James Altucher seems to me a great example of the truism that attention flows to unconventional thinkers. He always strikes me as a nut, his promotions are wildly over-the-top and persistent enough to give me headaches (there was a fun profile of him in Inc. during the first Bitcoin bubble, when he became a self-professed crypto guru and his ads were everywhere), and he cultivates a “crazy guy” look.
This isn’t at all a new thing in the world of financial publishing — every publisher and pundit has no doubt learned by now that extreme statements and hyperbole are what get attention… really, it’s not so different from politics or other parts of the celebrity world: copywriters and marketers know that the worst possible outcome is being ignored, so almost everyone in the business cultivates a strong (and often combative) personality in their marketing pitches, makes extreme claims, and pushes the envelope as far as the lawyers will allow helps to make sure they get the attention of possible customers. And no, I have no idea whether Altucher’s persona is genuine or an act of performance art (he’s been the same for decades, as far as I can tell, so I assume it’s genuine).
Does that mean the investment ideas these pundit personalities pursue are hooey? Not necessarily, we just have to make sure to separate the message from the messenger. And separate facts from hype, as much as we can.
So I decided to take a look at another Altucher pitch today, this one’s about the same satellite internet theme that has been mined by many pundits over the past couple years, inspired by the big investments made by first OneWeb and then SpaceX and Amazon and Telesat in building large low earth orbit (LEO) satellite constellations to provide internet access to those who can’t get conventional broadband (airplanes, ships, rural areas, etc.).
Most of these pitches, like those from Lou Basenese for Gilat and C-Com in recent months, have highlighted the SpaceX connection — which makes sense, Elon Musk is the most intensely-followed investing celebrity in the world (as we saw earlier this week, when a few tweets from Musk about Tesla’s Bitcoin position caused 30%+ swings in the prices of that and other cryptocurrencies).
Altucher, however, aims at what is arguably the number two celebrity in the space race, Jeff Bezos, and ties his hype to that slightly less brilliant star… here’s the lead-in to the ad:
“On May 26, Jeff Bezos’s Latest Technology will be the talking point at a global event as it could well be the… Ultimate 5G Killer
“On May 26, the Amazon team will usher in a disruptive tech that could bankrupt cellular providers like Verizon, AT&T, T-Mobile. This tech also opens up a unique investment opportunity that could help everyday investors double, 10X, even 20X their money over the long haul….
“Grab the early-mover advantage before the May 26 global announcement”
You’re probably already familiar with Musk’s SpaceX, and with the Starlink satellite constellation they’re building to provide rural areas with broadband internet — that service is already available to beta testers, who are paying $500 for equipment and $100 a month for broadband (Starlink calls the current offering “better than nothing”, to be clear about where expectations are set right now, and it will change quite a bit as thousands more satellites are launched and as the network becomes congested with more signups, but customers seem pretty happy so far).
Amazon’s project is a little bit less well-known, but is similar — it’s called Project Kuiper, and, unlike SpaceX, Amazon has some strong strategic reasons to build and subsidize the service… getting more people onto the internet, and more Prime members, is worth some investment. Whether it’s worth launching a satellite constellation or not, well, we won’t find out for a long time — but Elon Musk and Jeff Bezos both clearly think that building a better space-based internet service is worth the cost (and seem to think it’s worth fighting each other, too). The multi-billion-dollar cost of launching these services may not mean much to either SpaceX or Amazon at the moment, SpaceX is setting billions of dollars on fire in lots of different ways and Amazon is big enough to absorb almost any capital investment, but I expect that both Musk and Bezos have a much clearer vision of the future than I do.
Amazon has publicly committed $10 billion to Kuiper, and built a new headquarters for the project in Redmond, WA as they prepare to get their satellite design finalized and their constellation launched over the next few years. SpaceX’s Starlink is planning 12,000 satellites and has launched 1,300 so far to power the beta service, they’re clearly in the lead. Kuiper’s satellites will be larger and fewer, they have some rockets ordered (enough to launch maybe 500 satellites), but don’t have any launch dates yet, and they’re working against an FCC deadline that means they have to launch half of their planned 3,300 satellites by 2026.
So we at least know that it will be an interesting few years as these projects and others move forward… and with that as our backdrop, what’s Altucher pitching? He calls Project Kuiper “StarNet” for some reason, and he hints at two stocks in his teaser ad… these are the clues for the first one:
“‘StarNet’ Opportunity #1….
“The first opportunity I’ve found is a manufacturing company based out of California—
“And while few people know this company’s name—
“It solves one of the biggest challenges companies like Amazon face when launching satellites.”
And this is some kind of component supplier, it appears…
“‘StarNet’ requires Amazon to launch around 3,236 satellites into space.
“In order to do this — Amazon has to equip each of these satellites with space specific infrastructure and components…
“Specifically — radiation hardened components….
“Very few companies make these parts….Are you getting our free Daily Update
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“I’ve uncovered one tiny company that not only makes these specialized components….
