Today we’re again hearing from old friend Christian DeHaemer (“old friend” as in, “don’t even know what he looks like and have never spoken to him but read lots of his ads”) — he’s selling his BreakAway Investor newsletter with this pitch …
“On March 31st, 2009, The “EMN Initiative” Goes Live
“A Historic Government Mandate Awards a Potential $50 Billion Windfall to In-The-Know Investors
“The last time technology this big debuted, an informed few banked as much as 14,531%. Here’s how three overlooked companies could do the same for you – starting right now… ”
He goes on to talk about a handful of companies that profited from the last time we saw this kind of broad technology shift ….
“Rostelecom flew from $1.75 up to $73.53 a share… a 4,101% gain.
“Indonesian telecom TLK went from $3.00 to $55.51… a 1,750% gain.
“América Móvil shot from $4.84 to $67.26… a 1,290% gain.
“Turkcell raced from $1.74 to $28.70… a 1,549% gain.
“Telefónica SA sped from $21.23 to $101.25… a 374% gain.
“China Mobile blasted from $6.29 to $99.15… a 1,476% gain.
“Tata Communications jumped from $3.08 to $37.59… a 1,120% gain.”
(Of course, most of those shares are dramatically lower now — those are largely “emerging market” telecom companies, depending on how you define the term, focused on China, Mexico, Turkey, Indonesia, India, the Czech Republic, and Russia, all markets that have been mercilessly clobbered in the last year).
The example that gives them any hint of plausibility for that headline that teases 145X potential gains is VimpelCom, which did reach a gain of 14,531% at one point — of course, it has fallen 90% since then, but hey, as long as you bought at those lows ten years ago you might still have 1,400% returns — cold comfort is better than none at all, I suppose. Those who bought in the $20s when Robert Hsu was touting it a year and a half ago could have been nimble and gotten out with a double — or they could have been stubborn (as I often am) and gotten stuck with a 75% loss today.
So they’re essentially predicting that we’re going to have another breakout in profits for emerging cellular phone companies, or companies that are somehow related to mobile phones.
Or in the words of the ad:
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“… by March 31st, a remarkably similar chain of events will create a 50 billion dollar global profit explosion in many of the same developing nations.”
What is this all about?
That’s the shorthand most investors and analysts use for “Third Generation” when they’re talking about cell phones and cellular networks — it’s the higher bandwidth cell network technology that makes it possible to use smart phones for “real” web browsing and other data intensive stuff like video, and most of us, at least in urban areas, probably have access to it in the US from big firms like Verizon and AT&T, as long as we’re willing to pay for it. Not everyone in the developing world has access to these newer networks, though some countries (Japan, South Korea) are far ahead of us, and others in Europe and elsewhere are probably a bit ahead of the U.S. as well in terms of adoption rates.
2G was, as you might imagine, the last big advance in cellular technology that DeHaemer credits with those huge gains starting in the late 90s — that was the switch to digital signals instead of analog (remember when your cool new Motorola flip phone’s battery would run down after an hour of use — or, if you’re a bit older, when your cell phone was the size of a pineapple? That was “1G” analog cellular). Digital 2G networks also brought us to our current thumb-frenzy, allowing for SMS texting so teenagers would no longer have to talk to each other.
I’ve probably erred somewhat in my description of this, but in investor parlance 3G basically means high speed broadband capabilities for cellphones, along with all the other advanced “smart phone” cellphone features you might think of. It has been available for close to a decade in mobile-centric tech-nutty cities like Seoul and Tokyo, and has spread a bit more slowly elsewhere. Like everything else in technology, adoption has picked up as networks have spread and as pricing for the devices (and sometimes service) has come down with competition and volume.
That distribution of this 3G system to the rest of the world is what DeHaemer is talking about — bringing iPhone-like capabilities to China, Indonesia, etc.
“thanks to the EMN Initiative, 3G is about to get access to almost 2.5 billion new customers – practically overnight.
“Thanks to the Chinese government’s recent approval of 3G licenses for mobile network operators in their country, the door has been broken down for this technology to begin spreading throughout emerging markets around the world ….
“And once the EMN Initiative goes into full effect, which I forecast will happen in the first half of 2009, I’ve pinpointed THREE companies that could bag the lion’s share of the profits.”
And the stocks are cheap — or cheap-er, at least, which is the other part of the teaser — like with 2G adoption in the emerging markets, which came while the stocks were getting clobbered by the financial crisis in Asia in the late-90s, 3G is coming to the emerging markets at a time when their stock markets are being beaten to the ground again, and again, and again.
March 31 is the key date DeHaemer chooses — in part, one assumes, because that gives some urgency to the need to subscribe to his newsletter right away, and in part because there is actually something happening.
“You see, that’s the day by which China will officially unveil its first 3G phone.
“It’s called the ‘OPhone’ and it’s scheduled to be released by the end of the first quarter of 2009 by Lenovo Mobile.”
