The latest ad from Louis Navellier for his Growth Investor newsletter is a doozy… full of images of Louis Navellier driving his midlife crisis Porsche supercar around and showing off the red “turbo” button, with that serving as a “you’re too dumb to get it otherwise” metaphor for the tremendous potential of 5G wireless. We first covered this teaser pitch on February 11, and it has not changed but it is in heavy rotation again so we’ve updated the article below to help answer some questions.
As well, of course, as providing the healthy dose of greed that drives all newsletter subscriptions — I’ve been scouring these ads for well over a decade now, and I have to say, when they resort to using images of sports cars, waterfront mansions, sailboats, and, in the worst cases, even trophy wives, well, that means they’ve run low on ideas and are just pressing the marketing buttons.
Though I imagine it still works — they keep mailing similar ads.
So what’s the “turbo boost” 5G idea that Navellier is peddling today? Here’s a bit from the ad, where he starts out by quoting himself:
“Just know that I’m telling all my loyal readers,
‘Whoever controls 5G will own the internet through 2025.’ — Louis Navellier”
And then once we’re past the photos of the “red turbo boost button” in his Porsche, we move on to what he’s actually teasing — which is, of course, that new chips and technologies are going to be built into every phone and every mobile antenna to enable 5G, which itself will enable all kinds of super-fast stuff like rapid video downloads, remote surgery, self-driving cars, etc.
Really, if you’ve been reading your emails over the past two years you’ve certainly seen all that big picture stuff already — yes, 5G will be a big game-changer, just like 4G was (remember, before 4G really got fully into gear seven or eight years ago, you couldn’t even count on mobile video working at all.
More from the ad:
“I had my engineers rip the cover off to peek at what’s powering it.
“Sure enough, they discovered the SAME kind of ‘turbo button’ technology that makes my Porsche 918 go so blazing fast —
“Can be found under the hood here, too.”
Yeah, it’s not the same technology. Not at all. But, of course, we’re too dumb to understand, so we’ll just conclude “Faster is good. Turbo go faster. Turbo good.”
What’s this “turbo” technology, you ask?
“It’s actually a ‘smart antenna.’
“Without it, your new 5G phone won’t be able to reach supersonic data speeds… Up to 1,000 times faster than what’s available today.”
Navellier does, interestingly enough, put in a rational forecast — unlike the folks who are promising that everyone on earth will have a 5G phone by March, he says this about the rollout:
“Cisco’s CEO Chuck Robbins put a number on it when he told Fox News last October…
‘5G will become reality within 3 years’
“A phased rollout will begin in 2020… with 5G dominating the market by 2023.
“If I could give you just one piece of advice, here it is…
“Get invested now, while close to 100% of the massive profit pie is still available.”Are you getting our free Daily Update
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That makes sense, 5G is exciting but the rollout will take a long time to get to where it’s available in most of the US, most of the time… and, of course, we’ve got plenty of marketing talk around 5G that makes the rollout even more confusing (AT&T has its “5G Evolution” that’s faster but not really 5G, T-Mobile has something they call 5G that’s apparently “nationwide,” but it’s not the super-fast millimeter wave 5G, and “nationwide” means close to half of Americans are covered).
So what’s the stock behind this “turbo boost?” Is this just a strange speed metaphor, or do the photos of chips he includes actually have a specific connection to a stock? Let’s check out more clues…
“With 5G, you might be expecting me to recommend the stock of a leading mobile carrier like Verizon or Sprint…
“Or a leading handset provider like Samsung or Apple.
“But you’d be wrong.
“You see, for any of these companies to hit blazing-fast, gigabit download speeds…
“Not only will it require millions of 5G ‘turbo buttons’ inside every smartphone, tablet and device out there…
“… just as important…
“Every single antenna, on every tower across America, will need the same turbo technology built in, too.”
OK, so that still seems like he’s pointing at a chipmaker… though the images he provides from a phone teardown and the photo of a little “antenna” on a human finger (for scale) are not of the same kind of chip, so maybe this is just still metaphorical.
There’s a bit more about beamforming, the important technology that lets frail and fragile 5G signals get past big, tough obstacles like corners or leaves.
“While a regular 4G antenna can transmit to your smartphone up to 45 miles away…
“5G smart antennas need to be placed every 500 to 1,000 feet to allow for blanket coverage.
“Companies and industries have been working hard to overcome this hurdle.
“And ‘beamforming’ is the answer.
“Think of it as a traffic-signaling system in which smart antennas identify the most efficient data-delivery route to each user…
“And reduce interference in the process.”
