Fool’s “Small-Cap 5G Stock Targets 40X Potential”

What's being hinted at in the pitch for Motley Fool Extreme Opportunities: Next-Gen Supercycle?

By Travis Johnson, Stock Gumshoe, February 23, 2021

The Motley Fool has really been ramping up their weekly “Investor Digest” ads that focus on pitching their higher-end portfolio services, and we’ve covered several of those in the past few weeks… but lots of readers keep asking, so we’ll throw another one on the pile today. What’s this “Small-cap 5G stock” they’re pitching?

Ahh…. 5G… it almost makes me feel nostalgic for the good ol’ teaser pitches of two years ago, when 5G was all anyone could talk about. It got a little bit lost in the shuffle with the pandemic and the explosion of SPACs and space stocks and sports gambling and all kinds of other sexycool ideas, but it’s still out there. A transition to a new wireless standard is still a big deal, it still drives a lot of infrastructure buildout, new demand for equipment (including new phones), and, as that faster service becomes more available, it will presumably drive new innovative products that take advantage of it (remember before 4G, when you couldn’t even reliably watch videos on your phone?) Technology evolution takes some time, even discrete upgrades like 4G to 5G, but it’s clearly coming… so what’s the stock the Motley Fools are touting as a play on that?

Here’s the tempting bait they dangle:

“The Motley Fool made its name by finding transformative stocks targeting huge growth…

“Before everyone else saw the opportunity.

“And every now and then, even in this market, our analysts uncover a true under-the-radar small-cap stock with what we think is a huge growth story to tell.

“Well, Jason Moser has done just that over at Extreme Opportunities: Next-Gen Supercycle.

“This stock is exclusive – it hasn’t received a formal recommendation anywhere else at The Motley Fool.”

I’m pretty sure we haven’t looked at that Next-Gen Supercycle product from the Fool yet, but it’s basically the same idea as their other Extreme Opportunities services — they offer up a set portfolio that has already been recommended, with updates along the way as they add new stocks to it, rebalance the portfolio, and cover the updates to those stories, and, unlike the “entry level” Motley Fool stuff it’s nonrefundable (and pricey, the “on sale” offer is currently $1,399 for the first year and will auto-renew, retail price is $1,999). The Lead Advisor for this one is Jason Moser, who also helms the Extreme Opportunities: Augmented Reality service.

This is how they position the service, if you want more detail:

“Now, with 5G phone sales projected to be 60-fold by 2023…

“And a coming wave of 5G infrastructure buildout experts believe will cost $275 billion in just the U.S. alone…

“AND 5G projected to have a global impact of $17 trillion in sales by 2035…

“I trust you can see why we’re so excited about this market!

“Which may bring up another question in your mind: “What kind of returns are we targeting?”

“Lead Advisor Jason Moser and his team are aiming to build a diversified portfolio – containing stocks of different potential risk and upside – that they believe can achieve 6X to 7X growth across the next decade!”

So before ponying up $1,399 for a nonrefundable subscription you want all the info you can get, right? Let’s at least get a name for that “huge growth story” stock they’re pitching, and you can look into it, think it over, and make your own call… without the “take me to the stock!” pressure that leads people to pull out their credit cards and make rash investment decisions. The more info, the better, right?

I’ve mentioned this before, but one of the key areas were our brains get in the way is in buying stuff — if you buy a house, you keep checking on other home sales in your neighborhood so you can congratulate yourself on getting a big deal… if you buy a car, you look for good reviews of it to make you feel smart… and if you pay big bucks for a newsletter, you are incentivizing yourself to invest heavily in whatever stock they’re teasing to get you to sign up. If you pay $1,399 or $4,999 or whatever (nonrefundable, naturally) to learn about a secret stock, then once you read the secret report and get your “tip,” your brain is not going to want you to decide it’s a dumb stock idea. That would mean admitting that you just purchased something without thinking.

So that’s part of why we do what we do here — if you already know the name of the stock, and you didn’t pay for it, you’ve got a much better chance at being rational and disciplined in trying to analyze it and decide whether you want to invest.

But what, then, is this stock? Here are our final clues…

“The company made $100 million last year… in a fast-growing slice of the 5G market….

“It’s not ‘just’ a 5G stock…it’s a 5G stock with what Jason calls a ‘really attractive’ business model that sports 89% gross margins….

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“A genuine small-cap… sub-$2 billion market cap small.”

Which means that the Thinkolator can take a day off, kick up its feet on the chaise, and wait for a bigger challenge — all we need here is a stock screener to tell us that with revenues near $100 million, gross margins near 89%, and a market cap under $2 billion, this is… Ceva (CEVA)

CEVA currently sports a $1.5 billion market cap, is unprofitable but has a 89% gross margin, and reported exactly $100 million in top-line revenue over the past four quarters. A perfect match, and there actually aren’t any other matches that are even close. And if you want a little confirmation, the Motley Fool disclosures indicate that they did not recommend the stock a few months ago, but they did recommend it as of about a week ago, when CEVA’s latest earnings call transcript was posted. (And you should read that transcript if you’re interested in the stock, it gives the company’s basic outlook on where they stand right now.)

So what does this company do? It’s a little bit like Rambus (RMBS) or Universal Display (OLED) in that it’s primarily an IP company, they own valuable patents and do basic R&D in their niche, and make money by licensing those patents and doing joint ventures with customers to advance new technologies and support new products. Rambus specializes in memory, Universal Display in OLED scree