national security by the U.S government….
“… this company is forecasted to supply more than HALF of the core chips needed for 5G smartphones.
“What’s more, they’ve set up their deals so that they’ll get a royalty for every phone that uses one of its technologies for 5G….
“Almost everything connected to the internet via 5G will either directly or indirectly use the type of chip this company makes.
“It’s why I think this is single handedly, the easiest way to make a fortune off the 5G revolution.
“But news of this company and the wealth building opportunity it creates, will soon start spreading like wildfire.”
So who is it?
This is no big surprise to Gumshoe readers, I expect, but the Thinkolator here points us at probably the best-known maker of wireless chipsets and the most important owner of intellectual property in the wireless communication space… good ol’ Qualcomm (QCOM).
How is this a match? Well, Qualcomm earlier this year did reportedly have deals with 18 hardware manufacturers for 5G rollouts… though Apple and Samsung are the biggies, and those are possible trouble spots for Qualcomm.
And yes, they do claim 130,000 patents and patent applications. And they have built their business on receiving royalties for every phone that uses their technology.
I personally have a small position in both Qualcomm and some long-term Qualcomm call options, mostly because I think there’s substantial upside potential if they can fight their way through their current legal disputes, particularly with Apple, and move forward to try to take full advantage of the 5G transition.
Qualcomm has been a core owner of technologies and patents in wireless data and telephony for decades, making huge gains on the transitions into 3G and 4G/LTE as more and more chips were sold… and higher and higher royalties were demanded on the new smartphones that use Qualcomm’s technologies and patents. They’ve also been a punching bag several times over the past few years, first when chinese companies were dramatically underpaying on the royalties Qualcomm thought it was due, and most recently when Apple started to fight back against Qualcomm’s large per-iPhone royalty payment demands and actually stopped paying royalties (and saw word leak out that they might be moving over to Intel modems in future iPhones, slowing their speeds but cutting into Qualcomm’s dominance).
And that’s been my major qualm about Qualcomm — I bought initially because of the potentially transformative NXP Semiconductor (NXPI) acquisition, but the wide range of outcomes both from that deal (which is now dead) and from Qualcomm’s patent and other legal disputes with Apple, and pressure on costs from the Apple/Samsung phone duopoly, creates a lot of volatility for what should otherwise be, by most measures, a foundational tech stock with the best technology, a very predictable business, high profit margins, and a huge dividend (currently yields about 3.5%).
When I first bought shares of both Qualcomm and NXP Semiconductor, it was because Qualcomm should have seen a huge earnings boost if they had been able to move forward with the NXPI acquisition… but even though that deal fell apart, the per-share performance at Qualcomm is expected to improve pretty substantially because they’re putting a lot of that cash which had been earmarked for the NXPI deal to work buying back stock, instead.
And now that the NXPI deal is officially over and Qualcomm reported a strong quarter last month and pleased investors with its commitment to buybacks, and now that 5G is percolating through the market as an investable new trend, with Qualcomm’s full attention on 5G and with initial implementation from big carriers like AT&T and Verizon months away, sentiment has turned pretty positive again as we wait to see what happens in the court battles and the Apple relationship.
Qualcomm shares took a nice jump yesterday to new 52-week highs above $70, at least for a brief moment, as the company announced a $5 billion tender offer had been accepted by many shareholders at $67.50… so they’ve already made a pretty big chunk of their buyback happen. That’s not going to bring a huge immediate change, but it’s “only” a $100 billion company, so $5 billion does make a difference.
The analyst forecasts are in a pretty wide range, and they can’t really guess what the lawsuit settlements or decisions might bring over the next couple years, but they’re certainly projecting that growth will resume after a couple bad years — getting to $4.45 in earnings per share next year, and $4.99 in 2020… which means QCOM has a forward PE of just over 15. Forward PE ratio estimates for the broader market have been coming down as well, thanks to rising earnings estimates, but that’s still a discount to the S&P 500 forward PE of about 17.
So… growing dividend of 3.5%, well-positioned in a growth market, historical dominance and expertise in that market, trading at a discount to the market. That sounds good, but the reason it’s this cheap is that the legal disputes and the royalty levels with Samsung and Apple are unclear as we transition to 5G (and even to this next generation of iPhones coming soon)… and there’s a fair amount of fear that Apple is even willing to hobble its own phones just to avoid being dependent on Qualcomm, so it’s not clear that the patent owner and the technology leader is going to win over the dominant device makers — and a lack of clarity keeps people from paying high multiples for a stock.
For what it’s worth, this isn’t the first time we’ve seen a Stansberry pitch for Qualcomm — Dr. David Eifrig teased it as the “next great royalty company” in 2014 and 2015. Plenty of others have touted it along the way as well, including StreetAuthority and Blue Chip Gems back in 2016, mostly using the same basic argument that Qualcomm is like a royalty on the mobile data business and/or the “next internet.”
And, of course, though Qualcomm has been the gorilla in the room when it comes to mobile chipsets, they’re not without competition — Intel (INTC) is still trying hard to bully its way into the mobile business, including supplying modems and mobile chipsets to Apple, and the Chinese champion Huawei is a global leader that’s probably hobbled only by the fact that big companies and countries are resisting giving up 5G leadership (and intellectual property) to China, and smaller companies like Taiwan’s MediaTek (MDTKF) are also nipping at Qualcomm’s heels and competing with Qualcomm’s Snapdragon chipsets, particularly at the lower end of the market. I don’t know how it will work out, but I expect the next year or two to be quite volatile for Qualcomm, and I have enough conviction in their continuing dominance and technological leadership that I own a small position. We’ll see.
I’ve covered a few 5G teasers this summer, and it’s likely to be a market-driving trend for a few years so I expect we’ll see many more — if you’re curious about the other ideas that are getting attention, Jason Stutman was pitching a few stocks in the sector back in June, and Jeff Brown talked it up using the term “invisible fiber” in July. And, of course, if you’ve got some favorite 5G investments, I’m sure we’d all be delighted to hear about them — just use the happy little comment box below.