Today’s spiel for the Thinkolator is from Ian King, who is selling his Automatic Fortunes newsletter ($79/yr) with the promise that, among other things, he’ll reveal two stocks in “special reports” about to be headed your way: The $5 Stock Leading the 5G Revolution; and The Driverless Car Race Is Here: Grab Over 100% Gains Now.
And yes, though he teases us about this idea of “Spectrum” being a new technology that is being pushed by President Trump, and that will change the world in all sorts of ways, that seems to be just a way to get our attention with a mysterious word — as he “reveals” partway through the ad, he’s mostly just talking about 5G.
What caught our eye, though was the promise that he’s got an “inconspicuous company that could triple your money in the next year.”
So what’s the story? The “promise of 5G” is so engrained in our minds after reading a thousand of these things that we hardly even need to mention the “huge opportunity” any longer… but for those who are new to the 5G hype cycle, here’s a little taste of King’s words:
“A new generation of cellular network technology launches approximately every 10 years….
“And 4G started one decade ago.
“It couldn’t be any more obvious…
“5G’s moment has arrived.
“This market is about to surge over 22,000% to $12 trillion. And make early investors extremely wealthy.”
Everyone uses different numbers or makes different ridiculous percentage growth claims, but we’ve probably written thirty articles about “5G will change the world” promises, and they all pretty much rhyme… that $12 trillion number usually comes from a study that was commissioned by Qualcomm, as far as I can tell, predicting that 5G adoption will “enable $12.4 trillion of global economic output by 2035,” so that’s both an extremely long time (in investing, at least) and a very broad way to define 5G’s impact (and, of course, that study came out more than two years ago… things change fast).
That widely-cited report indicates that, like the internet was before, and like the first wave of mobile telephony after that (particularly 3G and 4G), 5G will become very widely used and will become an important drive of global economic growth. And while the numbers are certainly disputable, I’d say that falls pretty squarely in the realm of “consensus.”
So yes, we can stipulate that 5G will almost certainly be big. It won’t have a huge GDP impact over the next few years, during that period it will mostly be an investment story as new 5G networks are built and as customers begin to see the value, but it should be a big part of our world in five years… and, presumably, some companies are going to make a lot of money getting us to that point.
So that, of course, is what the pitch is about — one company that he thinks will make a lot of money from 5G.
Which one? he starts dropping clues…
“It’s not a household name.
“It’s not an easy company to find. As mentioned earlier, these days it’s trading under something of a code name.
“And it’s definitely not an obvious play like AT&T or Qualcomm or Verizon.”
Ooooh, a code name! I love those little secrets! Whatever could it be?
“… this San Diego-based firm is tiny — its market cap is less than $400 million.
“Which means the upside here is practically unlimited. Like I said, I wouldn’t be at all surprised if it jumped 300% in just the next 12 months….
“… this little tech pioneer just might be Wall Street’s best-kept secret.Are you getting our free Daily Update
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“Because it is already making 5G a reality.
“Right now, a handful of Americans are experiencing the network of the future that is bringing to life all kinds of possibilities … thanks to the 5G routers and hotspots this company makes.”
Oh, man… this is starting to sound familiar. Did he just go through all that in order to re-pitch the same idea he hinted at a few months ago?
“This company partnered with the largest telecom giant in the U.S. to bring 5G to preferred areas in four major markets — Houston, Indianapolis, Los Angeles and Sacramento.
“It is the first commercially available 5G network.
“But this is only the beginning.
“Because plans are in motion for these routers to be placed in 30 million U.S. households.”
And a few more tidbits…
“This firm has partnerships in place with 50 of world’s biggest telecom service providers and other leading businesses — like Uber, Barclays, DHL, Ericsson and General Dynamics, to name a few.
“In total, this tiny 5G pioneer holds over 1,400 groundbreaking patents.
“Like the mobile 5G hotspot it’s launching with one of the biggest telecom giants. This year.