The “OPhone” is apparently real — it is supposed to be coming from Lenovo to operate on China Mobile’s network, and it’s rumored to look very similar to the iPhone, be based on Google’s Android operating system, and scheduled for release in the first quarter of this year, which is where that “March 31” date must come from.
Ah, so now we get to the teasers for the individual stocks …
“Executive Summary: Thanks to a great deal with the largest 3G telecom in China, this company could be providing phones for up to 450 million customers. Even just a fraction of that could add up to a multi-billion dollar revenue in a very short time.”
And the few specifics that we get:
“Now here’s a bonus for you: This is the ONLY Chinese 3G phone manufacturer that is publicly traded. So the opportunity for profits is centered squarely on them.
“They’re also attractively priced at only around $20 a share right now, thanks to the depressed global market.
“Demand for their product appears to be through the roof. In fact, a recent survey by Sina.com, China’s largest portal Web site, showed that 65% of respondents would try 3G service as soon as it’s available in China.
“Now as I told you, on March 31st, China’s first 3G phone is set to go on the market.
“It won’t be long before this company unveils its first handset as well. And with the nationalist spirit of the Chinese government at its back, the sales could be mind-boggling.”
The largest mobile telecom provider in China is China Mobile, which, as noted above, is supposed to officially introduce Lenovo’s “Ophone” sometime soon — and they do have more than 450 million subscribers. Chinese officials seem to have handed each of their three big telecoms one wireless standard — China Mobile, by far the largest, gets their homegrown TD-CDMA system, which sounds like it has had some technical issues in rollout, China Unicom gets the WCDMA standard that’s popular in Europe, and China Telecom gets the CDMA 2000 that is used here in the U.S. That means Unicom and Telecom probably started off with much greater access to proven handsets, though I don’t really know the details.
This stock is not Lenovo, since the teaser mentions that this company should be releasing its new 3G phones sometime after the Ophone, but it’s teased as the “only” Chinese 3G phone manufacturer. Not sure how they get that, since nearly all cell phones are manufactured in China, but I guess they mean a Chinese brand and Chinese design as well as a China-based company. So what could that be?
China Mobile has been urging all the big Western phone makers to work on TD-SCDMA phones too, by the way — including offering some research grants to push development forward to folks like Nokia and Motorola, so although any phones from those firms would probably end up being built in China, too, and I assume their designs would quickly leak out to homegrown companies, there’s no guarantee that a Chinese handset maker will be dominant in the future.
So who are we dealing with here? This will have to be a guess:
ZTE (0763 in Hong Kong, ZTCOF on the pink sheets)
There’s at least one big caveat here: This isn’t a $20 stock, but it is close to being a HK$20 stock, and was at that level a couple months ago — it’s now closer to 28 Hong Kong Dollars, which means it’s fairly priced for US investors at about $3.60 (don’t count on me for accurate currency quotes, that’s just a ballpark). The shares have almost doubled since the lows that they hit last Fall, but they’re still way off their highs of last year.
ZTE is probably the biggest telecom equipment company that you’re unlikely to have heard of — they’re certainly in the top ten in handset volume, though their stuff is mostly branded by the wireless companies (ie, they might make the phones that are stamped “Vodafone”). They are working on TD-SCDMA phones, and they do have several partnership agreements with China Mobile for other network equipment, so it’s certainly plausible that they’ll be a major player in a broader rollout of 3G “smarter” phones for them, especially for low-end phones that aren’t nearly as sexy as the Ophone or iPhone.
There are plenty of other large and small handset makers in China, too, including Huawei, which is not publicly traded, and associated firms like the phone designers China Techfaith Wireless, which has also seen its share collapse.
Your friendly neighborhood Gumshoe knows very little about this company or any others in the business, and certainly can’t comprehend the state-sponsored “competition” between the three different 3G standards, or whether China Mobile’s current dominance is likely to expand or contract … or, of course, whether the handset winners will be the early players like ZTE or Lenovo, or on the high end or the low end of the spectrum. They certainly have by far the world’s largest marketplace for cell phones, and will have the largest potential 3G market, but whether or not ZTE will be the most likely to profit (assuming that I’ve even guessed the company properly) is a wide-open question for me.
So let’s move on to see what the other two companies are … maybe I can do a touch better at sleuthifying those:
The second one is an Indian company, as befits what may someday be the second largest market for 3G mobile services …
“3G’s Early Entrance Into India Could Hand You 247% This Year ….
“This company, trading for only around $3.50 a share, is a majority state-owned telecom that is in the process of adding 500,000 lines of 3G capacity across Delhi and Mumbai.
“But get this: For the past six months, they’ve been the only company allowed to do so.
“You see, back in August 2008, this company was awarded a 3G permit, a full half-year ahead of any other company.”