“I believe it’s positioned perfectly to swoop in and make an absolute fortune off it.”
“… this company is a relatively small company compared to Amazon….”
Um, so is pretty much everybody. Anything else?
“… this company is no stranger to Amazon…
“They already have a contract with Amazon Web Services to be their Advanced Technology Partner to provide specialized high-end security…
“As Amazon scales out its satellites production…
“This company is positioned perfectly to grab the lion’s share of that $1 billion business… just for the satellite components alone.”
OK, what else?
“They already have massive contracts with some of the biggest companies involved in the space industry…
“We’re talking major player like Airbus, Boeing, the US Government –
“All of them rely on components and systems made by this company.”
And apparently it’s a company that only recently became investable…
“When I first heard about this company, it was private—
“Only available to top hedge funds like Vanguard, Boston Asset Management, and the Renaissance Group….
“But this year this small company went public…
“And guess what?
“Its value doubled in less than 100 days.
“Now, the doors are wide open for ordinary investors like you and me to jump in and get a share of the ever-growing pie.”
There are plenty of large semiconductor and aerospace companies that make radiation-hardened equipment for space and for satellites, including Microchip Technology (MCHP), a pretty big semiconductor company that Paul Mampilly pitched for that connection back in January and which might reasonably be a solid fit here. The California connection is there, the existing partnership with Amazon Web Services fits, too, and they do already worth with Boeing and Airbus, as teased… it’s the “recently became investable” bit that doesn’t fit very well.
Can we make it fit? Maybe, if we assume that they’re being a little imprecise with their language. Altucher has been using similar teaser language about the company “becoming investable this year” since at least December (the ad carries a December 2020 date still), so we could say that “this year” means 2020, but even that is a little bit of a stretch for Microchip. The way it almost matches is if we think about the tease being of the aerospace chip supplier Microsemi, which does indeed boast radiation-hardened equipment as one of its specialties… but that acquisition was finalized in 2018, so, again, not a great match. The stock has doubled since that deal closed, though it had not done so by December so it’s an imperfect match on that clue as well.
Microchip is also nowhere near being a “pure play” space idea, appealing as it might be for other reasons… does anything else fit?
Not quite as well. The companies I’ve noticed that became “investable” in 2020, and that might reasonably be considered as possible beneficiaries of the Musk/Bezos satellite wars, include Blue Canyon (bought by Raytheon (RTX)), Sinclair Interplanetary (bought by Rocket Lab, which itself is coming public via a merger with the Vector Acquisition SPAC (VACQ)), Spaceflight Inc. (bought by Mitsui & co)… and late in 2020 there was a SPAC merger announcement for Momentus Space (with Stable Road Acquisition (SRAC)) that doubled that SPAC’s share price for a couple months. The most interesting “pure play” space components investment I’ve noticed is coming public this year through a SPAC merger, that’s RedWire merging into Genesis Park (GNPK). That is a better thematic idea than Microchip, mostly just because it’s really a “pure play” rollup of small space component makers, but the deal was announced well after Altucher’s pitch started circulating and it doesn’t match the other clues.
So we’ll stick with MCHP as our “most likely” solution from the Thinkolator on that one. Microchip is a pretty large ($40 billion market cap) chipmaker, they do actually make chips (they’re not “fabless” and therefore don’t rely entirely on Taiwan Semiconductor, like some chip designers do, which cuts into their margins a bit but also gives them more control over their destiny in a world of overbooked fabs). The valuation is pretty similar to a lot of other analog chipmakers — and the share price performance has been similar as well, so it’s a decent idea in a very fired-up chipmaker sector, but there’s no real clarity about it being much different than other big players like Texas Semiconductor (TXN), NXP Semiconductor (NXPI), Broadcom (AVGO) or Infineon (IFNNY), just to choose a few examples. Here’s the one-year chart for those five plus the iShares PHLX Semiconductor ETF (SOXX), which highlights that they tend to move together… and that MCHP, in light blue, is about as average as you can get in that group.
Doesn’t mean they can’t be above-average in the future, but I’d hold off on any great excitement. And don’t hold your breath about any announcements on May 26, those kinds of “urgent” teaser dates are almost always meaningless — the deadline is more to get you to pull out a credit card than it is a reasonable predictor of near-term stock price movements, and I haven’t identified any actual news that might be expected to come out next week from Microchip or from Amazon’s Kuiper program.
What’s the other stock being teased?
“‘StarNet’ Opportunity #2
“As the Space Industry heats up… a tiny stake in this company could turn into a windfall
“There’s a MAJOR problem in the space race nobody wants to talk about…
“For the last 60 years — as more and more satellites enter the atmosphere—
“A new danger has emerged that threatens the entire industry—
OK, we’ve seen plenty of comments about that — Space is, well, big, but there are certainly some orbits where the amount of stuff moving around is getting noticeable… and it’s true that it only takes one little piece of debris to destroy a hugely valuable satellite (or worse, a human mission in space). There are lots of strategies that governments are exploring for taming the space debris, from mapping it to zapping it. What’s being teased here?