“And the gateways and modems it makes that are necessary for the next generation of wireless networks.”
OK, dammit, this is not new. Yes, Ian King is just reiterating his pitch for the same stock he touted in his “Fluorescent Sand” ads back in May… this is, again, Inseego (INSG).
Here’s part of what I said about this one when King was touting it in May:
Inseego, the former Novatel Wireless (there’s that “code name”), is mostly a provider of 5G fixed wireless equipment (the fixed “hotspots” that will be used to connect a local wifi network to 5G broadband — which will be mostly what Verizon and AT&T will be selling in their initial 5G rollouts), though they also sell mobile routers that will be 5G enabled and are working to build IoT networks for the industrial internet and expand their “SaaS” fleet tracking system for trucks and airplanes. I don’t know how much edge they might have over competing equipment makers, every maker of routers and wireless network equipment will also likely be selling 5G equipment once that becomes a meaningful business, but they have cleaned up their balance sheet a bit and the stock is not ridiculously valued given the expected earnings next year.
And interestingly enough, I wrote about a new teaser from Jon Markman last week that also pointed right at Inseego… so, as the Irregulars are aware following the last Friday File, I decided, given the drumbeat about this as a hot speculation from two different newsletter publishers now, to put on a small longer-term option speculation… just in case they’re right, or, perhaps as importantly, in case these two teaser campaigns over the past few weeks are a sign of more attention to come to this little 5G story. So I now have a (tiny) speculative position in call options on INSG. I don’t expect them to become a market darling again over the longer term, there’s too much competition in this business and they won’t be expanding margins at Verizon’s expense, but the first year or so of wide rollout of Verizon’s Inseego equipment for wireless broadband could be a nice driver.
That is not a particularly responsible bet, to be clear, Inseego is a reasonably valued stock if their expectations come through… but it’s not one that is clearly “poised” to double in six months, they’re not currently profitable (they expect to be at the end of this year) and they’re only expected to grow revenues by about 10% in 2019… so this is more of a bet that the expected surge to real profitability in 2020, and the revenue bump-up of 20% that analysts see next year (thanks to a broader 5G rollout), and the hope that this might light a little fire under the shares as investors start to think about 2020. Sometimes I use these little speculative options wagers to indulge my temptation to place shorter-term wagers… they often lose 100%, and my portfolio can certainly handle that, but when they do occasionally gain 500-1,000% it’s awfully fun.
So yes, Inseego is the teaser target for the third time now in six weeks. Will the attention grow or wane? We’ll have to wait see (don’t worry, I won’t be trying to profit from any impact our coverage might have on the option pricing — I won’t sell those options for at least a month, extending out my usual three-day trade embargo period).
But King also touted another stock in this ad — whatever might it be? Here’s a bit from the spiel…
“I can say without a doubt that the ability to get from place to place cheaper and more efficiently will be one of the biggest technological changes of the 21st century.
“Especially now that 5G is coming to life to help make it possible.
“And I’ve found one company poised to benefit from this massive disruption of the $2 trillion automotive industry more than any other.
“It could double your money in the next year.
“Its list of customers already includes 25 of the largest auto manufacturers in the world.
“The easiest way to describe it would be ‘auto parts supplier.’
“But it’s what this company supplies that makes it so attractive.”
Oooh, oooh, what does it supply?
“… its technology platform can literally take an existing car model and transform it into an autonomous vehicle.”
So what company is this?
Well, we don’t get any other clues… but he does include an image of an auto part that is presumably from this company. If that’s true, and he doesn’t really specifically promise it is, then the company being hinted at is the maker of that part — which is Aptiv (APTV), the autonomous driving company that used to be major auto parts supplier Delphi (they spun the drivetrain business off a couple years ago to focus on autonomy and advanced electronics — that “older” part of the business is now called Delphi Technologies (DLPH)).
