This is the headline that got a lot of readers’ attention:
“WARNING: Do not put a penny into any cryptocurrency until you read this urgent message.”
It’s part of an ad for Louis Navellier’s Blue Chip Growth, and he goes on…
“If you want to make a fortune in the red-hot cryptocurrency markets, there’s only one thing you need to know…
“DO NOT buy Bitcoin, Ethereum, Ripple or any of the other 1,211 cryptocurrencies out there.”
“I’m going to reveal for the first time in public a unique way to unlock as much as $43,098 (possibly more) beginning Thursday, February 22nd from the booming crypto-markets…
“No matter which cryptocurrencies go up or down in value…
“WITHOUT knowing a lick about computers or programming…
“And most importantly, WITHOUT doing anything risky with your money.”
So… what are we dealing with here? First, know the context: Louis Navellier is promoting his Blue Chip Growth newsletter, so it’s likely to be a large capitalization growth stock that represents this “Cryptocurrency Master Key” — but we’ll keep an open mind and sift through the clues.
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And he implies that the opportunities are as massive for this “Master Key” as they have been for the actual cryptocurrencies…
“I’m talking about a way to potentially unlock the market’s biggest and fastest gains… and make 10x —20x the returns of many cryptocurrencies — yes, including Bitcoin — over the long haul, but with nowhere near the same amount of risk.”
Time will tell on that… but though he’s certainly using the mania and fervor over bitcoin’s stratospheric recent rise to get your attention, the comparisons he uses in saying that “Master Key beats Bitcoin by more than 3-times!” and similar claims are all from past time periods, like 2016, before that ridiculous bitcoin run. For some reason, he also pulls most of his charts from Stansberry Research, though Navellier’s the main guy at competitor Investorplace (I haven’t seen the two work together in the past, though Stansberry is also distributing this latest ad for Navellier’s letter).
And, as usual, Navellier (or his copywriters, I expect) lays it on pretty think when it gets to how exclusive and lucrative this “master key” is….
“… not 1 in 1,000 people are aware of this cryptocurrency Master Key.
“How does it work? Well, you see, a Master Key is a single key that can be used to unlock any door in a building, even though each door has its own individual key. Imagine a 1,000-room luxury New York high-rise. For privacy and security, each room has its own unique key, which lets residents access their assigned room, but no one else’s. But here’s the thing. The entire building also has a Master Key — a single key that can gain access to any room. Whoever holds this Master Key has the power to unlock ANY door. That’s essentially what I’ve uncovered in the cryptocurrency markets — a way to unlock the biggest gains — and NONE of the losers… the perfect investment.
“It’s basically the Holy Grail of cryptocurrency investing.”
To further illustrate, he compares the cryptocurrency mania to the dotcom bubble, noting that choosing the winning cryptocurrency (assuming there is one, in the end) could be super-lucrative… but that choosing is a risky business right now, akin to choosing between Amazon, Pet.com, Garden.com and Kozmo in the late 1990s. Not everyone chose Amazon, and the others all dropped more than 99%.
And there was also, he says, a “Master Key” for that dotcom era…
“What most investors didn’t realize back in the late 1990s was that there was actually a little-known way to make a fortune no matter which “dotcoms” made it and which ones didn’t.
“The Internet had a ‘Master Key’ too… much like the cryptocurrency ‘Master Key’ I want to tell you about today.
“…And it gave investors — those who knew about the concepts behind it — an easy way to unlock the biggest and fastest stock market gains… with virtually NONE of the risk of holding ordinary Internet stocks….
“Folks who took advantage of what I consider to be the Internet’s ‘Master Key’ saw life-changing gains, as high as 83,222%…”
We can tell by the exact chart match that this is a reference to Microsoft (MSFT), in case you’re curious — and actually, it was a lot better than 83,222% — that’s close to the performance of the stock price, but if you count the dividends that Mr. Softy started paying back in 2004, the total return for shareholders who bought in the mid-1980s is now over 130,000%.
So… will this “cryptocurrency master key” match that? Let’s see if we get some more clues to help us ID this fella.
