The latest ad from Louis Navellier for his Growth Investor newsletter is a doozy… they’ve dropped the silly video of Louis with his fancy Porsche and replaced it with a “Trump wants to secure super-fast 5G” headline, but they’ve kept the red “turbo” button imagery from Navellier’s supercar, with that serving as a “you’re too dumb to get it otherwise” metaphor for the tremendous potential of 5G wireless.

We first covered the earlier version of this teaser pitch on February 11, and it has not changed much when it comes to the meat of the “presentation”… but it is in heavy rotation and, interestingly enough, though they continue to offer up their “special report” about the “King of 5G ‘Turbo Button’ Technology,” they have swapped out the “star of the show” — they are using essentially the same ad to tease an entirely different company, so we want to figure out what that might be.

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 few 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’

“I agree.

“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.”

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, and there are dozens of different chips inside each new phone that will be required to enable 5G upgrades… 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 based right here in America….

“Here’s the FIRST 5G ‘Turbo Stock’ I’d Recommend Anybody Buy…. RIGHT NOW!”

And then things start to diverge from what Navellier was teasing in the first half of this year… back when I last covered his teaser pitch about the “king of turbo button technology,” he dropped hints about how this company had only been in existence for five years, was working with all the top 25 technology companies, and enabled the mobile industry to “fast track” 5G. That was all pointing at Keysight (KEYS), a company he had been teasing for a year or so (and which I currently own).

Now, however these are the new and very different clues, slotted into an ad that is otherwise functionally identical to the older one:

“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.

“All without manufacturing a single smartphone… tower… or smart antenna.

“Instead, its unique “turbo button technology” is getting built into all those things.”

That’s word-for-word the same as the old ad, but now we get the different bit:

“They’re making a big push to enable 5G communications from multiple angles…

“Advanced semiconductor manufacturing to power the latest ‘smart antenna’ technology

“Improving integrated circuit quality for applications like self-driving cars and security monitoring

“Developing advanced printed circuit boards (both wafer and panel) with finer linewidths, straight sidewall geometry and multiple layers required by new 5G-enabled devices.”

So that’s obviously an entirely different kettle of fish — this is some kind of semiconductor company. What other clues do we get?

“It is reported they control over 50% of the revenues in chip-testing tools.

“That dominant market position can help amplify the stock price movement as we head into clearer waters in 2020.

“Check out this statement made by the company’s CEO on May 5, 020, that I’ll bet not many people noticed…

“We also see strong results in our specialty semiconductor markets with demand driven by 5G infrastructure investment.”

“I suspect this is a BIG reason why their stock soared by 99.1% in 2019.

“And why it’s been way up over the past 90 days.”

We even get a little chart, showing the surge in the shares from about $115 at the end of March to about $190 in July… so it’s not such a huge challenge for us to get a name this time around, even if some readers hadn’t jumped in to let us know that the tease had changed to a new stock — this is, as folks have guessed in comments sent our way in recent days, the chipmaking equipment and services company KLA (KLAC), which until last year was called KLA-Tencor (the result of the 1997 merger of KLA and Tencor, in case you’re curious).

No, KLA does not make the “turbo button” or “smart antenna” — but they do help other companies develop, test and manufacture new chips and technologies, so they’re kind of a backstage player supporting advancements like 5G (not so unlike Keysight in that way, conceptually). KLA is a company with a pretty broad suite of services and equipment across the technology industry, though they’re most well-known for their support for chip and wafer manufacturing. Here’s how they describe themselves:

KLA Corporation develops industry-leading equipment and services that enable innovation throughout the electronics industry. We provide advanced process control and process-enabling solutions for manufacturing wafers and reticles, integrated circuits, packaging, printed circuit boards and flat panel displays. In close collaboration with leading customers across the globe, our expert teams of physicists, engineers, data scientists and problem-solvers design solutions that move the world forward.

And while the world of semiconductors is obviously very volatile of late — first because of the huge upset to the system that really hit home with Huawei bans and the China/US trade war last year (Huawei is a competitor for some 5G-focused companies, like Nokia or Ericsson… but among chipmakers, it’s been more critical that Huawei is a major customer — as we’ve seen with the recent lobbying by Qualcomm to get the right to sell chips to Huawei), and more recently because of the COVID-19 pandemic that shut down a lot of manufacturing sites and fabs and severely disrupted electronics supply chains for at least a few months — KLAC has been doing quite well, similar to near-peers like Applied Materials (AMAT) and LAM Research (LRCX) who are equipment and service providers to the industry (meaning they support chipmakers, who are their customers, they don’t make the chips themselves).

