“The potential gains on this invention are so big… I estimate they could easily add a whopping $914,565 to the average American’s retirement account!
“So follow along with me. This could well be the biggest, easiest money ever made.
“The simple invention inside that early inkjet printer – the same one that’s revolutionizing knee surgery – is known as a micro-electro-mechanical-system (MEMS).”
That’s what caught my eye about the latest teaser pitch from Michael Robinson for his Nova-X Report. I always enjoy digging into the ads for his newsletters, because he (or his copywriter) is so skilled at painting a compelling picture about a huge new market… and then sneaking in a few hints about the “one little stock” that he claims will dominate this huge new market.
And sometimes, it’s ridiculous enough to be funny…. though we still keep our eye on the prize here at Stock Gumshoe: We just want to learn about the real ideas being teased, we don’t judge the companies by the newsletter promoters who adore them.
Time for a quick aside for the new folks among us, before we get started: Here at Stock Gumshoe we think it is important to get the crazy out of our head before we can consider these investments rationally — which is why knowing the stock being teased by a newsletter before you pay for that newsletter is important. I sometimes drift off into investor psychology, but I think it’s important to know ourselves — and there are two biases that I think come into play with teaser stocks with some regularity:
The first is anchoring, which in this context is the tendency to focus primarily on one perspective or piece of knowledge about a stock or an investment — and usually, anchoring occurs with the first thing you learn about that stock. So if the first thing you learn is in a marketing piece about how that stock is going to dominate the world, it’s hard to shake that perspective;
The second is usually called choice-supportive bias, which is sort of the opposite of “buyer’s remorse” — it’s the tendency to look for information, or invent information, that backs up your decision. In this case, it would be the decision to shell out money for a newsletter, and you look for ways that you can remind yourself that your decision was brilliant… which means, often, that you’re going to think the newsletter analysis is brilliant because you paid for it. As I understand it, this tendency is also stronger in older people because of the way memory recall changes — and, of course, the core target market for most investment newsletters is people who are retired or near retirement.
So that’s my “every once in a while” reminder of why we do what we do here at Stock Gumshoe: We’re trying to give readers a chance to think rationally about investment decisions by seeing other perspectives, embracing some healthy skepticism, and talking with each other instead of getting too sucked-in to one well-advertised idea.
And, of course, it’s fun to short-circuit that marketing hype, do the detective work, and uncover these deep, dark “secret” stocks, and I like the chance to investigate new investments all the time… even if I don’t want to invest in many of them.
And, of course, it’s fun to short-circuit that marketing hype, do the detective work, and uncover these deep, dark “secret” stocks, and sometimes even invest in them if they’re actually worthy of consideration. And I like the chance to investigate new investments all the time… even if I don’t want to invest in many of them.
I’ll also note, to be fair, that the marketing these newsletters do is not always in alignment with the real, often serious and analytical work that many (or most) newsletter writers do — I sometimes hear from newsletter pundits and analysts who want to tell me that they themselves feel queasy when their publishers turn their investment idea into ads promising the “greatest stock ever” (sometimes, in fact, even they can’t tell what the stock is once their ad copywriters have gotten ahold of it). But enough of my sermonizing…
Ready for today’s adventure? As I said, it comes to us courtesy of Michael Robinson’s Nova-X Report over at Money Map Press… which has been, over the last year or two, perhaps the most aggressive publisher in newsletterland when it comes to teasing new ideas and getting their ads into every inbox on the face of the earth.
Robinson has talked up “MEMS” before, the little microelectromechanical systems that are most well known because some of the most widely used MEMS, like accelerometers and gyroscopes, have helped our smart phones become smarter, sensing their orientation or movement in space,
More on these MEMS from Robinson:
“And what if they were super small, as tiny as 1/50th of an inch?
“They could then be embedded in virtually any object.
“So that object knows up from down… which direction it’s headed in… and at what angle and speed it’s traveling.
“Like printers, for example…
“These motion chips can communicate so quickly and precisely… they allow inkjet printers to fire off 774 million micro-drops of ink per second. And print off a full color poster instantly.
“Now one small company found a way to use this invention in a brand new way…
To create a device that allows orthopedic surgeons to perform a NEAR PERFECT knee replacement.”
OK, so this is interesting — if there’s one thing we know for sure, it’s that people are getting older and older people are more physically active than they were a generation ago, so knee replacements are a big deal. That’s not news, of course, every pundit has been looking for a “play” on the baby boom generation and we’ve covered a few of those ideas of the years (including the implant companies — Zimmer which merged with Biomet, Stryker and their now-subsidiary Mako Surgical, Exactech, etc.).
But if there’s a new idea in knee replacement surgery, maybe we can get rich from it — woohoo! So what’s the connection between knee replacements and MEMS?
