“Illegal for Every American Investor – UNTIL NOW”

By Travis Johnson, Stock Gumshoe, November 14, 2008

This ad comes in from the good folks at Breakaway Investor, which has jettisoned its old editor and is now run by Christian DeHaemer. Breakaway Investor under Andrew Mickey was extremely active in the teaser game, sending out email ads very aggressively, and it appears that’s not likely to change.

Here’s the intro:

“As I write this note, several newspapers sit in front of me with headlines proclaiming that India, once the fastest growing economy in the world, is coming to a standstill.

“But that is simply not true. As you will soon see, there are pockets of hidden growth throughout India. Take automobiles, for example. With annual domestic sales of a little over 1.2 million, India is the world’s 10th largest car market and second fastest growing.”

So yes, this is all about investing in India. And the sales pitch comes with the good ‘ol guarantee that this stock will double:

“This super-safe $4.50 stock is the sleeping giant of India. Most U.S. investors think they can’t buy it, but they’re wrong.

“I guarantee it’ll post a triple-digit gain in 12 months… or your money back! (Over the next five years, you could see 10 times that amount… maybe more)”


Of course, the “guarantee” is that you’ll get back the money that you spent to subscribe to the newsletter, not any money you might have sunk into a bad investment (not that this one is necessarily bad).

So what is the company this time?

A few clues:

“You won’t find anything like this on the Dow, S&P or Nasdaq. In fact, Wall Street’s not even aware that this opportunity exists.

“What I’m about to share with you is a chance to own ‘the sleeping giant of India.’ Through a secret backdoor, you can own this stock for only $4.50 a share.”

Sound familiar? It might, if you’ve been treading the hallowed halls of Gumshoe University for the past year — this company has been heavily teased twice this year, at much higher prices (of course, almost every stock that has been touted by anyone at any time in the past year is now cheaper, no surprise there).

And actually, Christian DeHaemer is just recycling an old idea … and an old letter. He used an extremely similar ad about the “sleeping giant of India” in late March, a few weeks after Chris Mayer used a fairly similar argument about investing in the “Golden Quadrilateral.

And the “secret backdoor” bit is still quite misleading. The big argument in the ad is that there is a dominant company in India that has its fingers in every important pot … here’s an excerpt:

“… this company provides everything an emerging nation needs gas, oil, copper, cars, trucks, buses, steel, construction equipment, engineering, computer services, electric power, Internet, telecommunications, tourism, retail stores, food stores, food processing and more.

“Here’s what makes this company such a great investment:

“Its motors division is India’s only fully integrated automobile company – with a whopping 60% market share. Seven out of ten medium and heavy commercial vehicles are Indian. 2008 fiscal year revenues: $6 billion.

“Its steel division has the lowest cost of steel producers on the planet. World Steel Dynamics ranked them #1 in the world. 2008 fiscal year revenues: $32.8 billion.

“Its tea segment is the world’s second-largest global-branded tea operation. 2008 fiscal year revenues: $915 million.

“Its IT unit is the leading broadband Internet service provider in India. According to IDC (a premier global market intelligence firm), the IT market in India is expected to hit $65 billion by 2009. 2008 fiscal year revenues: $372 million.

“When you add up the 2008 fiscal year revenue for all 98 of this global powerhouse’s listed and unlisted companies, it comes in at a whopping $63 billion – equivalent to more than 6.3% of India’s entire gross domestic product!”

So what is this massive company? It’s the Tata Group. But the group is not something you can easily invest in, much of it is private and all of it is family controlled.

What you can invest in is the subsidiary that is being teased here: Tata Motors (TTM)

And no, buying the subsidiary does not give you a piece of the massive Tata conglomerate, at least not in any big way — there are lots of interrelationships among the Tata family of companies, and plenty of cross-ownership, but Tata Motors, as far as individual investors are concerned, is really just a car and truck company that happens to be controlled by one of the big Indian conglomerates.

And we’ll pause for a moment so you can guess whether Christian DeHaemer was promising a 12-month double back in March. Yes, you in the back … very good! Yes, he was promising exactly the same kind of returns.

Of course, the share price was about $15 at the time, so in order to reach that promise you’d have to see the shares go up 600-700% before March 7 of next year (the price is now $4.25). Possible, perhaps, but less than likely. A 100% gain to $8 or so, as “re-promised” now, is certainly more achievable than that, though I imagine such returns would provide little salve for the buyers who picked it up in March. So if you got hooked into subsribing to Material Profits back in March, you’ll have a chance to get your money back, if you like, if the shares fail to get to $30. Of course, almost no one ever asks for their money back, which is why making such a guarantee is a very effective strategy for so many publishers.