The most similar company, in terms of financials, is the somewhat larger LAM Research — it’s growing a little faster (18% vs. 16%), has about the same return on equity (47%), and is a hair cheaper on a PE basis (25 for LCRX vs. KLAC’s 26), though KLA pays a slightly higher dividend (1.8% vs. LRCX’s 1.25% — both have more than doubled their dividend over the past three years).

Navellier is one of the original “quants” in the world of newsletters — he teases and talks about the specific businesses that he recommends, sometimes, since he knows that’s a better sell to investors who are interested in this stuff… but he says his picks are really triggered by his quantitative system. He focuses on a bunch of factors, but the big ones are momentum in both company financials and analyst forecasts. Here’s how he puts it for this one:

“Accelerating earnings, cash flow and return on equity.

“These are a just a few key triggers I use to identify breakout stocks like this.

“Plus, I consider its stock price a bargain.

“And that’s BEFORE it really gets cranking on the 5G rollout.

“In the coming weeks, I wouldn’t be surprised to see its share price pop by at least $10, $15, even $25 a share.”

That’s kind of a throwaway prediction — we’re talking about a near-$200 stock here, and the market is extremely volatile, so I wouldn’t be surprised if it moved by 5-10% either. Though down is just as possible as up, of course.

And yes, that quote from the CEO did come on KLA’s May 5 earnings call (their Q3) — the stock bounced on that report, and is up some 33% now, so I wouldn’t say that “not many people noticed” … but I suppose it’s fair to say that KLA has not really been aggressively pitched as a “5G” stock.

In terms of what’s going on now, KLA was relatively cautious in its May call, as so many others have been…

“Though we were encouraged to see many of our customers in China return to full production late in the quarter, COVID-19 has already impacted global economic growth. The question remains whether it will result in a short-term push out in global demand supported by substantial levels of monetary and fiscal stimulus from governments or whether it leads to long-term demand decline followed by an elongated recovery.

“Many economic prognosticators now expect the global recession as the effects of business disruption, rising unemployment and reduction in consumer spending our felt across the global economy. So at KLA, we’re not predicting the depth or duration of this impact until we have more evidence about the evolution of the crisis, but if there’s one thing we do know it’s the situation is rapidly evolving. And at this stage, the full impact of COVID-19 on consumer demand and the global economy remains unclear. But from our point of view, although the semiconductor equipment industry is currently supply constrained, customer demand remains strong in the first half of 2020. And to underscore that point, KLA delivered record shipments of our semiconductor process control systems during the quarter, and total backlog finished at record levels exiting March….

“Given the continued focus on innovation and execution combined with our market leadership and strong balance sheet, KLA is in a very strong position to navigate this period of uncertainty and to capitalize on opportunities to drive long-term growth for our industry once the conditions eventually normalize. Even though we couldn’t have anticipated what we’re experiencing today, we believe that secular factors driving the industry demand and our 2023 revenue and EPS targets remains largely intact and they’ll drive diversified growth with operating leverage over the long-term.

But that was several months ago… and KLA reported their fourth quarter about a week ago, so we can see how they might have changed — the quarter was a “beat and raise,” with revenues up 16% over last year and earnings about 13% better than expected, though the stock actually sold off by a couple dollars as a result (perhaps just because expectations were so high after all the chip stocks — many of them KLA customers– posted very strong quarters, or perhaps just because the guidance for the next quarter included a huge range of possible earnings, from $2.42-$3.06 per share).

Here’s a little excerpt from that more recent call:

“Customer demand is strong. We ended the quarter with our second-highest level of quarterly backlog ever. In the June quarter, we saw broad diversified strength across each of our segments. Semiconductor process control was above plan, multiple EPC businesses set records, and our services business achieved record installations.

