This ad comes in from the good folks at Breakaway Investor, which has jettisoned its old editor and is now run by Christian DeHaemer. Breakaway Investor under Andrew Mickey was extremely active in the teaser game, sending out email ads very aggressively, and it appears that’s not likely to change.
Here’s the intro:
“As I write this note, several newspapers sit in front of me with headlines proclaiming that India, once the fastest growing economy in the world, is coming to a standstill.
“But that is simply not true. As you will soon see, there are pockets of hidden growth throughout India. Take automobiles, for example. With annual domestic sales of a little over 1.2 million, India is the world’s 10th largest car market and second fastest growing.”
So yes, this is all about investing in India. And the sales pitch comes with the good ‘ol guarantee that this stock will double:
“This super-safe $4.50 stock is the sleeping giant of India. Most U.S. investors think they can’t buy it, but they’re wrong.
“I guarantee it’ll post a triple-digit gain in 12 months… or your money back! (Over the next five years, you could see 10 times that amount… maybe more)”
Of course, the “guarantee” is that you’ll get back the money that you spent to subscribe to the newsletter, not any money you might have sunk into a bad investment (not that this one is necessarily bad).
So what is the company this time?
A few clues:
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“You won’t find anything like this on the Dow, S&P or Nasdaq. In fact, Wall Street’s not even aware that this opportunity exists.
“What I’m about to share with you is a chance to own ‘the sleeping giant of India.’ Through a secret backdoor, you can own this stock for only $4.50 a share.”
Sound familiar? It might, if you’ve been treading the hallowed halls of Gumshoe University for the past year — this company has been heavily teased twice this year, at much higher prices (of course, almost every stock that has been touted by anyone at any time in the past year is now cheaper, no surprise there).
And actually, Christian DeHaemer is just recycling an old idea … and an old letter. He used an extremely similar ad about the “sleeping giant of India” in late March, a few weeks after Chris Mayer used a fairly similar argument about investing in the “Golden Quadrilateral.”
And the “secret backdoor” bit is still quite misleading. The big argument in the ad is that there is a dominant company in India that has its fingers in every important pot … here’s an excerpt:
“… this company provides everything an emerging nation needs gas, oil, copper, cars, trucks, buses, steel, construction equipment, engineering, computer services, electric power, Internet, telecommunications, tourism, retail stores, food stores, food processing and more.
“Here’s what makes this company such a great investment:
“Its motors division is India’s only fully integrated automobile company – with a whopping 60% market share. Seven out of ten medium and heavy commercial vehicles are Indian. 2008 fiscal year revenues: $6 billion.
“Its steel division has the lowest cost of steel producers on the planet. World Steel Dynamics ranked them #1 in the world. 2008 fiscal year revenues: $32.8 billion.
“Its tea segment is the world’s second-largest global-branded tea operation. 2008 fiscal year revenues: $915 million.
“Its IT unit is the leading broadband Internet service provider in India. According to IDC (a premier global market intelligence firm), the IT market in India is expected to hit $65 billion by 2009. 2008 fiscal year revenues: $372 million.
“When you add up the 2008 fiscal year revenue for all 98 of this global powerhouse’s listed and unlisted companies, it comes in at a whopping $63 billion – equivalent to more than 6.3% of India’s entire gross domestic product!”
So what is this massive company? It’s the Tata Group. But the group is not something you can easily invest in, much of it is private and all of it is family controlled.
What you can invest in is the subsidiary that is being teased here: Tata Motors (TTM)
And no, buying the subsidiary does not give you a piece of the massive Tata conglomerate, at least not in any big way — there are lots of interrelationships among the Tata family of companies, and plenty of cross-ownership, but Tata Motors, as far as individual investors are concerned, is really just a car and truck company that happens to be controlled by one of the big Indian conglomerates.
And we’ll pause for a moment so you can guess whether Christian DeHaemer was promising a 12-month double back in March. Yes, you in the back … very good! Yes, he was promising exactly the same kind of returns.
Of course, the share price was about $15 at the time, so in order to reach that promise you’d have to see the shares go up 600-700% before March 7 of next year (the price is now $4.25). Possible, perhaps, but less than likely. A 100% gain to $8 or so, as “re-promised” now, is certainly more achievable than that, though I imagine such returns would provide little salve for the buyers who picked it up in March. So if you got hooked into subsribing to Material Profits back in March, you’ll have a chance to get your money back, if you like, if the shares fail to get to $30. Of course, almost no one ever asks for their money back, which is why making such a guarantee is a very effective strategy for so many publishers.