“According to an engineer behind the invention of this device, its unmatched precision comes from pairing the motion chip with what is… ‘Literally rocket science mathematics’
“Now, you might be wondering… haven’t they always used something like this?
You might be shocked to find out that the standard of care has long been ‘eyeballing’ the alignment.”
That was the expected genius of Mako Surgical, if you remember — they were supposed to be able to make knee surgeries much more precise and get the alignment right more often thanks to robotic assistance… I don’t know what sales have been like for them since they were acquired by Stryker three years ago, but it was a disappointing rollout before that.
I was actually just thinking about Mako recently, because for the first time I started hearing local radio ads from hospitals and orthopedic surgery groups boasting about their Mako Robotic-Arm Assisted knee replacements — there isn’t really a way to invest very directly in this robotic technology anymore, but I’m conditioned to listen for ads about medical devices because of the huge success of the Da Vinci (Intuitive Surgical’s Da Vinci robot really took off not just because they offered a great device for prostatectomies, but because they used their data effectively in marketing and convinced guys that they needed robotic surgery to protect their continence and sexual function… and hospitals added on to the marketing as they tried to outdo each other in competing for those lucrative prostatectomy surgeries).
So, dare we hope that this is some cool device that baby boomers will demand that their doctors use, and that hospitals will shell out megabucks for? Well, maybe not…
“Now, again, just like the smartest investors on earth, we know exactly where the biggest money is set to be made here: the core invention itself.
“The invention that makes this breakthrough possible in the first place.
“Because as big as knee replacements are – and they’re huge…
“The core technology could put you in line for 10 times that amount.
“You’re going have the opportunity to make HUGE money on the ‘razor blades,’ not the razor.”
That harkens back to the days of Gillette as a fantastic investment — Gillette all but gave away their razors in order to ensure a steady flow of sales of their blades, and ever since that fateful decision which, along with a steady flow of marketing dollars, kept Gillette the number one brand in the men’s razor business for 75+ years, the “razor and blade” business model has been a fascination of investors.
And nowhere is that more true than in the medical device industry, where they try to make a little money with the original machine they sell but then really ramp-up the long-term cash flow with the disposable attachments or memory cards or service contracts that have to be bought to make the machine work each time. Like, for example, the surgical attachments used by the Da Vinci, which have to be purchased for each surgery.
So what else do we learn about this miraculous invention? More from the ad:
“… this motion processor is completely revolutionizing the knee replacement industry.
“And don’t forget… it’s still used in inkjet printers – to the tune of nearly $1 billion a year!
“And still, that’s just the tip of the iceberg. In less than five years, it’s projected to:
“Generate an amazing $3.79 billion in blood pressure cuffs, respiratory devices and most stent and balloon treatment equipment in the medical field…
“$1.82 billion in mobile phones, tablets, smart TVs, voice recognition – basically anything that uses a microphone…
“$1.57 billion in car airbags, CPR chest compressors, Automatic Collision Notification Systems (CAN) and things like OnStar, Lexus Link, and the like….
“Not to mention a sweet piece of that projected $150 billion dollar knee replacement market!
“When you add up these and the hundreds more applications, its market is now estimated to reach an astounding $20 billion dollars.”
OK, so there we have a huge market… you know what that means, right? We’re going to just leap forward and assume that our secret stock gets a big chunk of that market… and we’re only going to talk about revenue, never about costs or profits. Here’s more:
“That means the company making the amazing motion chip used in our knee device is about to clean up.
“At 5% of the market, it would be raking in $1 billion a year…
“At 10% of the market, it would generate $2 billion a year…
“At 15% of the market, we’re talking $3 billion a year…
“But that’s not even close to the actual numbers here.
“I expect the company to hit 50% market share based on its already explosive growth rates.
“That would equal nearly $10 billion dollars in revenues. All while the cost to build these chips is often just pennies a piece.”
OK, so what could you argue with there? It’s a logical chain that’s missing several links — $10 billion in revenue, and “pennies a piece” makes it sound like this is a hugely profitable business, right?
Unfortunately, the MEMS business is extraordinarily competitive — the reason that the cost for making these chips has come down, often to ten cents or less (and some of the simple accelerometer chips cost for just two or three cents to make), is that the buyers are demanding lower and lower prices. And in turn, those lower prices spur more customers who can now afford to build more capability into their products, and price pressure increases — companies who buy a lot of semiconductors are accustomed to their prices falling every year, which makes it a really, really tough business if you can’t either sustain an ever-increasing rate of production growth to make up for the declining per-unit prices, or innovate fast enough that customers are willing to pay a premium for your uniquely advanced products.
So what is being teased here? Well, the knee replacement alignment technology device that Robinson is talking about is KneeAlign, a product from a private company called Orthalign. You can’t buy shares of Orthalign, should you be interested, but they seem to be doing fine (they report that tens of thousands of surgeries have been done with the KneeAlign, they have other products that build on that success, seem to have good distribution agreements with the big players, and they they might go public someday).
