*** This article was originally published as part of the Friday File on March 8, 2019. It has been (very) lightly updated and unlocked for everyone to read ***
Today’s teaser that we’ll feed to the Thinkolator is from Michael Robinson for his Nova-X Report ($79/year), and it sounds kind of familiar….
These Mysterious ‘M-Boxes’ – Hidden in Your Neighborhood – Are About to Spark a $12 Trillion 5G Cash Rush…
The ad is pretty similar to the “Weird New Antennas” pitch from Jeff Brown at Bonner & Partners last year, also about 5G and the big wave of investment there will be as these 5G stations are installed around the world… largely because 5G, in order to work effectively, has to have antennas much closer to users than 4G/LTE — they can’t rely just on towers or a few big collections of centrally located base stations, they need to have a “M-Box” every block or so in urban areas.
More from the ad:
“And make no mistake: Inside this box is the most important new technology to be created in decades – capable of completely changing life as we know it.
“I’m talking about 5G, of course.
“And it could also change your financial life in ways most people only dream about.
“You might want to start thinking bigger…Are you getting our free Daily Update
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“A whole lot bigger…
“I wouldn’t be surprised if these little black boxes created the world’s first TRILLIONAIRE!”
There’s a lot of chatter about 5G bringing forth the “fourth industrial revolution,” as well, and I’m sure you’ve heard a lot about that before — I won’t bore you with a huge spiel, but it’s basically that 5G will offer a combination of much faster transmission speeds that can move dramatically more data, and also that the latency will be so low that you can have essentially real-time interactions and decisionmaking by machines… so 5G makes all the dreams of robust “Internet of Things” interconnected machines more feasible, it could power driverless cars, etc. etc.
“And these little “M-Boxes” I’ve been telling you about…
“They’re creating a 5G world, right now as we speak.
“The network that will make EVERYTHING possible is forming right before our very eyes….
“… these little “M-Boxes” are like “super-connectors” – they are the foundation upon which the new world will stand…
“Imagine a world-renowned surgeon in Los Angeles… performing emergency brain surgery on an accident victim… while the patient is still in the ambulance… on the Pennsylvania Turnpike… over 3,000 miles away!”
Then we get into some specific hints about the “M-Box” company he’s teasing:
“… a lot of big companies – including AT&T, Verizon, and Comcast – are going full force into 5G.
“Now, you can go ahead and invest in those companies right now, if you like.
“It’s a safe bet you’ll make a decent return.
“But there’s one company I want to introduce you to that’s completely under the radar.
“But it has the potential to make you exceedingly wealthy.
“Right now it’s criminally undervalued. Shares are up for grabs for just $6 a pop!
“Heck, that could be the deal of the decade right there…”
Hmmm…. might this be the same stock as Jeff Brown’s pitched “$6 Digital King?” Let’s see if we get some other clues…
“… this one company has a specific technology that is an essential requirement for making 5G work the world over.”
OK, note that he didn’t say “exclusive” … but “essential” is pretty good. What else?
“… the bleeding-edge tech INSIDE these mysterious “M-Boxes” is absolutely fascinating, if a little complex.
“They Shoot LASER-Like Beams Precisely Where They Need to Go…
“These boxes leverage high-gain, adaptive antenna technology and sophisticated best-path-selection algorithms.
“They are powered by something called MU-MIMO 802.11ax – which stands for multiple user, multiple input, and multiple output antennas.”
What else? Here’s some more squishy hinting from the ad:
“This company is better positioned than ANYONE to skyrocket as 5G lifts off.
“To say it’s in the catbird’s seat would be an understatement of epic proportions.
“You see, this $6 company is totally rare and unique.
“For the last decade, they’ve been strategically positioning themselves to take FULL advantage of the 5G revolution.”
“This $6 company is a unique hybrid. It offers both the rock-solid stability of a proven blue chip and the upside profit potential of a small-cap startup.
“I’m almost certain that you will have heard of this company.
“This isn’t some backwater stock with dodgy financials.
“They have a long history of pioneering tech advancements.
“But for the last few years, they’ve almost completely disappeared from the public spotlight.”
And then they drop a bunch of hints about the locations of the companies offices, factories and projects and partnerships around the world, summing up a few things here:
“And recently, one of their top executives revealed they’re involved in more than 70 separate 5G-related projects!
“I realize this is not the kind of MASSIVE GLOBAL EXPANSION you associate with a $6 company.
“But this is NOT your ordinary $6 company.
“Already, savvy institutions – including BlackRock, Goldman Sachs, and JPMorgan – have grabbed 225 million of the available shares…
“Their year-on-year growth for 2017-18 is an incredible 782%…
“And in 2021, I project sales could be boosted by a staggering, mind-blowing, $35 billion.”
