Three “Blockchain Breakout Stars”

by Travis Johnson, Stock Gumshoe | December 6, 2017 5:24 pm

What is Matt McCall pitching as "the 'safe' way to profit from the bitcoin bonanza?"

Pretty much every newsletter publisher is trying to ride on the “bitcoin mania” with new products and new ads, so this is “bitcoin week” (or “blockchain[1] week”, if you prefer) here at Stock Gumshoe, as we try to ID all of the cryptocurrency investments being hinted at by the latest waves of teaser ads…

… and now it’s Matt McCall[2]’s turn — he’s selling his newsletter now with a pitch that he has “the ‘safe’ way to profit from the bitcoin bonanza.” Sounds nice, right?

McCall’s service is published by Investorplace[3] and called NexGen Profit Multiplier[4]… it’s mostly a short term trading advisory, it appears, he says on his order form that “we will use ETFs, short-term stock positions and quick-hit options[5] to profit from these trends” … and, like most short-term trading services, it’s relatively expensive (“on sale” for $495/yr) — publishers know that they have a better chance of keeping traders happy if their subscriber list is relatively small, particularly if they’re trading things like options where the pricing is apt to swing wildly if even a couple hundred people try to trade the same contract at the same time, and the best way to keep a membership list small is to charge more for it (or to have terrible performance, of course — that usually keeps a list pretty small, too).

McCall, assuming it’s the same guy, also used to run something called FUTR Stocks[6] that appears to no longer be published by Investorplace, and has a couple other “NexGen” services at the same publisher[7], we haven’t received any feedback on those yet and I don’t know what his track record is.

But, like pretty much everyone with even a hint of a “growth” bone in his body, McCall is revved up about bitcoin and blockchain… and the headline on his order form sums it up pretty well:

“The Blockchain Breakout is Set to Hit $2.3 Billion…

Are you ready to bank as much as 693.95% in profits?”

Gosh, no, I’m not ready. That sounds like too much. Could I have smaller profits, please?

Kidding, of course.

That 693.95% profits number comes from the track record of his “Blockchain Breakout Star #1” stock… which might mean that you can guess it right now, without going any further.

No? OK, let’s check the clues he drops. I’m assuming that you’d rather learn about these stocks on your own, do a bit of research, and then make a decision about whether or not to send Matt McCall $495, yes? Good call.

OK then. The clues…

“One blockchain leader is marching to $200 per share – Blockchain Breakout Star #1…

“Any time someone wants to process data or make a transaction on this ledger, they have to use a computer. That computer has to solve a mathematical equation every time it adds to the ledger….

“These equations need to be processed by a very powerful computer to be successful – computers generally selling for over $3,000 apiece.

“So, any company making powerful computer chips is going to be leading the pack in this industry….

“This company is uniquely positioned to take advantage of the boom in blockchain technology as it hits the mainstream.”

Sound like you might have an inkling which company he’s talking about? You’re probably right. A few more clues…

“It’s not just the blockchain: they are a stellar company on Wall Street….

” it’s more than just a great choice for a coming tech trend. They’re also a company that is doing very well… and so are its shareholders.

“In the last two years alone, their stock has shot up an astounding 693.95%.

“And just when you think you’ve missed the boom from this stock: experts are predicting that they will soon rise well north of $200 a share.”

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He even includes a handy little chart showing that 693.95% gain… so yes, the Thinkolator can confirm that this first stock is indeed everyone’s favorite momentum tech stock, NVIDIA (NVDA). I own shares of this one, though not primarily because of bitcoin or blockchain, NVIDIA’s biggest business is indeed GPU chips for high-end video gaming (and crypto mining), their biggest growth comes from higher-end chipsets that are used for artificial intelligence processing and data centers[8] and self-driving cars.

NVIDIA has soared because they have a finger in so many different “hot trend” investment areas, and have real and growing businesses in all those areas, but it’s important to note that it has, indeed, soared — the stock trades at 42X forward earnings and almost 30X 2020 earnings forecasts. It’s profitable and growing, but you’re surely paying for that growth.

I found it tough to buy at half this price and backed cautiously into a position using call options, so I might not be the best person to listen to on this one… it’s a fantastic company at a frightening valuation, and it can certainly do great still if they grow faster than analysts expect, but expectations are now a lot higher than they were a couple years ago.

So that’s one checked off, and it’s pretty much the same stock that everyone mentions first whenever bitcoin comes up as a topic… how about another?

Here are the clues for the next one:

“A $2.3 Trillion market nobody is talking about – Blockchain Breakout Star #2

“Our second pick might be in the most boring application… but sometimes, huge profits can be gained in boring industries.

“Blockchain Breakout Star #2 has been working with two French banks on a pilot program for their own blockchain network.

“The goal? Recording the details of bilateral repurchase – or “repo” – agreements.

“What are repos? They are a short-term loan where the borrower will sell some stocks or bonds to an investor and agrees to buy them back later. In this case, there is no middleman – the two parties will settle the transaction themselves, rather than work through a third-party.
Using blockchain technology to process these transactions offer several key benefits that would simplify a repo agreement….”

Finally we get to one that’s new to me — this is Broadridge Financial Solutions (BR)[9], the brokerage services company that was spun out of giant ADP about ten years ago. I can’t say that I’ve ever looked at this company in any detail, but they’re behind a lot of mail that most investors get — those proxy voting statements, official announcements from brokers, etc… here’s how they describe themselves:

“Since becoming independent in 2007, we have grown into a global fintech company with over $8 billion market capitalization and are recognized as an invaluable partner for the world’s leading companies and financial institutions. We help drive business transformation for our clients with solutions for enriching client engagement, navigating risk, optimizing efficiency and generating revenue growth. We handle millions of trades a day involving trillions of dollars, support communications that reach 75% of North American households and manage shareholder voting in 90 countries.”