And yes, at $15 he was also calling this one “super-safe.”

So what’s up with Tata Motors? Is it worth looking at now that the shares are so very, very low?

Well, they are a huge automobile and truck manufacturer in India, they have several nameplates for personal vehicles as well as for commercial trucks and buses, and they both sell into the Indian market and export their low cost vehicles to other developing countries. Though they are best known for developing the “Nano”, which is supposed to revolutionize car ownership and bring four wheeledy conveyances to the masses (it costs about $2,000), about 2/3 of their revenue (and all of their profits) currently come from the commercial side.

And the mass production of the Nano appears to be a bit delayed — after just about completing their big new factory, political fighting caused them to pack up and move to a different Indian state. If you’re curious about this story, there was an interesting column in Forbes last month about the problems Tata Motors has faced in trying to build its new factory, which brings to mind many of the bureaucratic and political challenges of operating in India, even for a well-respected and well-connected leader like Ratan Tata.

Other bad news? Last quarter their earnings were down 34%, manufacturing in India in general has dropped, and, as I noted back in March when I last wrote about these guys, their attempt to enter the big time by buying Jaguar and Land Rover is going to continue to be expensive and, in this economy, seems unlikely to be a big help to the bottom line in the coming couple years — those old lions of British industry just announced more layoffs last week. Add on the fact that they had a rights offering recently, (in part to pay for that acquisition), and no one wanted to buy the shares, and it’s no big surprise that the stock is going down. (For that rights offering, the parent Tata Group had to step in and buy many of the shares, and the underwriter was stuck with a big pile of them, too).

Demand is pretty clearly dropping for their profitable heavy trucks, too, as they’ve recently forced some truck plants to nap for a bit … here’s an excerpt from an FT article from last weekend:

“Abdul Majeed, head of India automotive practice at PwC, said the country’s heavy truck industry – the backbone of its transport system – was facing its most difficult period in more than a decade. He warned: ‘Finance costs are very high, infrastructure construction is slowing, manufacturing is slowing, the economy is slowing.'”

The good news? In theory, that new Nano factory will be up and running next year, and maybe if they keep their jobs all those emerging members of the middle class will upgrade from scooters to cars. Don’t know if that will really happen in a hurry with the big move or not, but I suppose it’s possible, even if maybe they don’t put a quarter million of these cars on the road immediately as they had originally planned.

And the company is, so far, cheap and profitable. Trailing PE ratio is about 3, and the forward estimates are about the same — analysts may be a bit too optimistic about these guys, given the uncertainties of the near future, but at least one analyst (who has certainly studied the company more closely than I) sees them earnings $1.23 next year. If they can do that, paying $4 for the shares certainly doesn’t seem crazy. If.

And they’ve also paid a dividend (once per year, in the summer) in each of the past four years — this year the dividend was 35 cents per share, so that’s better than an 8% yield if they’re able to continue paying similar dividends in the future. Yes, that was another “if.”

In the bigger picture India, despite its bureaucratic problems, its wildly inadequate infrastructure, and the persisting unrest that’s brought by extreme poverty mixed with democracy and a bitter colonial legacy, remains possibly the most promising long-term grower in the world — they have that rare advantage of entering the industrial age at a time when they are demographically in excellent shape. India is much, much younger than China and should, one hopes, be able to grow as it puts its growing workforce to, well, work. That doesn’t mean the near future is necessarily bright, just that I think the big picture allows for the India of 2020 to be one of the leading growth economies of the world.

If you like the idea of India but don’t particularly like Tata Motors, there are a few ETFs available now that have come online in the last year or so — Powershares India is a fairly standard ETF that attempts to mimic an Indian index (ticker PIN), and WisdomTree has an ETF that is weighted by company earnings, not size (EPI). Neither of those ETFs includes Tata Motors among its top ten holdings. And you can also buy shares of some other Indian companies as ADRs, including, among many others, the big IT services outsourcing companies like WiPro (WIT) and Infosys (INFY), or the private banks ICICI (IBN) and HDFC (HDB).

And if you don’t like the idea of anything at the moment, well, it’s hard to blame you. Have a great weekend!

full disclosure: I did own shares of HDB the last time I wrote about Indian stocks, but have since sold them. I own no other stocks or investments mentioned above.