“They all need encryption… computer networks… and high-powered internet servers.
“And they all need the same ‘Master Key’ which allows them to facilitate and verify transactions.
“Incredibly, this Master Key is not owned by the folks behind Bitcoin, or Ethereum, or any of the others.
“It’s totally separate, but it’s used by virtually EVERY crypto in existence.
“Incredibly, you have the opportunity right now—today—to own this ‘Master Key.’”
And he gives us the impression that somehow owning this “Master key” is like owning the cryptocurrency toll road and collecting fees all day long…
“As an owner, you can even receive incredible payouts every year for the rest of your life, all without touching a single digital currency.
“It’s like being the owner of the cryptocurrency ‘toll road’ … you essentially get paid every time a transaction takes place.”
Any other clues? We do get a few tidbits thrown in here and there about the many folks who have already invested in this “Master Key”…
“Spiros Segalas, former U.S. Navy officer turned hedge fund mogul. He’s generating north of $2.4 million per year in passive income from what I call the Master Key”
Hmmm… so in case that name doesn’t sound familiar to you, Segalas manages Harbor Capital Appreciation, a high-quality growth-focused mutual fund.
And I don’t want to spoil the surprise, but that $2.4 million is roughly the dividend that Harbor pulls in from its NVIDIA shares each year. So that’s a strong possibility. (I checked, incidentally, and other potential blockchain-related shares like Visa, Mastercard, and others didn’t have dividend expectations in that neighborhood — V and MA generate about 3X that much dividend revenue for that fund, for example.)
We then get another helpful hint, in the form of a chart (again taken from Stansberry) that shows the relative performance of the “master key” and the various big-name cryptocurrencies like bitcoin and ethereum, and the master key beat them all handily… from early February 2016 through early March of 2017.
That’s true, and it proves that we’re right about which stock he’s teasing, because we get that exact price chart match… but it is, of course, also highly misleading now that the crypto bubble has progressed for another nine months and changed the nature of that market entirely… over the past nine months, I expect that no stocks have come close to matching the performance of bitcoin.
So what’s the stock? Thinkolator confirms that this is, of course, NVIDIA (NVDA), by far the most-cited blockchain superstar stock among mainstream investors… though also one that probably won’t get much direct growth from blockchain mania in the years to come, as new blockchain-focused chipsets and competition enter the mining market.
NVIDIA did get a nice boost from the ethereum miners this year, as miners increasingly turned to using graphic processing chips (GPU’s, often as part of high end “graphics cards” aimed primarily at gaming PCs) and both AMD and NVDA, who between them essentially own the high-end GPU market, enjoyed a surprise sales jolt.
Many folks think that is coming to an end now, including Mizuho’s analyst who opined last month that cryptos will be much less meaningful for AMD and NVDA in 2018 — NVDA had a decline in sales to the miners last quarter, though that number is very volatile and clearly the stock is getting lots of attention because of cryptocurrencies.
We should check the context, though — even if you think GPU demand from miners will fall off a cliff, it’s still not a huge part of NVDA’s business. If you annualize the results of the past two quarters (that’s a fancy way for saying “double the half year numbers to guess at a full year number”), sales of chips for cryptocurrency mining would make up about 5% of NVIDIA’s revenue.
That’s partly why NVDA is doing so well — it’s largely a win-win situation as their products surf a bunch of hot tech trends. If crypto-mania continues and lots of new coins come out, with more demand for GPUs to mine them, then they get a boost… if not, then a smallish part of their revenue dries up, and other major areas of the business are growing fast — both their traditional gaming business, which continues to be the primary driver, and the chips for next-generation data centers and artificial intelligence processing that are flying off the shelves and being used by most application developers in AI, to say nothing of the chips that power decisionmaking in self-driving cars.
That’s the strength for NVDA, and the reason it has seen such an exceptional stock price performance — it’s got good underlying growth (explosive growth, even), but, equally importantly, it’s got a meaningful presence in so many “hot” sectors and trends that investors always have room for optimism… data centers, artificial intelligence, self-driving cars, virtual reality, competitive video gaming, and, yes, cryptocurrencies. And I may be forgetting something.
