The last time we looked at a teaser from Brad Hoppmann for Cash Flow Kings, it was because they had me in a tizzy about the death of the coffee crop — we depend on teasers and fabulous readers to keep Stock Gumshoe going, but in many ways the true fuel of my manic writing schedule is coffee. So I was worried.
That was only a few months ago, and the stock he pitched (though in no ways a pure play on coffee bean protection) has done decently well (the stock was Syngenta, SYT, it’s up a few percent more than the S&P since mid-December).
And today, instead of making me worry about something I genuflect before, the glorious Coffea arabica, he’s trotting out the shopworn notion that the secrets to investing are hidden in the Bible. Here’s the intro:
“Discovered within the first book of the Holy Bible …
“The power to grow and protect your wealth while serving the greater good of mankind….
“Five years ago I found myself driving down a lifeless country road in the middle of the night. What seemed like my normal commute home from work would soon turn into one of the most important nights of my life.
“That evening I witnessed something that not only altered the course I was on personally, but something that has the potential to affect your life in very real ways, too.
“It was a glowing light that changed everything I thought I knew about the universe, about God, and about man’s work here on earth.
“It revealed to me a great gift — a way to grow wealthy while helping our fellow man in the process.”Are you getting our free Daily Update
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So yes, it sounds like the start of a tent revival… and he also goes on to appeal to the socially conscious investors among us…
“And most importantly, it showed me that there ARE ways to invest ethically and responsibly … in essence, that it IS possible to do well while doing good.
“In fact, I now believe it is our moral obligation to use our great gifts to enrich the world around us … and to gladly receive back the rewards for doing so. Hopefully, after you hear my story, you’ll agree.”
Geez, who wouldn’t agree to that? Where do I sign up!
Oh, wait, he’s selling something. OK, we’ll go back to being cynical and suspicious. He’s pitching subscriptions to his Cash Flow Kings newsletter, which, like most “entry level” subscriptions, is not terribly expensive (it’s $49 a year, just like membership in the Stock Gumshoe Irregulars). Pretty much every publisher offers some kind of paid letter in this price range, and those subscribers become their very best prospects for “upgrade” offers to different levels of membership or more expensive letters and services (once you’ve paid $49, you’ve gotten past the biggest hurdle publishers face — “I won’t ever pay anything for research” — and you’re FAR more likely to bite on an offer for the $2,000 letter that really drives publisher profits… particularly if you’re basking in the glow of a few good suggestions made by the inexpensive letter).
But back to the point — Hoppmann is actually teasing a stock or two in this ad that he thinks are exciting investments… so let’s get to that part, and see if we can find out what they are for you,
He furthers this religious (or maybe “close encounters-ish”) idea for several paragraphs, describing how he followed a “glow” in rural Florida …
“I drove as close to it as I could until I hit the end of the road. Against my better judgment, I got out of the car and made my way up a steep hill to get a better look. When I reached the top, a large barbed wire fence prevented me from moving any closer.
“With my face pressed against the cold fence, I stood there for over half an hour without moving. I was enraptured by that light, almost in a state of shock….
“… what I stumbled upon that late summer evening changed my life forever and I believe it will change yours too … whether it be finally eliminating decades of debt, putting your children through college, or living the retirement you deserve.
“All you have to do is let me share with you what I saw in that glow.
“Revealed to me was …
“The Secret Responsible for History’s Greatest Fortunes.”
I don’t know if I can keep up with this much longer, recounting Hoppmann’s Moses-like revelation of these investing “secrets” in the glow of a Florida evening… at least, not with a straight face and a full stomach, so let’s just skip ahead a ways.
Here’s some more…
“I am now convinced that men like Rockefeller were divinely inspired. I am also convinced that one of mankind’s greatest leaps forward — another great gift — is getting underway right now.”
That “leap forward,” of course, has something to do with that “glow” … OK, I have to include a bit more of the Bible stuff here:
“In the Bible, God created the universe from nothing, filling His new realm with light, earth, and the ability for exponential growth. That marked the world’s first and greatest moment of innovation.
“But it’s by this same basic principle of innovation that all of mankind’s later advancements have been made … including modern-day leaps that have made thousands of men wealthier than their wildest dreams.
“I call these moments — whether you’re talking about oil or the personal computer — ‘Genesis Investments.'”
I’m trying to be patient, but this is where I started yelling at my computer a little bit. Just wanted to give you that experience.
So now we move on to the investment he’s actually teasing as a “Genesis Investment” — after he shows us the past “Genesis Investments” that would have made people wealthy with a small initial investment, the two examples are a close match for the returns you would have gotten by buying Microsoft (MSFT) in 1990 and holding for ten years (almost 10,000% gains) and buying Apple in 2007 and holding through today (roughly 700% gains).
Which means, well, I guess Hoppmann is implying that we’ve got the next Bill Gates or Steve Jobs on our hands here, eh? Let’s see what he’s talking about.
We go back to his “glow in the sky” story, though thankfully he puts the religious imagery to bed for a bit…
“What I saw that night was a massive array of small buildings within a complex. Each one was made entirely of glass with beaming rays of light coming from within.
“There were probably fifty or so of these buildings, all identical. But the light was so bright that I couldn’t even begin to see what was inside.
“So over the next week I began intense research on what lay within these glass buildings … and what could be producing this amount of light.
“After using every resource at my disposal, I finally discovered that what I saw was a government-commissioned indoor farming project.
“They were using a new technology — innovative high-intensity LED diodes whose color patterns can be tailored to the specific needs of the plants being grown.”
