Alexander Green at the Oxford Club has a new ad out for his “single stock retirement plan” that’s sending a ton of questions our way — and you can see why. He’s promoting this one stock as being able to deliver a “multimillion-dollar retirement”, and there are obviously huge numbers of us holding out hope that there’s a way to “save” the retirement we know we’re not financially prepared for.
Here’s a little taste:
“I’m going to show you how a modest investment in a single $3 stock could generate a multimillion-dollar dream retirement in the coming years.
“I call it the ‘Single-Stock Retirement Plan.’
“Some might find the idea of retiring on one stock outlandish, yet many thousands of Americans have already done it.
“In fact, as you’re about to see, the 20 wealthiest men and women in America today made their fortunes thanks largely to a single stock.”
And he says that if you’re going to retire on one stock like those wealthy men and women did (though they mostly built businesses, they didn’t invest passively in one stock), Green says it has to be “the perfect stock.”
He’s even got a checklist for what “perfect” looks like when you’re seeking this “dream stock” for a one-stock retirement… which is when the clues start to drop in about what stock he’s pitching:
“Leader in cutting-edge technology….
“products used by billions of customers…
“profit margins protected [patents, trademarks, etc.]…
“hundreds of billions of dollars in future sales and profits… contractually guaranteed…
“pay an enormous dividend.”
And he says this “perfect” stock should have catalysts — upcoming announcements that could drive the share price — and that the “one key element” is that the stock must be “undiscovered.” And that it should “trade for a just a few dollars a share.”
The per share business is silly, of course, but investors do get hung up on the idea of paying a low per-share price as a prerequisite for huge future gains. Different countries and different eras have different expectations for “per share” pricing — some large Australian companies trade at what we would think of in the US as “penny stock” prices, for example, and it used to be that most large US companies would aggressively manage their share price, using stock splits, to keep it in the $40-100 range. The market cap and the valuation of the company are what matters most, the price per share is mostly irrelevant.
But anwyay, that’s all a lead-up to this stock that Alexander Green is teasing… what other clues do we get? From the ad:
“I only recently uncovered it.
“And if you move quickly – before an upcoming announcement set for August 20 – this $3 stock could hand you the kind of carefree retirement most people only dream about.”
And then some specifics…
“The company has inked deals with Cisco, Microsoft, Intel, Sharp, IBM, Hewlett Packard, Nintendo, Sony, Nokia and Apple…
“In total, I expect it to receive more than $34.5 BILLION from these partnerships alone….
“According to data from Intellectual Property Watchdog, the firm has quietly amassed one of the largest tech patent libraries of any company in the world.
“It has 29,187 patents inside the United States and 49,599 registered globally.
“You can see why the world’s most famed tech companies are all signing blockbuster deals with this little-known firm trading for $3.”
And it sounds like this is not a small company, despite that $3 share price…
“… earnings per share recently surged 106%.
“And I expect the company to hit $164 billion in annual sales as early as 2019.
“The company pays a big dividend too… 116% bigger than the S&P 500 average.”
Why is this stock “unknown?” Green says it “does not trade in a normal way” and it’s not on a US exchange… and, far more mysteriously, that it “literally trades under a secret name.”
So that’s enough to get our answer, I bet, but let’s throw a couple other clues into the Thinkolator…
“A major multibillion-dollar deal that involves both Apple and Donald Trump is about to bring this secret company into the mainstream….
“… the $3 stock I’m talking about had very humble beginnings.
“It was started by the blue-collar son of a career police officer….
“… he scrounged together $7,500 in seed money and went to work.
“He founded a tech company, but a very different kind…
“He realized that he probably couldn’t compete directly with the Apple, Amazon, Samsung and Google of the world.
“But if he could quietly do business with these tech giants, he just might turn his own venture into a successful company.”
He started out building computer hardware — the chassis for a desktop computer, and then aggressively expanded to build and provide components for all kinds of tech products. Green cites a few recent contract examples”
“The company has signed an agreement to build eight different motherboards for Intel.
“It’s also building five more for the $5 billion semiconductor company Advanced Micro Devices.
“It’s building LCD screens for Sharp in an $8.8 billion production plan.”
And a dozen others, components for Amazon and Nokia and Acer and Nintendo and Apple. So who is it?
This is, as several readers have already figured out, the Taiwanese company Foxconn, known for playing a major role in assembling Apple’s iPhones but also a bit supplier to most of the world’s gadget makers. Foxconn is the world’s largest contract manufacturer and one of the largest private employers in China (if not the largest), and is one of the largest tech companies in the world (at least on a revenue basis).
And the “secret name?” Foxconn is the more widely-known name of the company, adopted when they were trying to get more international sales around 1980, and its the name you’ll see most articles use (as when they discuss the massive “Foxconn City” in Shenzhen, which has more than 200,000 workers), but the actual name under which it was founded (in 1974) is Hon Hai Precision Industry, and it’s still listed under that name in Taiwan. You can see the company’s own description of itself on their website here.
So yes, I suppose it’s kinda “secret” that Foxconn, the contract manufacturer that most tech investors have heard of, is actually Hon Hai — though certainly all of the institutional investors who own the lion’s share of this large cap stock are obviously aware.