That introduces some risk, as well — NVDA was a sleepy little chip stock for decades, milking the gaming business and trying to get built into laptops and desktops while lower-end GPUs were being commoditized, and investors didn’t start paying much attention until higher-end GPUs got to be popular as they fueled popular and super-demanding PC video games a couple years ago, and then self-driving cars as their chips were built into Tesla’s “autopilot” systems… and then the stories kept building from there because the analysts were too skeptical of that breakthrough growth and had to play catch-up as NVDA kept clobbering their estimates over the past couple years, becoming by far the best stock in the S&P 500 over the past three years (it’s up 900% in that time).
I’ve dabbled in NVDA shares a few times during this run, and ended up putting on an equity position by exercising some of my call options early this year, so it has grown to be a meaningful part of my portfolio… but not an investment that I would consider to be either an income generator or a “earn a few cents for each cryptocurrency transaction” investment.
I suppose you can make the case that’s true in some conceptual way — if miners in the future continue to find that GPUs are the best chips for mining, and mining is essentially the act of verifying transactions as part of the global network and being paid in the cryptocurrency for doing that verification, and miners use the money they make to buy more GPU chips, then I guess you can say they get a share of every bitcoin made in an extremely indirect way… kind of like the way a company who sells vegetable oil is indirectly getting a small share of every french fry McDonald’s sells.
I don’t know what the future holds, I’m afraid — the rapid rise of cryptocurrencies has turned “mining” into an industrial enterprise, with people developing and customizing chips and data centers specifically for mining particular blockchain “tokens”, and there has now been so much money thrown into the sector that it’s hard to see any rational economic decisions being made by any of the actors in the near future.
Blockchain mania could continue, with huge gains for coin owners and dramatically more demand for GPUs, or it could fall off a cliff — either will be good for the economy in the long run, I expect, because all the money chasing bitcoin and all the other tokens is generating incredible amounts of R&D that will advance new technologies, just like the money chasing the dot com boom created the dramatically more powerful internet that evolved from that point… but it might be a really bumpy ride. The coins themselves will be the most volatile part of crypto’s bubble-and-burst chart when we look back in a decade, I imagine, but the stocks that trade partly because of their connection to blockchain will likely move pretty dramatically as well as (if) sentiment shifts.
Still, that won’t impact AI or self-driving cars or data centers, where NVDA has primarily been seeking growth, and it won’t change the market for high-end PC gaming, which is a niche but a very lucrative one for NVDA (and one that analysts continually underestimate, as gaming rigs get more and more advanced and stadiums fill with people watching star “athletes” play video games).
I can’t tell you that NVIDIA, which is now a $120 billion company, will become larger than Intel (which has a $220 billion market cap, but revenue 7X as high as NVDA, with similar margins), and that’s largely where the skeptical comments come in for NVDA… but it is certainly growing revenue and earnings much faster than that semiconductor stalwart, and I’ve often been wrong in worrying about companies getting “too big to grow”.
Currently, NVIDIA trades at about 38X expected 2019 earnings, which is pretty crazy, but justifiable for a company that is expected to grow earnings almost 50% next year and an average of better than 20% a year for the couple years after that… the problem, for investors, is that this lofty valuation brings with it a really hair-trigger response to disappointments. So if NVDA only beats by a couple pennies next time it reports quarterly earnings… or, worse, misses those forecasts… the stock could fall 20% or more very quickly, particularly if they say anything at all pessimistic about future results.
One way to think of that risk is by imagining where NVDA would be priced if expectations were reset to something much more restrained — if competitor AMD began to take meaningful market share, for example (as has been speculated about for years, AMD has had disastrous results for decades in trying to compete with both NVIDIA and Intel), and NVDA began to have the same growth forecast and valuation as AMD, that would mean revenue grows at a little over 10% a year and the stock trades at 20X 2019 earnings estimates… in that case, NVDA shares would have to come down to at least $100.
