“Billion Dollar Blitzkrieg — 3 Unique Investment Opportunities” Motley Fool

By Travis Johnson, Stock Gumshoe, December 8, 2009

Today, for our sleuthing pleasure, we’ll be looking at an email ad that a good number of folks have forwarded to me in just the last couple minutes — here’s how the Motley Fool entices us to start reading …

“‘Billion Dollar Blitzkrieg’

“IT’S COMING… And it could make 2010 the most profitable year of your life — if you take advantage of the 3 unique investment opportunities revealed below before it’s too late.”

Good heavens, I hope I haven’t wasted too much time preparing my snarky comments … it might be too late already! Quick, to the tease!

“This time last year, an epic storm began brewing behind the scenes on Wall Street…

“But the financial media was too busy pumping out headlines about the second Great Depression, government bailouts, and Bernie Madoff…

“So chances are you never even heard about it.

“That’s about to change…

“Because over just the past few months, this storm has swallowed up dozens of companies and grown hundreds of billions of dollars stronger.

“Now it’s about to forever reshape some of the world’s greatest businesses — not to mention make a select few well-positioned investors obscenely wealthy.

“Which is why the world’s top hedge-fund managers, private equity specialists, and Wall Street insiders have anxiously been awaiting a signal that the big money was about to be made.

“And that signal just began flashing loud and clear.

“Now JP Morgan estimates this once-in-a-decade storm will grow into an unstoppable $2.6 TRILLION force by 2011”

This “billion dollar blitzkrieg” that they jabber about is the wave of takeovers and mergers that has already begun, and that could grow from these “first ripples” — and they said that the “alarm bells” for this “monster storm” really began blaring when Berkshire Hathaway offered a 30%+ premium for Burlington Northern.

And they think there are many more deals to come — after companies spent the past year or so battening down the hatches, building cash hoards, and cutting costs, there is now some funding available for corporate dealmaking, and a lot of acquisition targets that are still relatively cheap.

Naturally, the Motley Fool folks have identified three top targets for you to make a profit from this “blitzkrieg” — and if you’d like to subscribe to their Stock Advisor newsletter, they’d be happy to tell you all about ’em.

Or, stick with the Gumshoe and we’ll scour the clues and share the names. What are these three companies?

One at a time, friends, one at a time … here’s the first one:

“… this overlooked American brand could be their next 1,400% winner…

“Just six short weeks after David Gardner helped investors strike it rich on Marvel, he recommended they move their money into another up-and-coming company with drastically undervalued multimedia assets.

“To be fair, he originally recommended this company back in 2003 — and it’s up a solid 105% since. But as he puts it, “investing in this company is a whole new game these days.”

“And frankly, that’s a bit of an understatement.

“For one thing, this 84-year-old company has now partnered with none other than Marvel — giving it exclusive rights to manufacture some of the most profitable memorabilia tied to blockbuster Marvel movies and comics such as Iron Man and Spider-Man.

“But that’s just the tip of the iceberg.

“In David’s words, this is a company that has “reinvented itself around an iconic but underleveraged cast of characters.” And just like Marvel, this company has a whole stable of wildly popular characters that are now being made into major motion pictures.

“In fact, its two top-grossing films of 2009 brought in over $1 billion in ticket sales — pretty incredible when you consider the company is currently valued at just over twice that.

“And, of course, that $1 billion doesn’t even begin to take into account all the subsequent revenue it will see from memorabilia sales.

“You see, according to David, this company is just like Marvel in that it has ‘a deep catalog of intellectual property that can make money in lots of ways.'”

Well, it’s up in the air how old you consider this company to be — they started life as a fabric remnant firm, and the Hassenfeld Brothers became school supply magnates beginning in 1926, and started making toys in the late-1930s, even as they dominated the pencil business they created some of the first iconic heavily-marketed toys in history (Mr. Potato Head, G.I. Joe), and eventually they changed their name to Hasbro (though there’s still a Hassenfeld on the board).

So yes, it looks like this “blitzkrieg” idea is Hasbro (HAS — click here for INO’s free trend analysis of HAS stock).