That doesn’t narrow it down all that much, nobody owns the “technology” of beamforming, as far as I can tell, though every millimeter wave 5G installation will presumably use it.
He also throws Huawei into the mix, since that changed things for US-focused technology providers and gave some of them a leg up on the most competitive equipment maker…
“… the #1 player in the 5G competition just got ejected from the game.
“Which makes it even MORE urgent that you get a chance to reach out and grab a slice of a little-known company I like to call The King of 5G “Turbo Button” Technology .
“And it’s based right here in America.
“Here’s the FIRST
“5G ‘Turbo Stock’ I’d Recommend Anybody Buy … RIGHT NOW!”
So then we finally get to some specifics about that “King of 5G Turbo,” and a few clues we can throw into the ol’ Thinkolator…
“One American company has jumped out to an early lead — and is in the perfect spot now that the profits are beginning to roll in.
“I call this company The King of 5G “Turbo Button” Technology .
“It has only been in existence for five short years. In that time, it’s taken a chokehold on the emerging 5G infrastructure market.
“All without manufacturing a single smartphone… tower… or smart antenna.
“Instead, its unique ‘turbo button technology’ is getting built into all those things.
OK, what else?
“Its technology enables the mobile industry to “fast track” 5G product design — from product development all the way to deployment.
“Even after a new smartphone or smart antenna is rolled out…
“The King of 5G Turbo Button Technology monitors the situation…
“Optimizing performance so everything runs up to 1,000 faster than today.”
Oh, now this is starting to sound a little familiar… more clues?
“In 2015, it set out an ambitious goal to become ‘first in 5G Wireless’, and it is well on its way.
“It’s cracked all the key markets.
“Today, its exclusive ‘turbo button’ technology is inside 25 of the top 25 technology companies…
“78 of the Fortune 100 companies…
“And most crucially, 25 of the top 25 telecom operators”
OK, so this company is actually quite a bit older than five years… but it did get spun off on its own just over five years ago, and since then it has accelerated R&D and focused on developing a leading position in the testing equipment, technology and services that will be needed by next-generation 5G networks (and, eventually 6G… whatever that turns out to be)… this is very likely just another tease of Keysight (KEYS).
So that’s a bit of a letdown… Navellier has been touting Keysight as the “master key” for 5G since last May, and I also own shares.
Keysight was spun out of Agilent Technologies about six years ago now, which itself was spun out of Hewlett Packard before that, and they specialize in testing and electronic measurement equipment — an area that has already seen substantial growth because of 5G investment and will, they think, continue to grow, though commercial communications solutions are still only about a third of their revenue. They set out a goal with their first investor day, in 2015, to be “first in 5G wireless”, and they think they’ve done that and that they are “well-positioned” to capitalize on their early lead. This is their basic “bio”:
“Keysight Technologies, Inc. is a leading technology company that helps its engineering, enterprise and service provider customers accelerate innovation to connect and secure the world. Keysight’s solutions optimize networks and bring electronic products to market faster and at a lower cost with offerings from design simulation, to prototype validation, to manufacturing test, to optimization in networks and cloud environments. Customers span the worldwide communications ecosystem, aerospace and defense, automotive, energy, semiconductor and general electronics end markets.”
Keysight hosted its annual Investor Day in early March, just before the coronavirus panic really kicked in, and it was more of the same — nothing to worry about, but it certainly wasn’t exciting enough to break through the coronavirus clatter. They shared lots of clear optimism about their growth prospects, discussion of the many areas in which they’re leading the market and continuing to become more embedded with their customers and take more market share, and even a little increase to their future growth expectations (they had previously said they expect revenue growth to be sustainable at 4-5%, now they say 4-6%, and they also expect their operating margins to continue improving pretty steadily, to 26-27% by 2023 from the current 24% or so… otherwise their long term guidance was roughly the same).
Growth has been far better than that for the past few years, partly because of acquisitions and partly because of the initial wave of carrier investment in 5G networks, so maybe investors are a little disappointed at the lack of hugely aggressive guidance… but the many communications technologies coming down the pike indicate to me that we’ll probably see Keysight continue to beat that forecast. The main investor day presentation is here and all of the individual presentation videos are here if you want to see the details.
On the earnings front, they continue to have a goal of 10%+ earnings per share growth, though the number has been far higher than that for the past couple years (30-50%), and I’m pretty confident that continues to be a lowball number for the next couple years, even though it will be volatile year to year based on customer trends and on any acquisitions they make (they have been a serial acquirer to add more new technologies and products to their portfoio), and it’s quite possible that this year will be weaker than was expected a few months ago.