Who’s making the chips that go into Orthalign’s products? Well, there’s no way that they’re going to be making any meaningful profit from the sales of these devices, but from what I can tell the two companies that have been associated with KneeAlign are two of the largest MEMS/analog semiconductor manufacturers, STMicroelectronics (STM) and Analog Devices (ADI). Analog Devices issued a press release to crow about being designed in to one of the versions of the KneeAlign, and STMicro and ADI are both cited as makers of possible accelerometers that could be used in the KneeAlign in one of Orthalign’s patents.
So I’ll go out on a limb, given the absence of any other clues, and tell you that I’ll bet Michael Robinson is teasing STMicroelectronics (STM). This is not a 100% certain answer, of course, but he has pitched STM as the “owner” of MEMS in the past, and MEMS is certainly one of STM’s major focuses as they try to grow.
Will this knee thing help, or many any difference? Probably not. There are roughly 600,000 knee replacements done in the US each year, and the KneeAlign is a disposable device, so if surgeons used this for each surgery (which they won’t, of course, this is not the only technology available for adding precision to knee replacements and some doctors don’t use any guidance assistance at all), then that’s a potential for 600,000 chips per year for this one product. Which sounds pretty exciting, but it’s all but certain that those chips are less than a dollar apiece if you buy in high volume (Apple probably pays something like 50 cents for the 6-axis accelerometers/gyroscopes in its iPhones, though some phones have more than one of those sensors). Even if you assume the cost per chip is $5 to STM or ADI because they’re getting something fancier or using multiple chips, that’s $3 million. Million, not Billion. And STM and ADI are both multibillion dollar companies.
So as far as I can tell, it’s impossible for knee replacements to “move the needle” for any of the big MEMS chipmakers. There’s no logical reason for arguing that the semiconductor chips inside the KneeAlign are unique to that product or particularly valuable, or will in any reason “take a big chunk” of the overall $150 billion that Robinson says is spent on knee replacements… that’s just a good story to get your attention.
But yes, MEMS sales are growing… and some companies are even generating profits from them. And STM does have a large patent hoard in MEMS, and in many years is the top manufacturer of these little chip-like devices (though that depends on how you classify MEMS). It’s a big company, and the stock has been doing very well over the last six months after a 15-year period of mediocrity.
I’ve written about STM before — Michael Robinson teased it way back in 2013 when he was talking about tiny little MEMS sensors that would “end disease,” and, more recently, Paul Mampilly has been pitching it as the owner of the “greatest innovation in history.”
So I won’t go on about my opinions on this MEMS market or on STM, you can read that Mampilly teaser solution article if you want to see more of my detailed thoughts — but I will say that I’ve been skeptical about STM because of their disastrous financial performance over the past decade, and because of my experience with chipmakers who sell “hot” products into very competitive markets (like Invensense, which was a big MEMS accelerometer story when it got built into the iPhone 6 and keeps growing sales, but can’t get out from under the price competition with Bosch and STM to increase earnings) and that skepticism means I missed out on what has been a nice turnaround for STM in the last few months… so go forth, researchify STM or ADI yourself if you like, and come on back and share your thoughts with your fellow investors with a comment below. Thanks for reading!
P.S. In case you want some more reinforcement for the “connecting a chipmaker to the knee replacement market is crazy” notion, here’s one more little snippet from the ad:
“Every invention I’ve mentioned today is an “urgent buy.”
“Meaning you could start racking up gains this minute…
“The “perfect knee” device maker just announced a massive 21-country international distribution agreement. That means the company supplying the motion chip inside every device could blow away our 10-fold gain estimate in a matter of weeks.”
That’s ridiculous. None of the companies that have substantial shares of the MEMS market (ADI, STM, Bosch, Invensense, Texas Instruments, Broadcom, HP, NXP Semiconductor, Broadcom, Panasonic, etc.) will show you a “10-fold gain” in “a matter of weeks” — these are largely commoditized products, except at the very top end (where they get commoditized after three months because the competitors catch up), and if there are any markets that will drive a company’s revenue substantially they would be mega-volume markets that also have high price points… like smart phones, which is why people care about what chips get built into an iPhone that will sell 100 million units and don’t care (or shouldn’t care) what chips or other “commoditized” components (like accelerometers or gyroscopes) get built into a medical device that might sell 100,000 or 500,000 units. You can believe that MEMS will be a big market and also believe that no one will see fast, earthshaking returns in what is an extremely competitive marketplace.
OK. Rant done. Over to you.
Disclosure: I own shares of Apple and NXP Semiconductor, which I mentioned briefly above, but do not own any other stock mentioned above and will not trade in any covered stock for at least three days per Stock Gumshoe’s trading rules.
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