And yes, Hasbro is the owner of the Marvel toy license and the maker of the Spider-Man and Iron Man toys, along with hundreds of other products (yes, still including Mr. Potato Head and G.I. Joe, as well as Sesame Street toys, Hannah Montana, Tonka, the Nickelodeon characters like Dora and the Backyardigans, the Transformers, Littlest Pet Shop, Monopoly, etc. … you get the idea).

And they did release two movies this year, with massive ticket sales — Transformers and G.I. Joe, and they have a studio deal to release more movies in the future (Monopoly is one, being developed by Ridley Scott … I cannot picture this, though I’d be delighted to see Hank Paulson playing the little bald man with the tuxedo and mustache; others might be based on the Ouija board, Candy Land, Stretch Armstrong … yes, they all sound stupid, but far stupider things have made millions). So a toy is licensed as a movie character, bringing in licensing fees and further spurring … toy sales. That’s a nice little circle.

Hasbro has certainly been through some boom and bust cycles over the past several decades, but they do have a big stable of characters and they seem to be in fine financial shape — revenue dipped a bit during the “great recession” so far, but they don’t carry a huge amount of debt and they’re valued at about 15 times earnings — and it’s possible, as David Gardner notes, that they’re being valued as “just” a toy company with decent margins, not as the owner of these valuable brands that they can leverage into movies, etc. It’s also possible that the movies will flop, of course, or that they will misread the trends and release a lot of the wrong crappy toys at the wrong time — I expect the shares will have a good chance of moving based on their final reports of how the Christmas season went, but we won’t know that for another couple months.

The shares have been lagging behind the market for the last year or so, not recovering as dramatically as most, but they do look to be at least reasonably priced — if you believe they’ve got growth and “value extraction” ahead, using their “iconic characters”, this is probably a fair price to pay. That presupposes that they’ll return to growth, which will probably depend to a large degree on the economy and how much of a bounceback they get in sales over the next month following a somewhat disappointing year for kid-driven consumption.

If my children have anything to do with it, the world will soon be fully carpeted with Dora and Diego and Spider-Man, and Hasbro will probably be a billionaire-maker. Whether or not someone will eagerly snap them up in an acquisition is another matter, of course — it’s a little hard to picture one of the big entertainment companies making this bit an acquisition of a toy company, and the only other big U.S. publicly-traded big toy company out there is Mattel, which has a market cap of about $7 billion (Hasbro is around $4 billion), so theoretically they could buy them, though I don’t know if the Justice Department wants Barbi and Dora under one roof (other big toy companies include Namco Bandai in Japan, which is largely focused on video games and would be an odd fit; or the privately held Lego, and it’s hard to see that family business as a bit acquirer).

I might consider this as a reasonably valued stock, maybe even an undervalued one if they can leverage their intellectual property and do more outlicensing of their own characters … but it’s hard for me to picture it alongside the word “blitzkrieg” without cracking a smile.

So … on to the second “blitzkrieg” idea?

This one is a tech company — here’s the tease:

“The tech buyout craze already handed Stock Advisor members a quick 62% gain — but the next deal promises to be much bigger

“Back on June 29, I sent a group of investors like you an invitation much like this one that included the details of David and Tom Gardner’s two top technology stocks.

“At the time, David’s top pick — a small business analytics firm called Omniture — was selling for $13.28.

“Less than three months later, Adobe Systems offered to buy Omniture for $21.50 — meaning those investors who had accepted our invitation and followed David’s advice were treated to 62% gains in less than 90 days.

“Meanwhile, those who bought Tom’s top pick are up an impressive 34% — and truth be told, it looks like it’s just a matter of time before it gets an offer, too….

“Like Omniture, this company is the absolute top in its field…

“And as Barron’s puts it, there is “an intense battle among enterprise-technology behemoths such as HP, Cisco, IBM, Oracle and Dell to become one-stop shops for all the items that make data centers.”

“No wonder TheStreet.com calls this company’s specialty ‘one of 2010’s hottest technologies.’

“Steve Mills, IBM’s senior vice president of software, explains, “It’s a market space that is growing substantially faster than other market areas.”

“Which is why IBM has spent $9 billion on acquisitions to build its capabilities in this field since 2005.

“And you better believe that IBM now has this company in its sights — because when it comes to this niche industry, this little company is the absolute king.