For a company with this kind of leadership and strength, tied into some key growth trends, I think a PEG ratio of up to 2.0 is reasonable (a PE that’s twice the growth rate), especially because I think that 10% long-term earnings growth rate forecast that analysts are relying on is likely to be too low… the earnings forecast for 2020 is still right around $5 a share, it has come down slightly since the last earnings bump in February but, like the stock itself, has been pretty resilient… so paying 20X earnings for KEYS, using 2020 estimates, would mean a comfortable buy price of “below $100” now.
KEYS is already a top-ten holding in my Real Money Portfolio, and I don’t feel the need to jump on a much larger position immediately, but I’ll probably keep nibbling if the shares remain in the low $90s (or fall lower again). The investor day presentations increased my confidence a little bit, but it’s really more of the same — and “the same” was already quite good. There could be awful quarters ahead, to be sure, they might have really weak sales if this coronavirus recession means everyone stops ordering test equipment for a couple quarters, or if their customers in China and elsewhere in Asia really pull back meaningfully for more than a month or two, but if so those will probably be buying opportunities in my book. In mid-March they did note that the temporary closures of some of their facilities might impact their ability to meet their guidance for the quarter, and that caused analysts to drop their estimates for the quarter by 10-15%, but they’re just guessing — the company didn’t supply any coronavirus-specific updates.
Keysight has acquired other companies to grow their business over the past few years, and thinks that they are going to be able to begin returning cash to shareholders in earnest in the next year or two, probably mostly through share buybacks, so that could provide some boost to earnings.
Probably the biggest argument in favor of Keysight, at least story-wise, is that the world is getting far more complex — as we saw with the Boeing debacle, testing and assessing equipment vulnerabilities is increasingly difficult and critical, and everything I read about 5G reinforces the notion that these MIMO networks that operate on a variety of frequencies and with lots of wave-shaping and targeting are going to be far more complex than previous wireless networks… which, again should require a lot more testing equipment and software and expertise from folks like Keysight both in setting up those networks and in maintaining them.
Does that mean they’ll win? I don’t know for sure, but I’m betting they’ll continue to do well and maintain their leadership… it’s a reasonable story that holds up, conceptually, and it’s been a solidly run company that makes reasonable acquisitions and appears to me to be well-positioned.
If the market crashes again, KEYS will almost certainly crash with it — but it has also been a lot more resilient than most stocks so far this year. I am very impressed with the discipline they’ve shown in restructuring and building the company over the past few years, and with their exposure to some of the most important end markets and trends in the world… those who are pushing the envelope to build 5G networks, next-wave 400G data centers, and self-driving cars are going to need increasingly complex and effective test equipment to build those systems, and Keysight is getting more closely aligned with their customers, pushing R&D to meet specific customer needs, and, they say, taking share in most of those markets.
And 5G specifically is indeed a substantial driver, this is a diversified business but their communications division accounts for more than 60% of revenue, and is growing faster than their other divisions, mostly because of 5G investment by telecom companies and other customers. That will undoubtedly bring more comments about the various 5G conspiracy theories that seem to be finding so much traction online these days, which is itself a risk factor (not because the conspiracies represent anything real, but because they stoke real fear and lead to stupid vandalism and other attempts to slow the adoption of the technology — there was an interesting Bloomberg column about that today, “Dumb Conspiracy Theories Aren’t the Only 5G Headwinds”).
That’s enough to reassure me that the next 3-5 years should be very strong for Keysight, and while it’s certainly possible that the trade war or coronavirus shutdowns will have taken more of a bite out of the business than anticipated when they report in a few weeks (May 29 is the expected earnings date for the quarter, though I don’t believe it has been confirmed yet), and there’s always risk, I think this is a solid “growth at a reasonable price” investment. I started buying about a year ago and have been gradually nibbling to build the investment over time.
And for what it’s worth, though variations of this ad have been running pretty much nonstop for a year or so, with a few variations (and the addition of Navellier’s Porsche and the “turbo button” theme to the mix in February), KEYS is not currently a top-rated idea according to his quantitative system. The rating has bounced around in Navellier’s ratings system — his free PortfolioGrader service has given it a “B” most months this year — it was an “A” for most of last year, and briefly dipped to “C” in January.
P.S. I’ve kept the older comments attached to this updated article, so you can see what folks were saying about this one over the past few months.
Disclosure: of the companies mentioned above, I own shares of and/or call options on Keysight and Apple. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.