And yes, it’s technically a $3ish stock, though that requires some currency translation — it trades in Taiwan at ticker 2317, and closed yesterday at T$82.80, which in US$ would be $2.70.
And yes, it’s not particularly difficult to trade the stock in the US — there is an ADR representing the Taiwanese shares for US investors, it trades OTC at HNHPF, with each US OTC share equaling two shares in Taiwan. There are similar depository receipts trading in London at HHPD, also representing two Taiwanese shares each. The overwhelming majority of trading volume is in Taiwan, as you might imagine, so that’s where the “fair” price is set, but the London and NY trading tends to be very close to that price most of the time despite the lower volume.
So if you want to buy in the US, technically you’re paying $5.40 or so per ADR… but each one is two shares, so I suppose you can say it’s “secretly” a $3 stock.
All that mystery and intrigue is beside the point, though — the question is, do you want to own a piece of this gigantic electronics company? Here’s what I can tell you about it:
It’s a big company, the market cap is just under US$50 billion… so it’s not likely to rise 1,000% over the next decade, and it’s not a small cap rising star just because the share price is fairly low. Hon Hai is the second largest stock in Taiwan, trailing only the massive Taiwan Semiconductor (TSM).
Hon Hai/Foxconn is priced at a steep discount to the broader market, and has underperformed the broader market, for a long time. The shares trade at about 10X trailing earnings and 1.3X book, with a price/sales of only 0.3, and the dividend is very high — likely to be near 5% over the next year, though the payout varies pretty widely.
That hasn’t helped the stock much, I’m afraid, it’s been in a pretty steep decline since the highs of last summer and has not been able to generate any meaningful share price growth for a long time. Even if you bought at the very bottom of the market (for Hon Hai, at least) in November of 2008, you would have gains of only 150% over that near-decade, including dividends… far short of the 350% return of the S&P 500 over that time. And almost 1,800% for Apple, Foxconn’s most important customer. Here’s what that looks like, for the visual learners among you:
Which does serve, at least, as a helpful start to a thought exercise about who profits from hit products — is it the designers, the developers, or the companies who sell them parts and assemble the actual gadgets? Lots of things go into that, and there are plenty of growing and profitable component makers and Foxconn has certainly made a profit most of the time over the yeras, but the two things that seem to me have the most impact on compounding long-term growth in the sector are sustainable brands and some measure of uniqueness. Suppliers can do very well when their product or chip or whatever is better than the competition, but they also have to keep that edge… or make the component an in-demand brand or a near monopoly, as Intel did 30 years ago with their “Intel Inside” branding campaigns for chips and their tight partnership with Microsoft.
That’s what I’d look for when researching Foxconn… where do they have the opportunity to become more than an anonymous assembler? What’s keeping them from having to compete on price? If the shares are down just because of the burgeoning trade war fears, which could obviously have an impact on one of China’s largest exporters, then perhaps this lower price is a buying opportunity — but Foxconn shareholders have failed to really benefit from sales growth or new businesses or booming iPhone sales for a long time, trade war or no trade war, so I imagine there are some structural problems behind their relatively weak performance.
The stock does also carry some political and regulatory risk, or at least “headline risk” because of the frequent complaints and lawsuits about worker treatment at its many gigantic factories around the world. We all remember the stories about suicides by Apple iPhone workers, I bet, and those were Foxconn stories about the pressure, secrecy, long working hours and employee stress in Shenzhen, but similar smaller-scale stories seem to pop up with some frequency. Hopefully the US factory that Foxconn is building in Wisconsin, following some mega incentives from the government, will be a bit kinder and gentler, we’ll see.
Foxconn gets lumped in as the “iPhone maker” by most investors, so the share price tends to react to the iPhone cycle as massive predictions of huge sales volume send the stock climbing and slower sales, like we’ve seen recently, help to pressure the stock… the company is obviously far more than “just” Apple’s main manufacturing partner, though I don’t know if that will help to smooth things or create a real growth trend for the stock.
They’ve been aggressively expanding into new businesses and buying up brands and technologies for a long time, most recently with their acquisition of Belkin this year… and yet adding more low-margin businesses in very competitive sectors doesn’t necessarily give them better profitability. My impression, as someone who admittedly has done very little research on this stock so far, is that the pressure of the low-margin contract manufacturing business, where companies like Apple push them to get costs lower and lower each year, seems to have kept them from showing any real sustainable earnings growth on the back of the growth in the business… so if Alexander Green ends up being right about this being a “one stock retirement” idea, it will likely be because Foxconn starts to get a little more leverage over the actual brands whose products they make, giving them a chance to increase margins… or because they finally move up the “value added” chain a bit, as they’ve been trying to do recently with their push into the automotive business.
I have a hard time predicting huge success for Foxconn, but it’s certainly possible — and I haven’t read much about their current business and certainly know less about them than Alexander Green does, so take my skepticism with, well, a bit of skepticism… maybe the “one stock retirement” hype from the Oxford Club and my skepticism can balance out a bit, and then you can go into your analysis fresh and unbiased and make your own call. It’s definitely a cheap stock, so you’ve at least got that going for you.
So please do go forth, researchify for yourself, and let us know what you think about Hon Hai and its prospects for the next few decades. Just use the friendly little comment box below… and thanks for reading!