by Travis Johnson, Stock Gumshoe | September 18, 2019 12:11 pm
It seems that the plague of celebrity endorsements is washing across the newsletter world these days, with CNBC star Robert Herjavec pitching a “buy private companies” network, former House Speaker John Boehner touting a marijuana stock service, and now, political lightning rod Bill O’Reilly from Fox News being pulled in to Oxford Club’s “The Great American Wealth Project” (and throwing a copy of his Trump book into the “special offer,” which, like the last Oxford Club pitch we looked at, is $99 and an autorenew at $79/yr)
This is really not so different from having a handbag designer or weight loss product spend half a million bucks to get Kim Kardashian to post on them about Instagram, of course… newsletter publishers know that using a name brand “influencer” like O’Reilly or Herjavec will resonate with a big chunk of their target audience (dudes in their 50s and 60s who have an interest in investing or are worried about retirement).
In this case, it was a big “presentation” that O’Reilly did with Oxford Club honcho Alexander Green yesterday, staged as an interview of Green where Bill asks him “tough questions” about how to achieve a seven-figure portfolio. (To be clear, I don’t know if O’Reilly was paid to “interview” Green for this ad or they have any other relationship… he does say he’s been a longtime Oxford Club subscriber)
The ad claims that buying the Alex Green picks in the Oxford Club portfolio over the past 18 years would have given you dramatically better performance than buying the broad market. I don’t know how rigorous that comparison is or what the inputs were, and don’t know the Oxford Club’s historical performance, but it was often among the most consistently solid newsletters tracked by Hulbert until he dramatically scaled down that tracking service a couple years ago, performing better than most newsletters in both up and down markets. (I’m sure, at least, that their overall performance is better than the performance of the “get rich with this one pick” ideas they’ve teased over the years — it would almost have to be… though, to be fair, The Communique has teased a few big winners along the way, in the past five years their best teased stock was Five9 (FIVN) in 2016 and their worst was Chicago Bridge & Iron (now McDermott, MDR) in 2017… you can always see the details on our tracking spreadsheets).
The big picture promise is really just “you can get rich by investing, and don’t be scared off by the media” — and that’s a reasonable thing to say. Here’s a bit from the transcript:
“Bill: Why is that? What’s keeping regular folks from getting rich?
“Alex: One reason is a basic lack of financial literacy. Schools don’t teach it, and most parents don’t know enough to instruct their kids either.
“But the #1 reason is that the media is FAILING at its job to inform the public about the incredible wealth-building opportunities available right now.
“If you look at the headlines, you’d think the country is struggling economically.
“The media scares the hell out of people, to the point where they’re afraid to put their money in the markets.Are you getting our free Daily Update
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“And the average bank currently pays just 0.05% on deposits. At that rate, your savings will double in just… 144,000 years. Clearly, no one is getting rich that way.
“As a result… there are three major problems facing most Americans.
- PEOPLE AREN’T PREPARED FOR RETIREMENT.
- THEY MAY BE SAVING, BUT THEY AREN’T INVESTING.
- AND THE FEW WHO ARE ARE NOT DOING IT THE RIGHT WAY.”
I can’t argue with that… there is a savings crisis in the US, even if it’s probably not as bad as the headlines (“more than half of Americans would go bankrupt if their car needed a repair!”), and yes, I’m sure a lot of Americans who have been able to set aside some savings have invested too cautiously because they’re fearful of the market. Many have probably missed out on this decade-long bull market, thanks both to demographic trends (most of the money in the market is owned by people near retirement or in retirement, who naturally should reduce the riskiness of their portfolios as they age), and to the scare put into them by the dot-com bust 20 years ago and the global financial crisis ten years ago. I can’t blame people for fearing the market’s ups and downs, but avoiding the market for the past decade certainly hasn’t helped anyone.
