Today we’ve got a new letter to look at, from someone I don’t think I’ve ever written about — Ian King is an editor at Banyan Hill, and he’s pitching a letter called Automatic Fortunes ($79/yr) with a story about “The $5 Stock Leading the 5G Revolution.”
So… can we “Ride the Incoming $12 Trillion 5G Boom” and make buckets of money? Certainly we’ve looked at a LOT of 5G stories over the years, and most of those stocks have had a rough go of it in recent weeks, so let’s dig into his clues and see what it is he’s touting.
By the way, always be mindful of the details if you do “opt in” to these kind of “urgent” deals that have a ticking clock on the order form — as we’ve seen a few times, this is pitched as a lower-cost no-risk letter (“regular price” is $199/yr), and they do offer a refund… but they also throw in a three-month trial of Jeff Yastine’s Total Wealth Insider, and the small print says that if you don’t do anything you’ll see your subscription to both of those letters renewed (at $97/yr each). It’s all there in writing, but I know I certainly hear complaints from readers all the time who got charged for newsletters they don’t ever remember even ordering, or at prices that are higher than they thought they committed to.
But anyway, let’s dig in — this is one of those stories that takes a widespread “made up number” about the size of the 5G business, and implies that it’s all going to come flowing down to “one little company”… which is absurd, of course, but it does whet your appetite and get you revved up. Here’s a bit of the start of the ad:
“We have one mission: To help Main Street Americans live richer lives through investing.
“And that starts right now with this fluorescent sand opportunity.
“You can get in on the ground floor of a potential $12 trillion revenue stream….
“At just $5 a share this is the best bargain you can find in the stock market. Period.”
And they name drop a couple of institutional investors who are apparently buying shares…
(As if funds managed by those banks didn’t own a piece of pretty much every publicly traded stock in the US… or the world, frankly)
And we’re told that, of course, those institutions are trying to keep it in the down-low…
“And while they like to keep things secret, you can bet these behemoths see what I do: A company that stands at the forefront of the potential $12 trillion flood of incoming revenue.
“Which means it’s only a matter of time before the mainstream gets a hold of this story.
“And when that happens, the price could soar, and you’ll have missed your chance at turning a small stake into huge gains.”
So what is this “fluorescent sand” stuff? It is apparently going to help with the bandwidth traffic jam…
“On this trajectory, we’re headed for a situation much like a never-ending traffic jam on the streets.
“We’ll soon have a pile up of these ‘latest and greatest’ devices, but the technology in all of them will be unremarkable, stagnant and stuck in a previous era.
“Worse yet, our wireless and data networks simply won’t be able to handle them all….
“… thanks to fluorescent sand, the world WILL have the systems to handle the sheer volume of devices.
“And that’ll usher in an era of technological progress unlike any the world has ever seen before….
“Starting with the $5 company that holds the key to unlocking the true power of fluorescent sand.”
And, yes, this is clearly talking about 5G as the salvation…
“Telecom experts are heralding the arrival of 5G as the Fourth Industrial Revolution that’ll ‘result in massive changes for both consumers and enterprises.’
“The U.S. and China are even engaged in a headlong race to be the first to deploy their new 5G networks.
“The point is this: By knowing the critical resource that ALL companies will rely on, you can make an absolute fortune in the months ahead.”
So what does this little $5 company do?
“In short, this company is advancing the true potential of smart homes, driverless cars, blockchain networks, robots, and every other tech trend you’ve been hearing about.
“They hold the key to unlocking the power of these grains of sand. Of course, not in it’s raw state….”
Then, to his credit, King does finally drop the silliness, a little bit, and clarify that yes, this “fluorescent sand” is really just “fiber optic cable networks”…
“Fluorescent sand is the secret to lightning-fast 5G that’ll usher in the next wave of technological progress.
“And it’s all possible thanks to a Nobel Prize discovery.
“Physicist Sir Charles Kao figured out that ordinary sand can be transformed into crystal clear, pure glass.
“And that glass can be turned into long, wire-like strands that can transmit lasers carrying data.
“If you guessed that I’m talking about fiber optics, you’re absolutely correct.
“In fact, you may have heard about how fiber optics holds the key to 5G and America’s next-generation wireless network.”
How so? Are we supposed to mine the stuff?
No, of course, this is just a reference to the fact that there are millions of miles of fiber-optic cable buried under the streets already, and more being added now, that will provide important backhaul and transmission services from wireless data points… as they do now for 4G towers in urban areas and for connections between data centers or, in a relatively small number of cases, for direct fiber connections for homes and businesses (like Google Fiber, or Verizon’s FiOS service).
And he talks up the “dark fiber” that’s still in place in a lot of cities, the remnant of the massive effort during the dot-com boom to put fiber networks everywhere and, eventually to overbuild networks that weren’t needed…
“EVERYTHING will depend on the massive, unknown, untapped network of fiber optic cable right beneath your feet.
“Digging new cables takes time, money and resources.
“And with the explosion of new devices coming online, we simply don’t have the luxury of waiting.