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21 Comments on "“Illegal for Every American Investor – UNTIL NOW”"

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Elissa Stein
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Elissa Stein
November 14, 2008 11:51 am
Travis- Just a note about your trip to Costco- while you were out, my Nasdaq 2x inverse etf investment rubber-banded from $81 to $89+ and then back down to $71. Please, let us all know next time you go shopping, so we can reset our stops! (lol) Personally, I think it is too early to contemplate India investments. No bottom yet in sight, and probably, for emerging markets, I think it is safer to contemplate a closed end fund or ETF for sector diversification. Even those do not really offer a broad spectrum of the Indian market. The companies are… Read more »
gmcg
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gmcg
November 14, 2008 12:42 pm

Oh, Gumshoe, you are teaching me well! Yesterday (Thursday) I got the DeHaemer email and all by myself I figured out it was Tata Motors! Great to get your newsletter today (Friday)confirming that I continue to learn from you. Thanks! You are a source of information far beyond any other analyst — and I love your tongue-in-cheek approach. For those of you not yet Irregulars it is worth contributing the pittance required to become one and to support Gumshoe’s efforts on behalf of investors who might be taken in by the hype of financial “newsletters”.

Robert Ward
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November 14, 2008 1:20 pm
Thanks for the reminder on TATA Group, we’ve been watching TTM for two years and they may be a good buy at $2.50-$3.50 if they get their new plant operational. I am still looking for the “Untapped Wealth” teaser company for the WiMax network company. Entitled “WiMax: Transforming the economic landscape…and forming a new breed of millionaires” you don’t want to pay a penny more than you have to. Everything is in place for instant market penetration What’s even more exciting than WiMax’s ability to allow billions of people to connect wirelessly from even the most remote of locations is… Read more »
FarmerRon
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November 14, 2008 11:16 pm

OK, I’m stuck in the frozen tundra. What is an ADR? Thank you for your understanding.

An Old Guy in Northern Virginia
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November 15, 2008 11:14 am
The following is out of the 15 Nov “S&A, The Growth Stock Wire (free mass mailing e-mail) “I ran a screen for all U.S. stocks trading at or below 10 times enterprise value (market cap + debt – cash) to EBITDA (earnings before interest, taxes, depreciation, and amortization). EV to EBITDA estimates “takeover value,” or what you’d pony up to buy an entire firm, and a 10 multiple is pretty cheap. Currently, 2,424 companies in the U.S. meet the criteria. You may recognize some of the names: ExxonMobil, Wal-Mart, Microsoft, Johnson & Johnson, Verizon, Intel, McDonald’s… the list goes on.”… Read more »
Myron Martin
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Myron Martin
November 15, 2008 11:40 am
Travis: I think it borders on FRAUD to imply that you can tap into all the profitable sectors the Tata group is involved in when you are touting only ONE of their companies. I figured out all by myself that this teaser back in March had to be the Tata group and was eagerly looking forward to finding out HOW to tap into the Indian market using the Tata empire as a proxy! Like so many teasers from ALL the major financial publishers, but the Agora group in particular, they are becoming more and more outrageous in their claims, and… Read more »
Jacqueline
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Jacqueline
November 16, 2008 6:59 am
Since DeHaemer has traveled to India, he knows the very best ways to invest in its future growth. Unfortunately, India does not allow foreign investors to buy and sell its stocks. For that very reason, 99% of US investors don�t even consider investing in India – simply because they think it�s impossible. But according to Chris, there�s a secret loophole that allows you to invest in the best company in India. When pressed him for more, he would only say that investing in India is �illegal for every American investor – until now.� Speaking off the record, he told me… Read more »
who noze
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November 16, 2008 10:05 am

unfortunately india doesnt have too many decent roads the govt is committed to 32 b to provide roads tata building a plant in poland also agora picks have led to my disaster [ i lingered to long]

GuppyTrader
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GuppyTrader
November 16, 2008 12:20 pm
I am not alone but I am down over 45% in my retirement portfolio. It is largely because of my foolishness as a trader/invester but half of that loss followed the initial failed $700B bailout vote. I need help. You appear to be one of the few honest stock “analysts” and I would like to hear your opinion of 1)will there be a rally or a total crash in 2009. 2)Is there a truly reliable newsletter out there that is worth the money? and 3)What are your thoughts on gold and silver investment? Thanks for your honesty – regards
praveen
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praveen
February 5, 2010 2:53 pm

Gum Shoe,

Apparently you were wron in this, coz tata actually made it to $17

Thanks,

luckystar1990
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luckystar1990
October 8, 2010 1:05 am

Tata was the pick? Or wrong to be cautious? I don't think I said it couldn't double, but did want to note that a double was also promised when it was at $15 … lots more fans of the stock now, though at these prices I can't help but still being trepidatious — should have jumped on