Even when saving well or trying to be exposed to the stock market over the long term, US investors are below average — one of my favorite news items each year is the release of the Dalbar Study, which follows a lot of behavioral finance trends but, on this point, tracks the average performance of US investors compared to the benchmarks. US investors are terrible at investing, on average, and have been for decades, and it’s (mostly) not because they pay fees that are too high or choose the wrong stocks — it’s because they try to time the market, pulling money out when they’re scared and throwing money in when things look good and they want to try to “catch up.” The average US investor had a loss of 9.4% last year, when just sitting in an S&P 500 index fund for the full year would have resulted in a loss of only 4.4%… and given the crazy start to this year off of those winter lows, I’ll be surprised if the gap in 2019 isn’t worse. This is a quote from their press release about the study, and they end up having to say something very similar pretty much every year:
“In 2018 the average investor underperformed the S&P 500 in both good times and bad, lagging behind
the S&P by more than 100 basis points in two different months. In October, a bad month for the market
(-6.84% S&P 500 return vs. -7.97% Avg. Equity Investor Return) the investor lagged by 113 basis points, while in August, a strong month for the market (+3.26% S&P 500 return vs. 1.80% Avg. Equity Investor Return) the Average Investor lagged by 146 basis points.
“‘Judging by the cash flows we saw, investors sensed danger in the markets and decreased their
exposure but not nearly enough to prevent serious losses. Unfortunately, the problem was compounded
by being out of the market during the recovery months. As a result, equity investors gained no alpha,
and in fact trailed the S&P by 504 basis points.’ said Cory Clark, Chief Marketing Officer at DALBAR, Inc.”
But anyway, back to the teaser… what’s Alexander Green’s solution to this savings crisis?
“There’s only one surefire way to retire wealthy in America.
“And that’s by owning shares in a breakout business that’s crushing sales records… creating innovative products… and rewarding investors with massive paydays.
“Sometimes, just ONE great company… ONE single stock… can pay for your entire retirement.
“And I’ve got the details on the new #1 Stock in America right now.”
Sound familiar? Yes, Alexander Green has been touting this “one stock retirement” idea for well over a year now in teaser ads for the Oxford Club, mostly hinting that he thinks Foxconn is the best stock to build your retirement around… it should sound familiar to ardent Gumshoe readers, since we dug back into that spiel just yesterday.
But this is something new. And, frankly, the reason I’m covering the Oxford Club for two days in a row is that so many folks asked me if this latest Bill O’Reilly ad is pitching the same stock again… to which the answer is, “no.”
Nope, the “#1 Stock in America” is apparently no longer Hon Hai/Foxconn like it was before 1pm yesterday… now it’s something entirely different. Whatever could it be?
For that, let’s dig through the clues that they drop in the “interview” …. more from the
“I recently uncovered a stock that reminds me exactly of Netflix when I first bought shares of it years ago….
“Bill: Essentially, what you’re looking for here is a “perfect stock,” right?
- It would be a leader in cutting-edge technology that changes the way we live… just like Apple, Amazon, Google, Facebook, and yes, Netflix.
- It would have breakthrough products used by millions of customers around the world.
- Patents and trademarks would protect its profit margins.
- It would have hundreds of millions of dollars, if not billions of dollars, in future sales and profits – not just expected, but contractually guaranteed.
- It would be relatively undiscovered and trading for a very low price.
“Bill: And the new stock you’re recommending meets all that?
“Alex: Yes, it does.”
OK, so those criteria are almost identical to what he touted as “perfect stock” characteristics when hinting at Foxconn over the past year or so… which means, at least, that he does have some consistent touchstones he looks for in stocks.
So what other clues do we get about this secret stock?
“… my new #1 Stock in America is operating in the fastest-growing and most exciting sector in the markets today.
“I’m talking about the $17 trillion 5G revolution, which is going to be one of the biggest investment opportunities of our lifetimes…”
You can pitch almost any tech or telecom stock as somehow “5G related” these days, so that’s not a huge hint… but every bit helps.
What else? Apparently it really is in the “5G business”….
“The company is perhaps the most important linchpin to the entire 5G network…
“It makes the 5G microchips necessary for the entire system to work.
“To put it bluntly… any business that wants to be involved in this coming 5G revolution needs this company’s product.
“And the big businesses are lining up.
“For example, you will find this company’s microchips in Google’s 5G Chromecast… Samsung’s Galaxy 5G smartphones… and Audi’s mobile 5G Wi-Fi hotspots.”
