Eric Bleeker at the Motley Fool came out with a big “presentation” recently where he walked around the stage pitching a new high-end project that they’re calling Extreme Opportunities: AR — a $999 no refunds one-year subscription to their thinking about augmented reality, starting with a 15-stock model portfolio and including whatever changes or updates they make to that portfolio for the coming year (and yes, they’ll autorenew you at “whatever the future price is,” right now they say it’s list priced at $1,999).

So naturally, we know that no one would ever jump on a $999 product that they’re not sure about, not when there’s no refund — and certainly would never spend that much to get a “hot” stock tip or two (or even 15)… so what to do?

Well, I can’t tell you whether or not their special reports will be worthwhile (they had a similar product about Artificial Intelligence stocks a while back, if you subscribed to that and have an opinion please share it with a comment below)… but I can sift through the hints that Bleeker drops in his ad presentation and let you know about the few companies he highlights, and let you get a little head start on researching the industry for yourself. That, at least, will give you some background and let you know whether you think it makes sense to spend that kind of money for some investment research.

And by the way, I will give you one tip: Don’t think of the gain potential of “getting in” on something hot when you consider a pricey newsletter subscription, think instead of the newsletter as part of your “investment expenses.”

Especially if you’re just learning and are not dealing with a big portfolio, or if you let yourself dabble with individual stocks with only a small part of your portfolio, be careful to think about what you’re spending in relation to the size of your investment portfolio. Everyone is justifiably wary of mutual fund fees in this era of low-cost index funds and ETFs, and thankfully hardly anyone ends up paying 1.5-2% expense ratios for below-average mutual funds anymore (thanks, Jack Bogle! Rest in Peace, you are a hero), but it’s not just mutual fund fees that can be a weight on your portfolio — pay as much attention to the money you spend to research investments. If you are thinking about investing $200,000 in augmented reality stocks for the next several years, then sure, spending $1,000 or $2,000 a year for what you consider to be expert research and guidance might (arguably) be reasonable — that’s similar to paying a mutual fund 0.5% to 1% to manage your money.

If, however, this is the kind of thing you’d just speculate on with some play money (assuming $200,000 isn’t “play money” for you), and maybe you’ll just buy a few stocks and put $10,000 or $20,000 into these kinds of ideas over the course of a year or two, then you’re spending a LOT — you’ve effectively committed 5% of your investment just to do some research, with no chance of a refund if you find the research disappointing, and you would NEVER invest in a mutual fund that charged a 5% annual fee (right?).

“Don’t spend more than 1% of your portfolio doing research” is a rule of thumb I feel comfortable with, and even that is an indulgence unless you are an active investor in individual stocks and really enjoy reading the newsletters or other research sources you receive, and get something out of the experience beyond the buy/sell advice on stocks. That’s just my thinking, though, you are, of course, welcome to do whatever you want with your money.

So anyway, what’s being promoted in the ad?

The basic implication is that augmented reality (abbreviated AR) will be the next major breakthrough –the next evolution in technology, similar in impact (though larger, the hype portends) to the personal computer, then the internet, then mobile computing and smart phones. That’s a common prediction we’ve heard many times.

And the meat of this promotion is that they are certain Apple will be leading the way, and that their “T288” device will be what makes augmented reality take off and create a new industry, similar to the iPhone a decade ago.

As is often the case with these kinds of stories, we also get lots of fleeting images of patent filings and drawings that buttress the argument that Apple is just about to release something fantastical (remember the patent drawings of that roll-up iPhone a few years ago? Yeah, most patented designs and products don’t end up being developed).

And we get that other oft-used ad technique: Photos of the mysterious secret building where Apple is developing key technologies for this “T288” — in this case, those are photos of a location in Santa Clara, CA where Apple is reportedly building (or growing) the next generation of Micro-LEDs for use in some future display technology… maybe that augmented reality headset? PatentlyApple posted a photo of the same building with a story about Apple trying to push display technology forward last year, if you’d like a little more background. That was mostly a story about how Apple’s display-building suppliers were a little nervous, but, as with so many of these R&D stories, it’s still pretty early and Apple might or might not use Micro-LEDs in some new AR device.

The “T288” name is not made up by the Motley Fool — that’s a “code name” that has been used to refer to the Fool’s long-rumored virtual reality/augmented reality headset/glasses project. There was a decent-size splash about this on all the Apple-following websites last year, so if you want to catch up with where folks were a year ago it’s worth reading this from Macrumors last year or the forecasts covered in Bloomberg back in 2017 (which thought a new AR device could be ready for release in 2020).