“But there’s good news. And it holds the secret to potentially making a fortune as 5G sweeps the nation in the coming months….
“The vast majority are still dormant.
“And believe it or not, companies can acquire rights to the unused fiber optics.
“That’s exactly what they’ve been doing.
“The world’s biggest companies are hoarding this unused fiber optic to brace for the imminent 5G boom.”
So does this company actually have something to do with these fiber optic networks? Not necessarily…. more from the ad:
“… it really doesn’t matter who hoards the most unused fiber optics underneath your feet.
“Because I predict that everyone will eventually rely on this one company to bring 5G to the more than a hundred million households across America.
“This firm makes the device that links you to the fiber optics beneath your feet and to the wireless 5G networks, that’ll soon be powering your Wi-Fi devices and much much more.
“Its executives come from some of the biggest names in technology.
“They held key positions at Spectralink, Nortel, Ericsson, Qualcomm, Hewlett Packard, Verizon, Microsoft and many other companies.”
OK, so that’s a nice bit of clues… what else?
“They’ve mass produced a simple device, roughly the size of a thermostat.
“It can be placed in the corner of your living room.
“They’ll be practically invisible.
“You won’t even notice they’re there.
“But they’re critical in making the 5G rollout a reality this year.
“Our existing towers keep wireless signals strong over long distances.
“And these devices fill the gaps in between — especially in crowded areas….
“The result: Lightning-fast wireless from the fiber optic cables beneath your feet…
“To the devices in your hands, car, home, office and beyond.
“In fact, Verizon, AT&T, Sprint and T-Mobile — the leading mobile providers in the word — have ALL partnered with this one company ahead of the massive 5G upgrade…..
“Their breakthrough device acts as a mini cell tower that’ll give you and I access to 5G.”
OK, so it’s some kind of equipment maker… what else are we told about this company?
This is from the order form:
“The aggressive plan that could instantly rollout 151 million of these breakthrough devices in the U.S. And this is just the beginning. They’re also targeting the Asia-Pacific market which could easily give them the lion’s share of the $12 trillion in revenue up for grabs.
“The secret $400 million ‘side business’ of this company that virtually guarantees they’ll continue raking in revenue for decades to come … giving you the chance to make more and more money right along with them.”
They even include a handy-dandy chart of this “stock leading the 5G revolution” to entice the visual learners out there, so we know the stock went from below $3 in August to peak at near $6 in late December, then was around $5 in January and, well, that’s where the chart ends.
So what’s the stock? Thinkolator sez this is Inseego (INSG), which indeed matches all of those clues perfectly (including the stock chart)… and it has been bouncing around quite a bit this week, along with most of the smaller “growthy” stocks, but it is still in the $5 neighborhood.
And in case you’re wondering why you’ve never heard of Inseego, given that it’s been around for eons, we can clear that up: They used to be called Novatel Wireless, with the ticker MIFI. Can’t say that I knew a lot about that name, either, but I had at least heard of it… if memory serves, they were lining themselves up to be the kings of the “mobile hotspot” device for the five years or so when that was a viable business that people thought would be huge, before laptops got native wireless coverage and phones became hotspots.
They have almost nothing to do with “fluorescent sand,” at least directly. That’s just a pitch that a copywriter somewhere dreamed up to sell the idea of fiber optic cable networks and their importance to the 5G rollout… yes, fiber networks are genuinely important (that’s why Zayo got a buyout offer a couple weeks ago, and why the tower companies like Crown Castle (CCI) are buying up fiber to connect their towers and small cells), and I guess if you look at the strands from the end when they’re lit up they look a little bit like “fluorescent sand,” but there’s really no direct connection to Inseego that I can, well, see.
Here’s Inseego’s description of itself, which has so much jargon in it that I threw up in my mouth a little bit…
“Inseego Corp. (Nasdaq: INSG) is an industry pioneer that enables high performance mobile applications for large enterprise verticals, service providers and small-medium businesses around the globe. Our product portfolio consists of Enterprise SaaS solutions and IoT & Mobile solutions, which together form the backbone of compelling, intelligent, reliable and secure IoT services with deep business intelligence. Inseego powers mission critical applications with a “zero unscheduled downtime” mandate, such as asset tracking, fleet management, industrial IoT, SD WAN failover management and mobile broadband services. Our solutions are powered by our key innovations in purpose-built SaaS cloud platforms, IoT and mobile technologies including the newly emerging 5G technology. #Making5GReal”
They are indeed focused on 5G, both as a way to connect their Internet of Things devices and as they sell some early 5G products that seem to me essentially an updated version of the “puck” hotspots that they sold for 4G a decade or more ago. There will probably be a decent market for those in the early days, since the first uses of 5G are going to be “semi-fixed” broadband — receiving broadband service via 5G airwaves in a fixed location, like your home or office, replacing your existing cable internet… or using 5G for rapid and low-latency communication between devices for the Internet of Things, particularly for heavy and industrial uses, and Inseego is aiming at both of those markets.