Ah… so we’re being teased about a LED stock, are we? Not the first time, let’s see if he’s got a name we haven’t looked at before. More clues…
“After seeing the remarkable success this new LED technology had in government test facilities, scientists are now using this same approach with a wide variety of fruits and vegetables.
“The goal of these indoor farms: To grow food at rates never before achieved and irrespective of location or climate.
“In short, this breakthrough may very well end up solving world hunger.
“Just consider what’s happening in Japan, where one of the first indoor vertical food farms is harnessing this technology.
“Spread over 25,000 square feet, the indoor garden’s 17,500 LED lights cover 18 cultivation racks growing heads of lettuce….
“Using this new LED technology, scientists have discovered the light code needed to produce lettuce at an optimal growth rate. This indoor farm can produce lettuce two and a half times faster than a traditional outdoor farm!…
“This approach also cuts water usage to just 1% of what a comparable outdoor field needs, conserving a massive amount of water and allowing crops to be grown in climates usually too dry for regular farming techniques.”
And apparently the secret to “Genesis Investing” is to take an idea and drive it to a far-future possibility, with LED lights helping to stop world hunger…
“I believe indoor vertical farming is the solution to this grave situation. Using this new technology we can build plant factories all over the world, and create enough supply to feed the entire world’s population.
“It will be nothing short of a new Garden of Eden. A great gift from the heavens that will provide the proverbial manna to deserts around the world. Soon all people of the world will live in lands of milk and honey.”
So… the stocks to buy, per Hoppmann?
“And through hundreds of hours of research my team and I have determined the three companies responsible for this coming indoor farming revolution, three companies that are all Genesis Investments.”
Ah, there we go. Clues, please?
“The first stock, which is far and away my favorite, is none other than the company that makes the glowing lights that I saw that fateful evening in the Florida countryside.
“While this company’s products are already being used around the world, very few investors realize how much GROWTH is on the horizon….
“… sales have already been rising 35% a quarter.
“Not to mention that the firm’s projected sales for LED lights are expected to DOUBLE again.
“And quite frankly, its closest competitors aren’t even in the same league.
“No wonder cash is pouring into the company’s coffers to the tune of $90 million a quarter!
“I also like the fact that this particular company manages its finances very conservatively — with almost zero debt on the books.
“And the firm is actively repurchasing its own shares — with more than half a billion dollars committed to that purpose just for this year alone….
“… just a return to the stock’s previous level would already hand you a quick 221% return on every dollar invested.
“Then, as more and more indoor farms spring up and demand for the company’s products skyrockets, you could easily continue earning another 20% a year on your initial investment … doubling your money every four years!”
Well, a company doing (or planning) a half-billion-dollar buyback means it’s a biiiig company — this isn’t one of the LED upstarts that get bandied about from time to time, nor even an up-and-coming tech firm trying to design a better LED. They don’t have that kind of cash flow. That pretty much narrows it down to mid-caps and large-caps like Cree (CREE) and Philips (PHG), with outside possibilities of other lighting firms like Hubbell (HUB.B) or Acuity (AYI), and a buyback that size would be a stretch for most of them aside from PHG.
Philips is in the process of trying to sell its lighting division, probably to private equity firms, so that’s a tough one to pick for LED lighting at the moment (and it’s selling this division because the margins are too low due to Chinese competition… a warning sign for the rest of the sector, perhaps).
So we’ll be forced to guess this time — the half-billion buyback number is larger than CREE or HUB has authorized (though CREE has enough cash to do that if they ever want to) and is a pretty likely number for PHG, they have in place an authorization for 1.5 billion Euros in buybacks over three years that is probably less than half completed… but if you want a stock that would have to gain 221% to reach its old highs, CREE is the only choice of the group because of its dot-com peak at close to 3X today’s price. Philips is at about half of it’s all-time highs, so it could be them if the copywriter is mixing up percentages (as many people do) and thinking that a stock doubling is a “200% return.” And though their lighting divisions, or parts of them, might be growing revenues (sales) at “35% a quarter” in some cases, none of them are really growing revenues even at double-digit rates on a sustained basis when it comes to the whole company (and yes, when you buy a stock you have to buy part of the whole company, you don’t get to pick your favorite part of the business).
Which means we can’t be definitive, not with those squishy clues, but I’d guess we’re being pitched Cree (CREE) even though the description of the business, leadership of the sector, buyback size and agricultural research and prospects is a better match for Philips (PHG) and their soon-to-be-sold lighting business. If you’ve a better match, feel free to throw it on the pile… but whatever you do, don’t buy PHG for long-term exposure to the LED business — it’ll be out of their hands pretty soon.
There are two more from Hoppmann that I’ll get answers to for you shortly if I can, but that’s all we’ve got for now — an unsatisfying “kinda” match, and an opportunity for you to discuss LED lighting, the future of farming, and, perhaps, Philips or Cree or whether either of them is going to create “something out of nothing” in following the innovation roadmap of the Book of Genesis.
Oh, and yes — even LED lighting consumes a lot of energy indoors, along with all the other complications of mass indoor farming… as more than one agronomist will tell you, “You have to replace the sun, which is free. It is a very hard competition.” Let us know what you think with a comment below, and we’ll finish up our look at this “future of farming” and “Genesis Investing” teaser pitch soon…
P.S. LED lighting is a pretty clear “future is now” idea… but that was also true five years ago, when LED lighting was all over CNBC as the next tech revolution, and was being pitched right and left by newsletters and pundits. Since then, the two biggest companies in the space that get much attention, PHG and CREE, are worth less than they were five years ago (the S&P 500 is up about 90% for that same time period). Be careful in how confidently you predict future “obvious” trends in society or technology, and especially in how you extrapolate that into future stock performance.