So the basic argument is that they’re going to help you get out ahead of Apple’s next device and the “T288 Era” by helping you buy the suppliers and companies that will enable this revolution… and probably, if past big picture ad spiels like this are any indication, they’ll also be talking up some of the companies who will benefit from the gradual adoption of AR technology even if they have nothing to do specifically with Apple or its products.

So with that broad pitch, what are the specific stock picks? They say they’re starting out with a portfolio of 15 stocks, but they only drop hints about three of them… let’s see if we can name them for you.

Here are the clues we get about the first one:

“A key augmented reality technology we’ve been tracking is ‘3D sensing’ – which might sound like sci-fi – but in a nutshell, it’s the technology that allows AR devices to map the world around them.

“We’re confident this technology is essential to the rise of augmented reality, so we’ve been tracking the key suppliers that can provide 3D sensing solutions to breakthrough AR devices.

“Now, you can imagine our surprise when a tiny supplier that’s about 1/500th the size of Apple announced in a recent quarter that its 3D sensing business was suddenly seeing sales skyrocket by an outrageous 200% year over year!

“Proof that you’ve already missed the boat on investing before Project T288 hits the production lines?

“Hardly.

“We believe this sudden rise in sales is attributable to augmented reality technology simply being built in a limited way into smartphones – NOT to Project T288 going into production.”

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So far that 3D sensing is mostly being used in very short-range, and with limited use cases, but presumably it will keep growing and will become more important with more precise AR demands… right now the big use is on the front of your iPhone X, with the face-sensing scanners that serve to ID you and unlock your phone (or replace your face with a cute animoji).

So who is it? That’s very likely to be II-VI (IIVI), the optical equipment company that is one of the triumvirate of 3D sensor firms supplying Apple and other major manufacturers — most interesting at the moment because they are buying one of the other ones (Finisar (FNSR)) in an attempt to scale up and create two-way competition with Lumentum (LITE), which has apparently gotten the lion’s share of Apple’s 3D sensor business so far.

II-VI did report 200% growth in 3D sensor shipments late last year, though that is far from being the overall revenue growth of the company. I’ve seen a few forecasts about 3D sensing being relatively slow to “take hodl” in smart phones, like this one from Trendforce, and most of them also rely heavily on guessing about what kind of impact the next iPhone upgrade cycle will have. This is still a technology that’s not even in 10% of phones yet, let alone widely used for AR, so in many cases we’ll remain in the dark until word of what advancements will come in the next iPhone and whether that creates a big upgrade cycle, and a real high-volume demand driver for these sensors.

The Fool definitely recommends IIVI for some of their services, that’s confirmed in the disclosures in this free article they posted last month, and it’s the best match for these clues, though LITE will likely be driven by the same market forces and will probably have similar performance. For what it’s worth, the Fool does not apparently have any active recommendations on Lumentum or Finisar.

Next clue?

“For example, think back to how AR technology could improve communication technologies like FaceTime exponentially. Now imagine the kinds of profits that could pour into a company that becomes the “operating system” for AR communications.

“We have that company – and many other early leaders in key AR technologies – researched and recommended inside Extreme Opportunities: AR for you the moment you join!”

And in the video “presentation” Bleeker also notes that this a stock that is not recommended by the Gardner brothers in their Stock Advisor or Rule Breakers services (yet, at leaset), but it’s a stock that they both like.

So what is it? That’s not enough clues to be definitive… but I’m pretty sure he’s hinting at the wildly hyped-up video conferencing company Zoom Video Communications (ZM).

I’ve never really looked at this one, but yes, they are trying to build on their core video conferencing platform with “next generation” augmented reality to push into the “you’re really there in the meeting” feeling for remote participants.

This is a company I don’t really understand, to be frank — they offer something that has been available for a long time, without an obviously better experience (as a non-user, at least) and with huge amounts of competition, and yet they’re apparently getting a $25 billion valuation (50% above the IPO price of two months ago, which itself seemed nutty to me). That’s about 50X sales, if you annualize this quarter’s $122 million in revenue (“annualize” is just fancy investor-speak for “multiply by four”), so there’s probably something more appealing than I understand about their product.

Zoom just reported its quarter, so you can see a different Motley Fool writer’s report on the Q1 results here. The total addressable market is indeed huge, and maybe Zoom is so much better than the incumbents that they’ll be able to accelerate their revenue growth, perhaps they’re just better integrated with other key SaaS technologies (Salesforce, Twilio, etc.) than the entrenched competitors are, or maybe those competitors have just failed to innovate (the leaders are Cisco’s Webex, Microsoft’s Skype, LogMeIn’s GoToMeeting, though I’m sure there are a lot of others). I have no idea, but I expect this is one that I won’t be able to wrap my head around.