The specific part itself is meaningless, that’s just an image of an electronic connector. It happens to be a Delphi/Aptiv connector, but lots of companies make similar electronic connectors and harnesses, and this particular one is not notable in any way (as far as I’m aware, at least — I’m not an automotive electronics expert). You can probably buy a crateload of replacements through Alibaba for a few cents each.
Coincidentally enough, I was stopped out of my APTV shares at about $79 a share last Fall, and the stock is very close to that price today. As an auto supplier, they’ve been riding the wave of panic and euphoria as trade deals seem likely or unlikely — Aptiv is but a part of the auto industry, so anything that makes the industry move forward more quickly is good… anything that makes companies slower to invest, or cuts into the sales volume of new cars, is bad.
And no, Aptiv does not sell a magic wand that makes a regular car into a self-driving car… but they are a huge company, tied in with most of the major auto makers and heavily invested in autonomous driving technology. They’re not making money from “autonomous driving” just yet, that’s more of the next stage of evolution, but they do continue to invest in that future and they have a wide portfolio of businesses across car automation and electrical systems, safety technology, infotainment and controls that ties into what will eventually become autonomous vehicles.
The current “megatrend” drivers of their business are growth in active safety systems (which are sort of a baby step toward autonomous driving), vehicle electrification, and vehicle connectivity (which will become a “5G” story eventually, but not for many years — 5G networks are nowhere near ready to connect fast-moving vehicles)… so they tagline themselves as aligning their portfolio of products and services to meet these “safe, green and connected” megatrends that, they believe, create an addressable market of about $10,000 per vehicle — with “active safety” being half of that.
So they see plenty of growth, and I’d agree that they’re well-positioned — and, frankly, that they’re more likely to be a trusted partner for major auto companies because they’ve been embedded in those auto manufacturers for so long, so I imagine they’ll have a more predictable and sustainable business than the self-driving startups (and indeed, they’ve bought a few of those startups over the years, includig Nutonomy and Ottomatika).
But they’re also, of course, an auto supplier — which means that they’re subject to the slings and arrows of the global auto business, which seems to be slowing at least a bit. Trends toward lower auto sales in the US are a challenge, as are tariffs and trade disputes that increase the cost of cars and, therefore, slow down the “upgrade cycle.” And I assume it’s the tariffs and the general trade war panic that have caused volatility for the past few months, during which Aptiv has jumped around from the $60s to the $90s. The worst decline came after the Q1 earnings release, when APTV beat earnings expectations comfortably but also cut full-year earnings guidance by 8-10%… here’s what the CEO said about that:
“While our revised outlook for the year reflects softer global vehicle production and further headwinds from foreign exchange and commodities compared to our prior guidance, we continue to see the benefits of our flexible operating model and technology portfolio position us well for outperformance as these headwinds mitigate in the back half of the year and into 2020.”
So Aptiv will probably earn about $5 per share this year, which means the current-year PE is just under 16, and that’s down from last year’s $5.26 but analysts are not pricing in a real downturn in their APTV expectations (they see 12-15% earnings growth per year for the next couple years, headed toward $6.50 in 2021).
They pay a small dividend (about 1%) and have been buying back stock in addition to making smallish acquisitions, and it’s generally a solid company. Can’t really argue with Aptiv, though the primary near-term risk is probably that they’ll rise and fall with sentiment over trade — particularly US-Mexico trade and the simmering possibility of meaningful US tariffs on European vehicle imports. They do provide an “investor overview” presentation on their website here if you’d like to get a better handle on the business.
So a double in the next year would surprise me, certainly, but if Aptiv does double in the next year it will probably be because trade disputes are settled and the global economy is growing, with no big decline in auto sales, and that would be good for lots of companies. I still find the company interesting, but haven’t bought back in following my stop loss sale last year.
It’s your money, though, so it’s your opinion that really matters — what do you see for Aptiv or Inseego? Have other “next generation” technology companies that you prefer? Let us know with a comment below.
Disclosure: As noted above, I have a small December call option position on Inseego that will be embargoed from trade for a month. I do not own any other stocks mentioned above, and will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.