“It already counts Wal-Mart, Coca-Cola, Home Depot, Continental Airlines, and Royal Bank of Canada among its top clients.

“… it has zero debt, nearly $4 a share in cash, a 10% free cash-flow yield, and returns on invested capital north of 30%….

“… Tom Gardner is urging investors to begin building a position right away…”

OK, so this one might sound a little familiar if you were a loyal Stock Gumshoe reader over the Summer — I did indeed write about this ad campaign, when they teased the “two titans of business intelligence” back in July, revealing Omniture for you, of course, but also telling you that Tom Gardner’s stock was … and sounds like it still is …

Teradata Corp (TDC — free INO trend analysis here)

This is a company credited by the FT as the “pioneer” of business intelligence, a supercomputer data crunching and storage firm. And who knows, maybe they will be a takeover target — they’re not that tiny, with a $5 billion market cap, but in the tech business there are plenty of gigantor firms that could pay cash for a $5 billion company without even checking under the couch cushions. They are not cheap or growing (as of this last quarter), but they do have a fair amount of cash on the books (just over $4 a share, in fact) and no debt, and the stock has been going up since Gardner recommended them. If you’d like to see what I wrote about these companies back in July, click here for that business intelligence story.

And the final company for our “blitzkrieg?”

“How long before this cutting-edge energy company gets bought out? You be the judge…

“While the energy sector hasn’t seen as much M&A activity as other industries yet, I think it may well be where we end up seeing the biggest buyouts. And, from the looks of it, the “pros” on Wall Street agree…

“Bloomberg reports that ‘China will boost spending on oil and mining acquisitions by at least half this year.’…

“And what better way for these Asian powerhouses to expand their reach than by buying a company that specializes in drilling in the world’s most profitable — and hard to reach — oil fields…

“This stock has a lit fuse — and a wide-open sky above

“On September 8, I sent investors another invitation to join Stock Advisor. This one revealed the story behind David Gardner’s top energy stock.

“At the time the stock was selling for around $29.

“Recently it traded north of $40 — meaning those who took advantage of my offer are already up a quick 35%.

“But frankly, that’s peanuts compared to the gains we could see once billion dollar blitzkrieg begins to hit the energy market.

“Let me explain…

“Only a handful of highly specialized companies have the state-of-the-art technology, the specialized skills, and the artful know-how needed to tap the world’s next great oil fields.

“That’s because these fields are located in some of the most hard-to-reach places in the world — hundreds of miles offshore and thousands of feet below the ocean’s surface….

“And the final company I’m writing you about today not only specializes in offshore drilling — it’s better positioned than all the rest…

“In fact, it has rigs located in some of the most remote — and profitable — places on Earth…

“One drills to depths of more than 20,000 feet off the coast of Equatorial Guinea.
“Another will soon start drilling off the coast of Ghana — earning this company as much as $538,000 per day.
“Yet another drills in the waters off Malaysia and has been booked by Shell Oil through August 2011.”

This one, too, might sound familiar — yes, the Motley Fool sent out an “invitation” talking about this company on September 8, and your friendly neighborhood Stock Gumshoe revealed the name for you on September 10 … this is Atwood Oceanics (ATW — free MarketClub trend analysis here).

It did get a hair above $40 recently, but is now trading for around $35, these deep-water drillers tend to move quite a bit based on oil prices, since their future profitability is determined by whether or not oil companies can (or want to) produce the “expensive” oil that’s far under the ocean surface. Of course, most of these firms, like Transocean, Pride, Atwood or, my favorite, Seadrill, have been locking up most of their super-capable rigs at high rates many years out into the future, but they still trade largely on sentiment about future oil prices.

I don’t have any special wisdom to impart about Atwood that I haven’t already shared — here’s the article I wrote in September, when David Gardner told us this was the “one company you mus buy before oil prices soar.” As a general matter, they’ve historically been significantly more conservative than many of the other deep-water drillers, and they rely on some old and refurbished rigs that aren’t quite as capable as the newest rigs (but were much less expensive, and get similarly good rates when demand is high).

If Atwood is going to be a takeover target, however, it’s hard for me to imagine why the big Chinese or Korean oil and gas companies would be the acquirers — their rigs are mostly locked up on contracts, and they don’t own any of the actual oil and gas, which is what Korea and China are desperately looking to buy. If China wants to get rigs they’ve got the money to hire them like anyone else, what they’ve been aggressively looking to take over lately, it seems to me, are the actual commodity reserves — the oil, not the oil drilling contractor.