And one more…

“… we’ve combed through the industries AR could transform and picked out our top plays. For example, Extreme Opportunities: AR comes with a health care company just 1/100th the size of Apple that’s been an early innovator in the AR market.”

And Bleeker also notes that this is one that is “loved by David Gardner” … and that’s about it for clues.

So, again, we can’t be 100% sure but the Thinkolator tells us that must be intuitive surgical (ISRG). The robotic surgery pioneer has seen revenue growth come down a bit as they’ve been seeing more trade-ins for the latest generation of the Da Vinci robotic surgery system, and as more systems have been leased rather than purchased — it’s a bit more of a “steady state” business now that so many huge hospital groups, at least in the US, already have all the Da Vinci systems they need, so the stock has spent the past couple years adjusting to the fact that it’s not going to see nosebleed revenue growth anymore… which makes it hard to pay 15 or 20X sales for the stock.

That kind of thing never worries David Gardner, though — in face, one of the key criteria for his “Rule Breakers” stocks is that they have to be considered “too expensive” by conventional Wall Street analysts and investors.

So you obviously would not be excited about ISRG on the valuation — it’s recently growing earnings by 5%, and trades at 53X trailing earnings. That’s pretty tough to swallow. Maybe not as tough as Zoom’s 50X sales, but still tough if you have any rational or conservative bones in your body.

And even if you go to the forward earnings estimates instead of the actual trailing earnings, you have a stock trading at about 37X next year’s earnings while growing earnings at an average pace of about 15% a year (according to analyst forecasts for the next few years). It’s not particularly a cash flow story either, free cash flow is not markedly different from earnings… and there’s nothing exciting in the balance sheet (it’s fine, they have no debt and about a billion dollars in cash… but nothing to change the way you think about a $60 billion company).

So like so many stocks, this is just a richly-valued growth company. If it grows a little faster than expectations, things will be fine… if it grows more slowly than expected, things could get ugly pretty quickly. You have to believe in the story to feel OK about spending this much money, especially for a stock that is well-covered and well-known and already very large — ISRG might do well, but it’s not am emerging or unknown story.

That said, my thinking about this one is probably quite biased because I’m still a little bitter about Intuitive Surgical (ISRG), mostly thanks to the embarrassing fact that I did a terrible job managing my ISRG position back in the 2008-9 crash (I had only a small position and could have handled the risk, but it didn’t feel like that at the time and I foolishly thought I could be clever and buy back in later… which, of course, I never did. I let the shares be called from my account in a stop loss, partly because I was buying a house… it is up 1,000% since then).

And yes, augmented reality is an obvious possible augment for the world of robotic surgery, where the ability to visualize the inside of the body and the approach to a surgical problem before you cut into the actual skin would be nice. This isn’t going to be a key part of every da Vinci surgery this year, but it is actually real — Intuitive Surgical got FDA approval for their IRIS augmented reality product a few months ago and will presumably be selling that as an add-on for the da Vinci (or as part of the “subscription” terms that they’re moving toward with some of their products and services).

**correction** A reader pointed out that I flossed over the “1/100th the size of Apple” part of the clue. Sorry!

ISRG has indeed made inroads into AR, and I can’t be definitive with that level of clues, but at that size my initial response is to move my “most likely” bet for that one to Teladoc (TDOC), a telemedicine company I have owned but don’t currently own.

Teladoc is promising if they maintain leadership in telemedicine via deals with big insurance companies — or preferably with Medicare. They are better-financed than competitors, which is a big deal at this early stage, but do face challenges and have had some management issues I didn’t like (which is why I let my shares go when they hit a stop loss), but I’m willing to reconsider as their story evolves.

And, well, that’s about all I can tell you this morning — Eric Bleeker says they have 15 stocks to start with as an augmented reality portfolio, and I’m pretty sure that Zoom Video, Intuitive Surgical Teladoc and II-VI are the three that they’re dropping hints on today. Possible contenders for the other dozen on the list are probably Apple (AAPL) itself, Electronic Arts (EA), Take Two Interactive (TTWO), Zynga (ZNGA) or Activision (ATVI) for the video game sector (all have been MF recommendations at one point or another, don’t know about today), NVIDIA (NVDA) or AMD (AMD) for advanced graphics processors, Universal Display (OLED), which has been teased many times by the Fool for their exposure to the latest iPhone screens, Wayfair (W) for retail, and I wouldn’t be surprised if they throw Facebook (FB) in there as well but, well, I’m just guessing at this point so I’ll toss it over to you — any augmented reality ideas you’re excited about? Wild predictions to share? Let us know with a comment below.

Disclosure: Of the companies mentioned above, I own shares of NVIDIA and Apple. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.