So that’s, thankfully, a little bit easier … throw that into the Thinkolator and it seems this one must be …
Mahanagar Telephone Nigam Limited (MTE, traded as an ADR)
This was also priced according to the teaser, around $3.50 … but that was back in January. Unlike ZTE, which has climbed since then, MTE has fallen substantially, and you can now pick up shares for about $2.30 if you like.
Other than the fact that this is a large state-controlled telecom operator in Delhi and Mumbai, I know very little about them — they are profitable, and they have very recently launched 3G service in Delhi. Other than that, my only advice would be: Be careful with Indian wireless companies in general, they are extremely competitive, and their customers extremely price-sensitive. I don’t know whether MTE’s little head start in 3G will help them to get stronger margins or not, but certainly cell phone use in general in India is still ramping up — there’s a good, brief overview article (not 3g-specific) from AFP if you’re interested.
OK, moving on to EMN Initiative stock number three!
“Classified U.S. Government Project Ups Your 3G Profit Potential by 152%”
Hunh? Suddenly we’re back to the US?
“A U.S.-based company has developed a high-powered satellite — one that our government uses to track down terrorists in Iraq and Afghanistan, in fact — that is actually being used to help bring the EMN Initiative to life.
“As I mentioned earlier, the 3G revolution is going to bring so many pieces of tech wizardry to people’s fingertips that it’s mind boggling.
“One of those pieces is going to be GPS, or Global Positioning Systems….
“3G phones like the iPhone and others are coming equipped with GPS capability right out of the box. But the question is: Who owns the satellites that provide it?”
“Answer: This $20 company I’ve uncovered.
“These guys own what many consider to be the most advanced geospatial imagery satellite ever built. In fact, its largest customer is the U.S. government, if that tells you anything…
“But another of their big customers is actually one of the biggest Internet companies in the world, one that is set to provide millions of 3G phones with their GPS applications….
“I can’t give away exactly WHO its partner is right here, but don’t worry: I’ll reveal to you all the specifics in your free report.
“And this company doesn’t even need to wait for 3G to make its way into emerging markets, either. Its satellite is going to be hard at work for phones all over the world, including the U.S. and Europe.”
OK, so I have no such qualms about “giving away” the name of this company … Thinkolator sez this must be …
This is the company behind the aptly-named GeoEye-1 satellite that launched last year and brought a new level of high-resolution photos to the commercial satellite world … and their partner is Google, which has exclusive rights to the GeoEye-1 photos for digital mapping, and therefore will have integrated access on Android phones (though most 3G phones can use Google Maps).
This satellite does indeed have some nice, clear pictures — and if you’re the US gummint, the pictures get clearer still (they ponied up a bit more money than Google). They’re also apparently working on GeoEye-2, though I don’t know when it might be built or launched (General Dynamics actually built GeoEye-1, if you want to move up the food chain a bit). There’s an interesting article in Wired about GeoEye-1 if you’re curious and want to start digging.
Out of curiosity I just went to Google Maps and checked the satellite photo of my house, and it has been updated from the one that was available last year, I assume with a GeoEye-1 image … so it’s much higher resolution, and serves as a lovely reminder of all the cash we had to sink into putting on a new roof. Don’t know that this makes it any more useful than the older satellite photo that showed a somewhat fuzzier photo of the old rusting roof, but at least we’ve got progress in the name of progress.
GeoEye is also profitable, and gets a nice stream of income from the government for their imaging data — only two analysts have estimates in on Yahoo Finance for their earnings, and they think the company will earn something between 44 cents and $1.02 this year … so if they’re right, the forward PE is somewhere between 20 and 50. I don’t know how their business model works, so I can’t tell you whether it makes sense that a broader 3G rollout would increase their revenues or not, but that’s one question I’d be asking before buying shares — their costs are pretty well fixed for GeoEye-1, since the satellite’s in the air, and GeoEye-2 is at least a couple years away, so for the near term I imagine it’s all about how much more revenue they can get from the pictures they’re currently taking.
Phew … three very different companies as potential matches for this teaser ad: A Chinese telecom equipment stalwart that seems to be trying to build a 3G handset brand; a regional telecom in India; and a satellite imaging company. Interested or invested in any of these? Think I’ve guessed wrong, particularly about ZTE? Let us know what you think.
Oh, and if you’ve ever taken a spin around the block with Christian DeHaemer and his BreakAway Investor newsletter (or with the same newsletter under Andrew Mickey, the previous editor), click here to let us know what you thought. Just as one little reminder, it was Mickey who told us, in breathless terms, about the huge breakthrough that one little company would see with GPS technology moving to cellphones — if you missed that, it was indian chip designer SiRF Technology, and while GPS may be in lots more phones now it doesn’t seem to be benefitting SIRF at all (shares were first teased around $20, and are now well under $2).
So, as always, those who might identify and sell to us a compelling trend don’t necessarily always find the best stock idea to profit from it … good luck!