And yes, at $15 he was also calling this one “super-safe.”
So what’s up with Tata Motors? Is it worth looking at now that the shares are so very, very low?
Well, they are a huge automobile and truck manufacturer in India, they have several nameplates for personal vehicles as well as for commercial trucks and buses, and they both sell into the Indian market and export their low cost vehicles to other developing countries. Though they are best known for developing the “Nano”, which is supposed to revolutionize car ownership and bring four wheeledy conveyances to the masses (it costs about $2,000), about 2/3 of their revenue (and all of their profits) currently come from the commercial side.
And the mass production of the Nano appears to be a bit delayed — after just about completing their big new factory, political fighting caused them to pack up and move to a different Indian state. If you’re curious about this story, there was an interesting column in Forbes last month about the problems Tata Motors has faced in trying to build its new factory, which brings to mind many of the bureaucratic and political challenges of operating in India, even for a well-respected and well-connected leader like Ratan Tata.
Other bad news? Last quarter their earnings were down 34%, manufacturing in India in general has dropped, and, as I noted back in March when I last wrote about these guys, their attempt to enter the big time by buying Jaguar and Land Rover is going to continue to be expensive and, in this economy, seems unlikely to be a big help to the bottom line in the coming couple years — those old lions of British industry just announced more layoffs last week. Add on the fact that they had a rights offering recently, (in part to pay for that acquisition), and no one wanted to buy the shares, and it’s no big surprise that the stock is going down. (For that rights offering, the parent Tata Group had to step in and buy many of the shares, and the underwriter was stuck with a big pile of them, too).
Demand is pretty clearly dropping for their profitable heavy trucks, too, as they’ve recently forced some truck plants to nap for a bit … here’s an excerpt from an FT article from last weekend:
“Abdul Majeed, head of India automotive practice at PwC, said the country’s heavy truck industry – the backbone of its transport system – was facing its most difficult period in more than a decade. He warned: ‘Finance costs are very high, infrastructure construction is slowing, manufacturing is slowing, the economy is slowing.'”
The good news? In theory, that new Nano factory will be up and running next year, and maybe if they keep their jobs all those emerging members of the middle class will upgrade from scooters to cars. Don’t know if that will really happen in a hurry with the big move or not, but I suppose it’s possible, even if maybe they don’t put a quarter million of these cars on the road immediately as they had originally planned.
And the company is, so far, cheap and profitable. Trailing PE ratio is about 3, and the forward estimates are about the same — analysts may be a bit too optimistic about these guys, given the uncertainties of the near future, but at least one analyst (who has certainly studied the company more closely than I) sees them earnings $1.23 next year. If they can do that, paying $4 for the shares certainly doesn’t seem crazy. If.
And they’ve also paid a dividend (once per year, in the summer) in each of the past four years — this year the dividend was 35 cents per share, so that’s better than an 8% yield if they’re able to continue paying similar dividends in the future. Yes, that was another “if.”
In the bigger picture India, despite its bureaucratic problems, its wildly inadequate infrastructure, and the persisting unrest that’s brought by extreme poverty mixed with democracy and a bitter colonial legacy, remains possibly the most promising long-term grower in the world — they have that rare advantage of entering the industrial age at a time when they are demographically in excellent shape. India is much, much younger than China and should, one hopes, be able to grow as it puts its growing workforce to, well, work. That doesn’t mean the near future is necessarily bright, just that I think the big picture allows for the India of 2020 to be one of the leading growth economies of the world.
If you like the idea of India but don’t particularly like Tata Motors, there are a few ETFs available now that have come online in the last year or so — Powershares India is a fairly standard ETF that attempts to mimic an Indian index (ticker PIN), and WisdomTree has an ETF that is weighted by company earnings, not size (EPI). Neither of those ETFs includes Tata Motors among its top ten holdings. And you can also buy shares of some other Indian companies as ADRs, including, among many others, the big IT services outsourcing companies like WiPro (WIT) and Infosys (INFY), or the private banks ICICI (IBN) and HDFC (HDB).
And if you don’t like the idea of anything at the moment, well, it’s hard to blame you. Have a great weekend!
full disclosure: I did own shares of HDB the last time I wrote about Indian stocks, but have since sold them. I own no other stocks or investments mentioned above.