It’s been a while since Bryan Perry’s ideas graced the glorious pages of Stock Gumshoe — his Cash Machine newsletter has generally teased high-yielding picks in the past, but it looks like he’s downplayed the “high current yield” bit somewhat for this new teaser.
And yes, to be fair, we should note that the last time I covered a teaser for this newsletter it didn’t work out so well — about a year ago he was pitching that his secret $4 REIT would hit $8, and it instead has moved the other direction so far and hit $2.50 or so. Still has a lot of fans and still pays a big dividend, but I wouldn’t blame you for calling his prescience into question … or at least for maintaining a healthy skepticism, which would do us all well when delving into the mucky morass of facts behind most of these tempting teasers.
But still, there’s a secret stock out there … and we want to ID it for you. So what’s Perry pitching now? Here’s the intro from his ad:
“Hidden by hoopla surrounding the iPhone 4S …
“Two of the world’s most powerful CEOs — seated 5,900 miles apart — engaged in a series of secret meetings …
“Today, for the first time, I can reveal the incredible story …
“And why, if my hunch is right, you’ll be at least 36% Richer by October 2012 … plus a nice dividend check!
“Hint” It’s Not Apple.”
He then goes on to describe the fever pitch surrounding the Apple iPhone’s introduction — whether formal or not — into the Chinese marketplace, with stories of imported iPhones selling for $1,720 (that’s where the subject line of Perry’s email, and thus our headline above, came from), and of a 17-year-old boy selling a kidney to get a new iPhone. And as he says …
” … it gives you an idea what desperate Apple fans will do — regardless of price. Stories like these catch headlines.
“But you know what caught my eye?
“CNN Money reports on August 18 — China ‘Miracle Telco’ meets secretly with Steve Jobs
“I’ll bet I know the real reason why Apple delayed its launch in China…
“Steve Jobs wanted the timing to be perfect.
“Too bad he won’t be around to see his company make a Big Splash in the mother of all phone markets!
“It’s going to be MASSIVE!”
So why so exciting? The massive subscriber lists of this “miracle telco,” their huge market share, and the fact that they couldn’t support the iPhone previously. Here’s how he puts it:
“China has 952 million mobile phone users… (the U.S. has only 328 million).
“Moreover, almost 7 in 10 of these belong to a ‘miracle telco’ that — before now — never had a formal partnership with Apple.
“Why? Up until now, it made do with a homegrown TD-SCDMA network.
That’s about to change, as you’ll see…
“Even so, 9.5 million of their customers have already bought an iPhone… and happily suffer slow, dial-up speeds!
Now just think about that…
“This Miracle Telco has 600 MILLION PLUS cell phone customers today…
“Barely 1% of them — the ‘early adopters’ — already own an iPhone…
“That leaves 590 MILLION Apple Fanatics just waiting for the big announcement: that the company is finally testing a new 4G network using the international TD-LTE standard…
“At last, the iPhone will work perfectly on the miracle telco’s network!”
So this impending news — launching the iPhone 4S in China and serving it up to Apple-lusting subscribers on this biggest network — is supposed to make us rich by grabbing what Perry calls the “bargain of the century.” Here’s the catalyst he sees:
“Last month, Chairman Wang J. let the cat out of the bag. He revealed his company received a ‘positive answer from Apple.’
“Guess what? I just learned that Apple — in an unprecedented move — is working behind the scenes with the telco to verify the 4G technology works like it should.
“The smart money is betting the ink will be dry on the contracts — and the new iPhone 5 released in China — during 2012.”
So that’s the basics of the story — he gets a bit more over-the-top and calls it a “Once-in-a-lifetime gusher” and says that he’ll “never write another letter like this again” (God forbid! What would your friendly neighborhood Gumshoe do with his time if they stopped writing these letters? I don’t even know how to do macrame).
But really, what he’s doing is pitching the Chinese company that’s supposedly going to set everyone’s pants on fire with their fabulous rollout of the new iPhone next year. Here are the final clues, along with at touch more lust-inducing hyperbole:
“Either you buy shares on NYSE for under $50 a pop right now… or forget about it.
“A year from now, shares in China’s Miracle Telco could be 2x, 3x… even 10x where they are right now.
“Since I’m a natural-born conservative, I advise you to factor in a minimum 36% gain with near certainty.
“And the company’s 4.26% annual dividend?