That doesn’t mean it’s going to win huge orders in those businesses or turn instantly, I don’t really know, but they are in a bit of a turnaround here that’s really just underway as they try to build and sell a “comprehensive 5G portfolio” as part of their “Inseego 2.0” transformation.
So far, the most visible sign of that transformation has been selling some stock and repaying some debt and getting rid of some of their “liquidity problems” that had handcuffed the company a bit in the past few years.
By some metrics, Inseego looks downright reasonable — it’s got a market cap of only about $350 million, which isn’t bad at all for $200 million in revenue… and even though they’re not quite profitable, they’re not too far off. You could certainly find plenty of other companies with similar sales that have seriously loopy valuations, including hot new “cloud” stories like Zuora, Appian and Zscaler (all have revenue about the same as Inseego, but multibillion-dollar valuations).
Some of the difference in valuations can be explained by the different levels of growth, and investor growth expectations, but a lot of it is probably just sentiment — Inseego hasn’t been hot or exciting, it makes stuff that’s also made by a lot of other companies, and it’s been around forever… I can almost hear you yawning from here. This is the stock chart for INSG going way back to the beginning, just FYI:
OK, that’s not really fair — it’s not their fault they were trading at a ludicrous price during the dot-com bubble of 2000 and 2001. Here’s what the stock has looked like since it bottomed out in October of 2001, just to provide a somewhat fairer perspective:
And as long as we’re doing the visual thing, here’s what the last five years have looked like for the stock, laying over it both revenue and earnings.
So I guess that’s why it sounds pretty reasonably valued based on the level of revenue… they haven’t been making any money, and the business has generally declined over the past decade, though slowly enough that you might not notice all the time.
Analysts do have a buy on the stock, with five analysts giving a consensus target of $6.40, but even they only see about 10% revenue growth this year and 20% next year, with earnings about flat in 2019 and a predicted 26 cents in earnings per share for 2020 (giving the stock a forward PE of 18, which is not ridiculous if they can grow earnings from there).
Which means, if you’re keeping track, that this is the 147th company that is a little weak and disappointing right now, but expected to start to do better late in 2019 and then surge higher in 2020 on a wave of 5G investment.
The “secret” business is their Ctrack telematics business, which accounts for about a third of revenues — Ctrack is basically a fleet data management service that lets you track your fleet of trucks, monitor for insurance information and optimum efficiency for allocation of assets, etc. They are putting that business on the cloud and calling it a “Software as a Service” business now, and hoping to expand that both by growing their newer aviation business (tracking planes and airport equipment) and by leveraging their network and technology to connect more “assets” and open other Internet of Things “verticals” beyond aviation and trucking.
The investor presentation from Inseego sounds quite impressive, and it’s not a crazy-valuation growth story that requires real nosebleed growth, but you do have to count on them getting a big chunk of the “5G hotspot” business next year and growing their CTrack business.
My assumption would be that the risk comes primarily from the fact that the equipment business for 5G, primarily selling hotspots and mobile routers at this early stage, is probably pretty competitive… I assume that there are a lot of manufacturers angling to get this business, which will mostly be sold through the big telecom companies who are building out 5G networks (AT&T, Verizon, Sprint in the US, etc.), and that we’ll see similar 5G hotspots and “fixed wireless” routers from a variety of manufacturers.
I don’t get any sense that Inseego provides a dramatically different or better hotspot device than anyone else, but I’m not at all an expert on that equipment. Inseego appears to have the first Verizon contract to build their 5G hotspot devices, Netgear appears to be the first partner for AT&T, but these are still test programs that are limited to a few cities, with all the equipment sold by the telecom companies, and I don’t know what the economics of that equipment looks like from Inseego’s end or if these deals are exclusive for any length of time. That probably explains much of the spurt in revenue that Inseego expects next year… but I have no idea whether or not it’s likely to be sustainable. For what it’s worth, both the Netgear and Inseego hotspots use Qualcomm (QCOM) chips and modems (that makes me a little happy, since I own QCOM shares).
And, well, that’s about as far as I can take this for you on a couple hours of research — excited about “fluorescent sand” because it’s important to 5G? You probably want to look elsewhere (like the optical switch providers, all of whom are backlogged, or big producers like Corning). But if you’re just excited about the 5G rollout, and want an equipment maker who will be selling some of those hotspots that turn 5G signals into high-speed wifi networks for homes and small businesses and offer some competition for the cable companies, well, Inseego fits that bill… whether or not it fits your portfolio is, of course, your call to make. It’s your money, after all. Please do let us know what you think by submitting a comment below, our friendly little comment box doesn’t bite.
P.S. We haven’t heard any reader feedback about Automatic Fortunes yet, and Gumshoe readers always want to know the real scoop — if you’ve ever tried a subscription to Ian King’s Automatic Fortunes, please click here to let your fellow investors know what you thought. Thank you!
Disclosure: I own shares and/or call options on Qualcomm and Crown Castle among the companies mentioned above. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.