That’s not what I expect to happen, to be clear… it’s just a quick little math exercise that I find handy to remind myself just how much of a stock’s valuation is based on future expectations and optimism. If you go just by the last four quarters of diluted earnings per share, then NVDA trades at a trailing PE of about 50. That’s a whole heckuva lot for a company that sells an actual physical product, even if they’re growing fast and that product has huge profit margins — the company isn’t likely to get dramatically better, they’re not going to become a lot more efficient, the valuation is based entirely on how much they’re going to grow sales and, therefore, profits.
The temptation is to extrapolate the past into the future, noting that NVDA doubled earnings per share last year, and did the same thing the year before that, so this growth will keep going… and who knows, maybe analysts are still underestimating NVDA, as they have done for three years now, so that’s the optimistic case. Just keep in mind that betting on that continuing “surprise” from NVDA, and continuing rapid growth, has gotten incrementally more expensive every day over the past couple years, so if the rose colored glasses ever fall off because of a weak forecast, it could get ugly in a hurry.
And yes, NVIDIA’s CEO (and founder) Jensen Huang is becoming ever more of a public-facing “star” in technology, so perhaps he’ll say something hugely optimistic at their press event at the Consumer Electronics Show in Las Vegas next month that makes headlines, and that could easily drive the stock higher… though his profile might be slightly lower at the event this year than it was last year, when he delivered the opening keynote focused on self-driving cars.
So what do I do? I’m still holding my shares, and the future growth expectations and the fact that NVDA is still tapped in to several important growth trends mean I’ll continue to give these shares quite a bit of latitude… but it’s also a momentum growth stock, so I’ll also be mindful of important stop-loss levels and the importance of managing risk if the story begins to fall apart in any meaningful way. It’s a great company, and it trades at a great company price.
And yes, it’s a helluva lot less risky than owning bitcoin… but there’s also no chance at all that NVDA shares will rise by 1,000% next year, and those are certainly the returns that cryptocurrency speculators are daydreaming about, so keep your expectations rational.
Oh, and by the way — what are the specifics of that “income stream” from this “Master Key?” Here’s more from Navellier:
“Unlike cryptocurrencies, the Master Key has begun paying out income streams too.
“In fact, the next big payout is projected to come in March. It will likely total more than $83 million. So to ensure you’re positioned to collect a portion of this payout, you need to act before February 22nd to get in on this money.”
That is just an alluring way of saying that “NVDA pays a quarterly dividend.”
And it does, as Navellier notes, total about $84 million at last quarter’s rate, though they raised it just last month so it should be roughly $100 million when the February payout comes around. That’s still not all that exciting for current buyers, mostly because this is a huge company — the quarterly dividend sounds large out of context, but on a per-share level it’s only 15 cents per quarter and is not growing all that rapidly (it was 14 cents last quarter)… it takes a while for that to build up to something meaningful when you’re talking about a stock that trades at $200 a share.
So yes, there is an “income stream” for NVDA shareholders, but it comes out to an annual dividend yield of about a third of a percent. Less than the interest that some checking accounts pay. It may amount to something one day, and it’s good that they’re growing the dividend, but this is certainly not a stock that will trade based on that dividend anytime soon — and they don’t have a critical “secret” store of overseas cash to repatriate under the new tax reform bill, either, they have “only” about $6 billion in cash and under $300 million in deferred tax liabilities on their books.
Which means there’s no secret tax boon or income bonanza for NVIDIA, the stock price will continue to tell a story of revenue growth and earnings growth and how much optimism investors want to inject into the share price. So far, that’s a lot — and I expect there’s a better-than-even chance that continues for a while, but sentiment can change in a hurry if growth investors get a little mud in their face.
And with that, dear readers, I’ll send it back to you — any thoughts on our old friend NVIDIA you’d like to share? Or on Louis Navellier, for that matter, or cryptocurrency “master key” investments? Let us know with a comment below… thanks for reading!
Disclosure: I own shares of NVIDIA and call options on Intel, and have very small holdings in bitcoin and ethereum. I am not directly invested in any other company mentioned above, and will not invest in any covered stock for at least three days per Stock Gumshoe’s trading rules.