“So as the space satellites industry heats up… there will be a huge demand for companies that deliver debris-removal services.
“Already the global industry revenues from satellite-related activities is in hundreds of billions of dollars per year.
“And as Amazon joins the other big names in the space race to launch additional satellites into space…
“LEO guidelines including debris removal will become even more crucial for the space industry…”
OK… specifics about the company?
“I’ve uncovered a little-known Colorado based firm positioned perfectly to dominate the entire market…
“They are working on a robotic arm that will pull out dead and abandoned satellites and other debris out of the way of active satellites.
“And if this tiny company with an annual revenue of less than $2 billion grabs even a 10th of the space debris removal industry…
“We are looking at 1000%, 5000% maybe even 10,000% gains.
“And those gains could happen as early as 2026.”
This one must be, sez the Thinkolator, yet another tease of Maxar Technologies (MAXR), which is a space company we’ve looked at a few times over the years — they were widely considered to be a Canadian company, and some of their divisions are north of the border and they are listed in Toronto as well as New York, but they did actually move their headquarters to Westminster, Colorado a couple years ago.
And one of their divisions, though it’s far from being the most important business within Maxar, has developed a robotic arm for cleaning up space debris. Doesn’t seem all that practical to have to drive up to dead satellites, many of which are on wildly different orbits, and I have no idea whether or not it will end up being a widely-used solution, but I guess blowing them up would just lead to lots of smaller pieces of debris (the best solution is for small satellites at the end of their lives is probably to commit suicide by dropping themselves intentionally into the atmosphere, burning up on the way, I expect that’s what will happen with most of the next generation of satellites which have better end-of-life plans… but not with all the older stuff that’s up there now).
Pretty much all the space-related stocks got a bit too hot-and-bothered from October to February or so, but they have mostly come back down to somewhat more rational prices, including Maxar… though the immediate reason for the latest leg down in MAXR shares was a weak quarter. MAXR has a big backlog of government work, mostly for satellite imaging, but they’ve also had some tough losses (like a failure with a SiriusXM satellite that cost them $28 million last quarter)… it’s not going to get an immediate boost from Kuiper or from anything exciting like that, it’s not really growing in any sexy way at the moment, and it carries a lot of debt, like most legacy satellite companies — but there are some things to like about MAXR.
What’s to like? They did an offering at $40 a share, which made investors a little grouchy… but they used the cash to pay down some debt, which is good (they had more than $3 billion of debt a few years ago, mostly due to acquisitions, and the cost of that became a little burdensome… but have gotten it down to $2.1 billion now).
And while the trailing PE of $5 a share is not actually a reflection of their current earnings power, they are generating good EBITDA (remember, that I is meaningful — debt is roughly the same size as their market cap now), and they are widely expected to have positive earnings (both GAAP and adjusted) in future years. So ignore that trailing PE of 6, that’s not real or sustainable, but they are trading at about 22X forward earnings and less than 10X 2023 forecasted earnings, with billions of dollars of backlog that should make those future earnings at least feasible ($1.9 billion in bookings last year, and they see a pipeline of $25 billion in potential contracts over the next five years).
Maxar is predicting “adjusted EBITDA” of about $450 million on about $1.8 billion in revenue for 2021 (ignoring the SiriusXM $28 million charge), so going by their forecasts they are currently valued at about 1X sales, and with an Enterprise Value/EBITDA ratio of about 10X. That’s not dirt cheap, Space is still a pretty hot sector even for a relatively unexciting company like Maxar, but nor is it wildly expensive. We’re seeing a lot of disruption in satellite imaging, with lots of other companies also coming public (including through SPAC mergers) to challenge the legacy imaging providers like Maxar, so that’s another possible challenge… but those government contracts also tend to be attracted to existing providers who have provided a reliable service in the past, and the upcoming SPACs in the imaging space (Osprey (SFTW) is merging with BlackSky, Spire Global with NavSight (NSH)) look like compelling disruptors in some ways but are almost certainly overpromising compared to what they can actually accomplish, and space-based data seems to be in ever-increasing demand, so there’s no real reason to think Maxar will lose all that business in any kind of hurry.
So that’s the best we can do this time around, dear friends — a couple space-related stocks being teased by Altucher (and a handful of others you might want to consider, if you want to delve into the really new companies)… all at a time when the space stocks have at least lost a little bit of their shine and might look a little more reasonable than they did in January and February. Any of these catch your fancy? Have a favorite space stock I didn’t mention? Let us know with a comment below… thanks for reading!
Disclosure: Of the stocks mentioned above, I own shares of Amazon. I will not trade in any covered name for at least three days after publication, per Stock Gumshoe’s trading rules.