We get two “move fast” pushes in the ad as well — the first being that “a brand-new, 5G-related product is expected imminently.” and the second that “one of this company’s biggest 5G rivals has just been BANNED by the U.S. and others.”
I don’t know which 5G-related product he’s hinting about, but likely the biggest splash in 5G in the US this year will come from the introduction of Samsung’s 5G phone, the Galaxy S10 that is expected to launch in the next few months, along maybe with a Samsung folding phone that they hope will take some luster from Apple, which probably won’t release a 5G iPhone until 2020 at the earliest (Apple doesn’t tend to focus on being first, and there’s going to be so little 5G coverage this year that it won’t make a big difference to most customers… but it could give Samsung an edge in marketing, at least).
The “rival” bit is obviously about Huawei, which is the driver of so much of 5G talk right now — the Chinese company that has come essentially from nowhere to dominate telecom infrastructure equipment in the past decade, with low costs and more rapid technology advancements than pioneers like Nokia, Motorola and Ericsson.
And yes, there’s still some room for being wrong on this given the lack of completely perfect clues, but I’m quite sure that Michael Robinson here is joining Jeff Brown in promoting Nokia (NOK) as a 5G investment.
Which I agree with, by the way, though I think there’s no chance that it will return 10X your money anytime soon. And no, Nokia does not have a “lock” on 5G equipment or base stations or antennae — they will be built by lots of companies using similar technologies and agreed-upon global standards, though Nokia is a leader (and does have some patented and unique products, both on the handset end and the network end, and will receive some royalties from other equipment makers as well, as most of the leading companies will).
Nokia (NOK) has edged toward “cheap” again of late. They are keeping the deal flow going, the stock is well off the highs, and it still yields almost 4%, despite a growing presence in these early stages of 5G network building. Huawei’s fate as the global leader in most mobile telecom network equipment (Nokia is arguably in second place, though Samsung and Ericsson might dispute that) is still a big unknown, but the uncertainty over Huawei is certainly giving Nokia (and Ericsson, and Motorola, and Samsung… among others) the opportunity to catch up with their dominant Chinese competitor, though I continue to read that Nokia has a broader and more complete network offering than anyone else other than Huawei.
If analysts are at all right in their forecasting (and they might not be, of course, but their guesses are definitely more informed than mine), then 2020 is going to be the huge bump-up growth year for NOK revenues and earnings — the estimate is that NOK will have earnings of 32 cents per share in 2019, growing 40% to 44 cents in 2020, and that assumes a shift to higher-margin sales because overall revenues are only projected to grow about 2% a year, from $25.9 billion in 2018 to $26.6 billion in 2020.
The stock is trading at about 19X 2019 earnings forecasts and 13X 2020, so it’s not dirt cheap but it’s certainly trading at a low valuation IF they can grow earnings anywhere near that quickly… and while they may indeed disappoint, this is a huge business that will not disappear overnight, and it trades at only a little over 1X sales so there is ample room for improving the valuation if sentiment shifts in their favor.
My guess is that the shares will have a strong second half of 2019 as we edge toward the much more intensive 5G investment wave that’s expected in 2020, and that’s why I’ve been building a position… but that, of course, is a guess — a lot depends on the financial health of the telecom companies around the world, the pace of telecom infrastructure investment, and the state of global trade (to say nothing of competition from Huawai and how that shakes out). 5G will not be an instant change to the world, the rollout of the technology is going to take a long time… but all indications are that yes, the rollout is going to be a very big deal for most of the telecom infrastructure companies, and we’re more likely to see it speed up than slow down in the next couple years.
Much of my thesis is based on the fact that NOK is well-positioned to win contracts for 5G infrastructure buildout projects, and is already doing so, but they also have a strong existing business that provides some stability, and they remain a core equipment provider for hundreds of telecom and tech companies around the world in both mobile and wired networks, including the continuing buildout of 4G/LTE in many countries. They are certainly subject to competition and won’t always be the technology leader, but they do have a wide product portfolio and they are not going to lose every competitive bid. They are small enough, relative to the size of the market opportunity, to grow very rapidly, particularly if the pace of 5G investment heats up… but they’re also large enough and boring enough to be ignored by most investors who still see them as a handset maker or dinosaur.
So as it dips to $5 or so and trades at 19X earnings, with a 4% dividend and the tailwind of what will probably be a decade-long infrastructure build for 5G after a long slow slog of reorganizing a pioneering company, I like letting Nokia become a larger part of my portfolio.
It’s been a rough ride for Nokia of late, as with most of the 5G/Huawei exposed stocks during the trade war, but management remains optimistic about their opportunity in the 15-20 year cycle they see for 5G — here’s an interesting interview with the CEO from Bloomberg TV earlier this week:
Disclosure: I own shares of and/or call options on Nokia, Ericsson and Apple among the companies mentioned above. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.