Gravity Switch
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November 14, 2008 1:29 pm
Pretty sure this is almost exactly the same ad they were sending out in April of 07 — I wrote about it then, they’ve been touting Clearwire (CLWR) for quite a while now. Down about 60% since then. It could be that they’ve moved on to a different WiMax company, but I’d doubt it. And of course, Clearwire is a different company now than it was, with the merger with Sprint’s WiMax unit. Here’s what I wrote about them 18 months ago: http://www.stockgumshoe.com/2007/04/golden-egg-wimax-ushers-in-new-gilded.html My biggest concern about CLWR these days? How on earth are they going to be able to… Read more »
Igor S
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November 16, 2008 8:25 am

i am sorry but forget wimax
as investors only know what HYPE has been sold to raise the money
wimax has less throughput than wifi
it has 70% less distance than wifi
but on paper the intel chipset
says its better but all have been failures
and every client need buy a custom card, different RF for different areas, non interchangeable
then cpe for client 600 usd each
even for laptop need $600 card
each AP group of 3 per tower is $85k per tower
versus wifi at $6500 per tower
i think all companies with wimax fail
all have stopped after pilot project

tt tan
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tt tan
November 14, 2008 11:13 pm

sorry I have no comments on CLWR. Not started yet
with e-trades. tt

aem
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aem
November 15, 2008 4:57 am
Definitions of American Depositary Receipt on the Web: Certificate issued by US banks to facilitate trading for US shareholders in the shares of non-US companies. http://www.nationalexpressgroup.com/nx1/investor/share_services/industry_glossary/inv_terms/ A security, created by a US bank, that evidences ownership to a specified number of shares of a foreign security held in a depositary in the issuing company’s country of domicile. The certificate, transfer, and settlement practices for ADRs are identical to those for US securities. … http://www.whitepacific.com/help/glossary.htm a security issued by a US bank in place of the foreign shares held in trust by that bank, thereby facilitating the trading of foreign shares… Read more »
farley 5
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farley 5
November 15, 2008 12:47 pm
My family hides from the revenue’rs in Gore. I am not a CPA. Earnings are not earnings if you DON’T deduct interest, taxes, depreciation, and amoritzation. Interest and taxes are real costs and should be deducted. Equipment wears out and should be depreciated and ammortised. Second, CPA’s will ask the company, “What do you want your earnings to be”? Then they work their magic. Investors need an indicator other than above. MSFT, XOM, GE, et al have been awful investments over the last eight years. Some folks have luck with deep value stocks. I avoid them.
Gravity Switch
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November 15, 2008 4:00 pm
I agree that you should think about earnings, regardless of how much they can be manipulated, but there are certainly also good reasons to look at EV/EBITDA calculations, and at free cash flow, when you’re valuing a company. Some people say that EV/EBITDA is a way of looking at a company more like a private buyer would, because it considers how much is sunk into the company and how much cash the business can generate from that investment before considering things like taxes and depreciation that can vary widely for a number of reasons. I think it’s useful to use… Read more »
Gravity Switch
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November 16, 2008 8:36 pm
Thanks Guppy. Honesty requires me to state that I really have absolutely no idea what the market will bring, next month or next year. I tend to be an optimist, which is probably why I think we’re going to muddle through the current mess for a year or two, then return to some semblance of normalcy. Hopefully with less leverage all around, which could mean significantly lower returns for the average stock, all else being equal. I think we’ve had the total crash, personally, and at some point a big flood of money is going to hit the markets and… Read more »
Cameron
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Cameron
November 24, 2008 11:13 pm

Gumshoe–Interesting that you endorse the Dick Davis digest. In looking through some of his top newsletter picks, I see he reviews the Porter Stansberry Advisory Letter and a few others that you have panned and that have gotten scathing reviews in other forums (esp. Stansberry). Any idea whether he is truly independent or has ties to some of the letters he evaluates?

Gravity Switch
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November 25, 2008 9:33 am
Dick Davis is published by a company (Cabot) that also publishes other newsletters, and I have no idea what financial ties to other newsletters he may have. I wouldn’t endorse his ability to choose the best newsletters, I just think they put together a very good digest. Just like Readers Digest, they republish interesting articles, comments, and picks from a variety of newsletters every month, which is a good way to expose yourself to a large number of newsletters at low cost and see if anyone’s picks or “voice” seems to match up with your needs — that’s why I… Read more »
Gravity Switch
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February 5, 2010 3:05 pm

Wrong that Tata was the pick? Or wrong to be cautious? I don’t think I said it couldn’t double, but did want to note that a double was also promised when it was at $15 … lots more fans of the stock now, though at these prices I can’t help but still being trepidatious — should have jumped on it at $4, of course, but my rearview mirror always works better than my windshield.

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