You can get a pretty good idea of the scope of the business from their latest Investor Day Presentation here[10] — and yes, they did do that pilot project with some French banks to use a private blockchain for repo transactions[11], though I’d assume that’s really still in the “R&D” category. Tthey do mention blockchain from time to time, but it’s not a critical part of the current business… indeed, it’s blockchain is probably as much a threat to “middleman” businesses like Broadridge as it is a benefit, which is probably why they’re making an effort to lead in blockchain testing with their large financial clients.

Banks and brokerages want very much to be out in front when it comes to blockchain, not competing with fintech startups or with existing blockchain “tokens,” and that a great many of those “tokens” from ICOs might just end up funding a development team that itself gets bought by a large financial firm, with no profit to be had for the token-holders (since from what I can tell, holding one of these crypto coins[12], in most cases, gives you no ownership over the company that created it… though some of them do provide some exposure to the business).

So that might be an interesting financial “insider” to dabble in, I suppose, though blockchain isn’t going to have a meaningful impact on their revenue or earnings next year. Broadridge is a high quality company, with decent revenue growth and very good earnings growth and strong margins, and they have an excellent client base covering much of the mainstream financial world… but, of course, they’re expensive to reflect that high quality business, trading at a trailing PE of 30.

Broadridge is aiming for 5-7% annual revenue growth and 9-13% earnings per share growth over the next three years, which is great for a large and fairly stable company, and analysts are estimating a huge earnings pop of 20% next year (followed by 7-8% growth in future years), so that may be worth owning for a high-quality company… but at 24X forward earnings you’re paying for that growth, and you’re probably hoping that BR will surprise on the upside a bit, as they did last quarter.

So… this is one of the more rational financial services companies I’ve seen teased as “bitcoin plays” — it’s not really a blockchain play at the moment, of course, but one never knows what the future holds, and it is a decent and growing company with a valuation that’s just a bit optimistic… we won’t hold it against them that they aren’t really a “blockchain breakthrough” company right now.

There are some risks, I’m sure, Broadridge is and “old economy” financial information and transaction processing firm, what we would have called a “document management” company before people started to pretend that we don’t use documents anymore… so they could be upset by lots of fintech breakthroughs (not just blockchain), but financial services firms are highly regulated and risk-averse, so the sober and reliable partner often gets the nod even if there’s something shinier coming down the pike. I’m talking myself into liking this one a little bit, particularly given the regulatory changes coming through (change always means more consultants and more money for service providers, in my experience, even if the change is putatively to “less regulation”), though I’m still new to Broadridge so that’s just a preliminary settlement.

And we’ve got one more for you…

“Invest in all the blockchain leaders – Blockchain Breakout Star #3

“If you haven’t figured out yet, the blockchain industry is moving at lightning speed.

“Bitcoin – the first application of blockchain – didn’t even exist 10 years ago, and now it’s one of the hottest sectors on Wall Street.

“And while our first two blockchain picks are proven winners… there are going to be more.

“Opportunities are going to pop up all over the place: in health care, in IT, even in sports.

“With Blockchain Breakout Star #3, you won’t miss out on any opportunities.”

Jeez, we can buy them all? Where, Matt!?

More clues…

“This third pick is an actively managed fund focused on companies well-positioned to take advantage of new technology and innovation… including blockchains.

“Right now, they are holding 54 stocks all focusing on major tech and industry trends.

“But an ETF is only as good as the stocks that they pick, right?

“Well, they have one blockchain pick in their basket that has tripled this year alone. In fact, all but one of their current top 10 individual holdings is up at least 30% this year.

“The fund itself is up a very healthy 81.46% in the past 12 months”

This is almost certainly the Ark Innovation ETF (ARKK)[13], which matches the chart in the teaser pitch quite perfectly… though the similar Ark Web X.0 ETF (ARKW) is quite similar.

Ark Innovation is an actively managed ETF, which I’m not crazy about — ETFs that follow a manager’s opinions don’t make sense to me, better to have a closed-end fund or mutual fund if you’re going to evaluate specific companies on their merits instead of just weight a sector by your quantitative rules and rebalance periodically. But it has certainly done well, partly because it has a large position in the sometimes-wildly-overvalued Bitcoin Investment Trust (GBTC, 6.4% of the portfolio as of yesterday), and holds plenty of other rapid-growth stocks (Tesla, Stratasys, Twitter, and athenahealth round out the top five).

So this one might be interesting to watch, but that’s a pretty esoteric collection of technology-related stocks, including several biotechs in the top ten, and I have no idea what their skill will be at picking stocks in the future — and it’s also hard to know what to compare them to. Here’s a 3-year chart of the two ARK funds compared to the Nasdaq index (QQQ) and the semiconductor index ETF (SMH), for whatever that’s worth (ARKW is green, ARKK is blue):
[14]

It’s generally dangerous to chase performance in mutual funds[15] — most active managers come back to earth after a lucky streak, and ARKK and ARKW have clearly gotten a boost from bitcoin itself with their large GBTC positions, as well as from other volatile stocks like Tesla, so I’d expect a bumpy ride. If you do decide you want a taste of this one, I’d make sure to read up on it a bit and make sure you understand the portfolio management strategy and feel comfortable with their active management.

And we’re out of time for today, dear readers, so I’ll pass it back to you — do any of these “blockchain breakout stars” catch your fancy? Have other favorites to share with the class? Let us know with a comment below. Thanks for reading!

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