“Consider it a gratuity for making your BEST investment of 2012!”
Phew. Maybe he’s a “natural-born conservative”, but those predictions and promises put most of the political candidates out there to shame — so what’s the pick?
Well, we toss all that into the Thinkolator, let it chew for a moment, and learn that this is … China Mobile (CHL — click here for the free trend analysis on CHL from Marketclub, one of our advertising partners)
Which, in the grand scheme of things, is pretty conservative — it’s not a fly-by-night reverse-merger Chinese fraud factory, but the state-controlled mobile phone company that dominates the China market and is, by any measure I can think of, the largest telecom company in the world with a market cap of almost $200 billion and about 625 million subscribers.
And yes, it does pay a solid dividend — the trailing yield on the semiannual payments comes in at 4.25%, and the dividend has climbed substantially over the last several years (though, as with most foreign companies, there is not necessarily the “implied promise” of a steady and growing dividend). That’s fairly low for a telecom company, and the share price has been pretty flat over the last three years, but you can certainly argue that there’s still substantial growth potential for China’s leading mobile phone network.
Are they getting the iPhone? Well, they can use it now, but yes, it seems like they’re getting closer to a “real” launch that would let the iPhone garner a substantial following in China among other than the early adopters — which might not necessarily be great news for Apple if they have to lose some margin to do so, but that’s a calculus they’ll have to make. And frankly, even if Apple sticks to just their core market of urban affluents in China, that’s a big business for them and big potential for China Mobile.
The only Chinese provider that really supports the 3G iPhone now, and is fully authorized, is China Unicom, which uses globally compatible CDMA technology for its network (the reason China Mobile doesn’t have the iPhone in the same way now is that they use a homegrown network — the Chinese government basically parceled out technologies, as I read it, giving CDMA to the smaller Unicom and forcing their flagship telecom to develop its own technology in an attempt to take some global technology leadership). China Mobile sells a lot of iPhones now, but they don’t support 3G data — they run them on an ancient 2G data network and then supplant it with a very aggressive rollout of urban wifi spots that customers can use with subsidies.
So that’s largely why China Unicom stock has done far better than China Mobile over the last year (the two stocks had generally moved in lockstep for the few years before) — they have better 3G with better phones, and they have grown their lucrative data services more quickly. Of course, China Unicom (CHU) is awfully big in its own right (market cap around $50 billion) and is also now substantially more expensive than China Mobile stock, going just from a quick glance at earnings numbers (CHU trades for 80X last year’s earnings, CHL for 10X).
So CHL is trading as you’d more or less expect a telecom to trade — low PE ratio, pretty high dividend, and instead of the massive debt load that most telecoms have you can pencil in the controlling government ownership as a factor for consideration. The government has forced CHL in the past to do things that a company focused solely on shareholder profits wouldn’t do, so there’s no guarantee that the government will let China Mobile put it’s profit margins ahead of national priorities or consumer demands in the future. That’s a general concern for any state-owned enterprise in China, and I have no specific reason to suspect that the politburo would want to capsize CHL in the near future.
There’s a good article from Bloomberg here on China Mobile’s efforts to incorporate the iPhone, and it does seem likely that they’ll have “real” access to the iPhone for their next generation network sometime next year — whether that makes this your “best investment of 2012” as Perry promotes, well, I’d call that an open question.
I own Apple shares and I’m happy to see them get a stronger presence in Chinese cities, but I also think it’s likely to be a marginal player in that market for several years if Apple tries to keep iPhone pricing reasonably close to where it is elsewhere in the world. I am more comfortable with several other foreign mobile telecom companies than I am with China Mobile (I’ve mentioned my fondness for SingTel in the past, and I also have some LEAP options on Vodafone, both of which are globally diversified mobile providers), but that doesn’t mean China Mobile can’t do quite well — it’s arguably cheap, they are developing a new network that should allow for growth in higher-margin data services, the dividend is decent, and it doesn’t necessarily need an iPhone windfall to make it a decent investment. Feel like you want to add China Mobile to your portfolio, or want to run away screaming? Let us know with a comment below.
And if you’ve tried out Perry’s Cash Machine in the past, we’d always like to hear from subscribers — you can share your thoughts with a brief review by clicking here.
Full disclosure: As noted above, I own shares of Apple and LEAP options on Vodafone, I do not own any other securities mentioned above and won’t trade in any stock I write about for at least three days after publication.