It’s always possible that they could be bought out, of course, even by a big Chinese oil company, but I’d suspect that a buyout by another driller would be more likely — Atwood is much smaller than Transocean, Diamond Offshore, Pride or Seadrill, the major offshore deep water drillers, and it could even be a way for other oil service companies to diversify (like Nabors, or Ensco, for example). All of those would make more sense to me than a big Korean or Chinese acquisition, though, as I said, anything is certainly possible.

So what do you think? Want to line up in front of this “Blitzkrieg,” or do you otherwise like or unlike any of these stocks? Feel free to share your thoughts with a comment below — or, of course, let us know if you have a better idea for a stock in the path of the takeover blitzkrieg.

And if you’ve ever subscribed to any of the Motley Fool’s newsletters, or want to see what other folks thought of them, click here to read or contribute to the subscriber reviews. Thanks!

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8 Comments on "“Billion Dollar Blitzkrieg — 3 Unique Investment Opportunities” Motley Fool"

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Bob Adams
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Bob Adams
December 8, 2009 1:44 pm
Thank you for uncovering Motley Fool’s teasers. I have received their emails and enjoy some of their stories. The writer Morgan Housel has an nice flair. I have not enjoyed all of their sales pitches and hype to buy this, subscribe to that. It seems that every other month you should be buying this particular service and shuffle your investments from here to there. I am more of a John Bogle type and in fact have most of my investments in Vanguard. His point of trading costs eating away returns seems oblivious to MF. Your letters are refreshing to uncover… Read more »
Mexx
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Mexx
December 8, 2009 4:15 pm
Bob, Agree with your comment about the Fool’s email blasts. I am pretty sick of them too. I recently canceled Hidden Gems and Motley Fool Options for which I am in the process of drafting a couple of reviews for StockGumshoe. On the issue of trading costs, I recently switch to Wells Trade (Wells Fargo’s brokerage). You get 100 trades a year per account if you have more than $25k in combined assets with them and you tie a PMA checking a/c with your accounts. I have 3 accts (2 IRAs and 1 regular brokerage). I essentially get 300 trades… Read more »
Mark
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Mark
December 9, 2009 12:09 pm

Bob,

Thanks for the insight on Wells Trade. I’m not much of a trader, in fact, just getting into it, after reading for years. This may be what I’m looking for. I’m intersted in your thoughts on MF Options, for I was almost ready to subscribe.

Norma Robella
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Norma Robella
December 9, 2009 1:53 pm

If you are sick of Motley Fool’s teasers stay away from Agora Financial.

I’m bombarded everyday with several “must invest now, this minute” type of promotions and am going crazy.

Do they think we are idiots or do these teasers work well enough for them to get rich and us to be left holding some kind of bag full of nothing if we actually follow them?

I’m so fed up!

And grateful for Stock Gumshoe!

Thanks for letting me vent and sorry if I’m off the topic. It’s so frustrating!

Mason Hamilton
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Mason Hamilton
December 9, 2009 2:29 pm
No they don’t “think we are idiots.” They know we are. They have the subscription lists and a profitable business models to prove it. There is no amount of logic that would justify someone with significant investment insights to sell them, unless the value of their “information sales” exceeds the value of them acting on their own investment advice. If their advice was significant they would be investing with it – not selling it. Unless that is – they are taking their own positions, before providing the advice that would “up” the price of their earlier investments positions. Welcome to… Read more »
Debra
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Debra
February 27, 2010 12:34 pm

I read Motley’s “blasts” and then go to Gumshoe to find the answer and other info about them. I don’t subscribe to Motley, no need to with Gumshoe’s great detective work! Thanks Gumshoe staff!

joseph
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joseph
August 14, 2010 10:40 am

I see Motley as just another penny stock carnival barker. Use them as entertainment, take a quick look at their advice, and as always, do your own research.

Norma Robella
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Norma Robella
December 10, 2009 2:16 pm

Thanks, Mason. I was secretly hoping I was wrong — but I not-so-secretly know I was right to be very suspicious.

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