“Today’s environment continues to accelerate many of the secular industry growth drivers that we outlined in our 2019 Investor Day. Data center demand, 5G infrastructure, the revival of PC demand to support work from home, virtual collaboration, remote learning and entertainment, and gaming are driving an acceleration of the data era that translates across end markets and industries. We’re also seeing this acceleration in our own business, adopting new digital productivity tools to improve collaboration with teams, and customers. We’ve also increased investment to accelerate digitalization of our global enterprises.”

They also said some things on that call that resonate with the “5G” — mostly around the fact that their automotive and display business customers have been a little bit weak (as we saw with Universal Display last week, TV shipments are not surging), but that the demand did increase for specialty semiconductor companies exposed to 5G infrastructure, and that they think 5G handset demand will also be a driver for them.

And really, as with Keysight, any kind of big step-up in technology in major sectors can be a meaningful driver — whether that’s next-generation chips, 5G, new data center upgrades, or whatever else. Since KLA is very involved in process control and testing, it stands to reason that the continued push for more advanced semiconductors would provide them with a pretty steady demand — as chipmakers upgrade to 7nm, for example, or push forward advances in other ways that require tweaking and redesign of foundries and processes.

As you might expect for one of the dominant companies in semiconductor equipment and testing, KLA over the long term tends to perform… about as well as the semiconductor industry. Here’s a chart of KLA versus the Philadelphia Semiconductor Index ETF (SOXX) over the past decade:

That does just follow stock price, however, and we know that for decent dividend growth companies the compounding from dividend reinvestment can make a huge difference — and KLA pays a larger dividend, on average, than the index, and has grown that dividend annually for a decade… so, to be fair, here’s the total return for KLAC versus that SOXX ETF:

Not bad.

I’m no expert on which semiconductor equipment or testing company has the best products or services, but it’s pretty clear from their current financials and their historical growth that KLA has a strong position in a very large industry, and the chip business is certainly growing fast so that should provide a decent tailwind — though it has also been an extremely cyclical industry in the past, falling hard in recessions, so we should probably be a little bit cautious about extrapolating that kind of growth out into the future. Analysts estimate that KLA will be growing earnings pretty steadily at about 10% a year, so the valuation of 16X forward earnings looks pretty reasonable on the face of it.

There probably won’t be huge surges because of “hot” product wins (like if a smaller chip company gets designed into the iPhone, for example, bringing a huge revenue surge), and KLA is likely to be an indirect 5G beneficiary but it won’t be the “one big winner” of 5G… but the nice flip side of that is we also avoid the big downturns when a key product falters in volume (like the collapse Skyworks Solutions (SWKS) had a few years ago when iPhone shipments slowed down).

Navellier makes his “grades” public for stocks through his Portfolio Grader service, which you can try out here if you want — right now his system gives KLAC a “B” grade (the same grade as near-peers LRCX and AMAT) and KEYS a “C,” in case you’re curious. I would expect that this is largely coming from the fact that the semiconductor industry has been a little bit steadier than the electronics industry in general — KLAC and LRCX are not expected to face a dip in earnings in 2020, while KEYS is expected to dip down this year before bouncing back.

I do still own KEYS, which is having a disappointing year thanks to the slowdown — they haven’t reported their latest quarter yet, but that’s expected on August 20, and I’ll certainly be watching. I wouldn’t necessarily compare these two companies to each other unless one had been swapped out for the other by Navellier here, but they are both ancillary technology companies with some exposure to leaps forward in technology adoption, including 5G — and KLA certainly has better momentum now, and is saying all the right things about their business remaining steady through the current crisis.

I wouldn’t try to talk you out of investing in KLA if you want a reasonably steady semiconductor testing and equipment company, they’re certainly strong and push most of their cash flow through to investors (83% of cash flow went to either dividends or buybacks last year), and they should remain exposed to semiconductor growth in general, and they’re pretty rationally valued… though analysts are being a bit gun-shy with a lot of them slotting this one in as a “hold,” and with a one-year target price only about $15 above where it’s trading right now, probably because of the huge run that chip companies have had in general, perhaps influenced by their memories of the cyclical nature of that industry in the past.

It’s your money, so you get to make the call — like KLA or its near-peers in the chip industry? See continued growth and a decent dividend? Or are you worried about economic growth slowing and hurting the chipmakers, stunting KLA a bit? Let us know with a comment below… thanks for reading!

Disclosure: among the companies mentioned above, I own shares and/or call options on Apple, Nokia and Keysight. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.