That’s almost never true, so we’ll start off with a bit of skepticism… ad copywriters love to try to give the impression of a “monopoly,” and most of us don’t know the semiconductor business very well so we’re prone to accept those characterizations, but for most chips there is active and aggressive competition. Being the only provider of a particular technology is very rare, though, of course there are leaders and laggards in any little niche of the business.
“The company also just did a deal with SoftBank Group, whose founder is billionaire Masayoshi Son.”
Oh, for crying out loud — has anyone NOT done a deal with Softbank in the past couple years? They seem to have their fingers in every single pie, it’s getting a little absurd. But fine, yes, it’s a clue.
“My 5G company’s founder says we’re not even in the ‘first inning yet.’
“And I’ll tell you, he’s not kidding.
“This company’s microchips will soon be found in 2.3 BILLION products worldwide.
“We’re already seeing this company’s 5G microchips used in the Internet of Things, automotive technology and big data, processing storage, networking and security…
“It’s in routers, switches, appliances, data storage and servers… It’s in circuits and adapters too.”
And, yes, they do have patents…
“… this company has 10,000 patents to protect its intellectual property….”
As I’ve noted many times, the number of patents is not necessarily indicative of the importance or value of those patents… but yes, patenting your developments is important as chip and tech companies routinely litigate and use cross-licensing just to keep their heads above water, let alone get ahead or press an advantage.
And there are a few other tidbits:
“It’s got $1.7 BILLION coming in 2020 after signing a new deal with NXP Semiconductors.
“And it’s sitting on $500 million right now that its CEO says it’s prepared to distribute to shareholders. You want to be in before that happens!”
There’s plenty more financial porn in the ad (“if you had just put $20 a month into the very best stock that ever existed starting 20 years ago, you’d have a million dollars!”), but not much else in the way of clues… except for one tidbit, that the stock trades for “about $25” a share.
So what is this stock he’s hinting at, to be revealed to subscribers in a special report called “How to Profit from the $1 5G Megastock?” Thinkolator sez this is… Marvell Technology Group (MRVL)
Yes, Marvell is working with Softbank — they have a collaboration with Softbank’s ARM Holdings in server chips.
And yes, Marvell’s CEO did say that they’re “not even in the first inning” when talking about 5G in an appearance on Jim Cramer’s CNBC show, and has said similar things many times (as have many other tech company folks, to be fair).
They do claim “more than 10,000 patents”, so that’s also a match. As is the ~$25 share price.
And finally, earlier this year NXP Semiconductor (NXPI) did agree to buy Marvell’s WiFi and Bluetooth businesses for $1.76 billion in cash. That will likely close next year, assuming no hiccups, and it will indeed mean that Marvell is pretty flush with cash — though in a pretty big reorg for a single year they also bought Avera and Aquantia for a total of about $1.1 billion in cash (after acquiring Cavium last year in their bid to really focus on the Infrastructure market). They also have about $1.7 billion in debt, so after all the deals are closed they should have roughly matching amounts of debt and cash — a conservative and flexible balance sheet for a decent-size company (market cap around $17 billion).
Here’s how Marvell describes itself:
“Marvell first revolutionized the digital storage industry by moving information at speeds never thought possible. Today, that same breakthrough innovation remains at the heart of the company’s storage, network infrastructure, and wireless connectivity solutions. With leading intellectual property and deep system-level knowledge, Marvell’s semiconductor solutions continue to transform the enterprise, cloud, automotive, industrial, and consumer markets.”
Their recent story has been familiar to anyone following semiconductors — they guided for a “below consensus” third quarter thanks to restrictions on selling to Huawei and a “worsening macro environment” caused, one would expect, by the trade war and economic weakness in many areas (though not in the US just yet).
They are still profitable but have not really grown in the past decade, which is why they have been restructuring the company to try to take advantage of some growth markets — they have historically had a particularly strong presence in the data storage business and in networking, like those WiFi and Bluetooth products they sold to NXP, but are trying to focus more on 5G’s network infrastructure demands. You can get some idea of what their plan was from last year’s Investor Day presentation, and they seem to be following through with that strategy.
Will it work? I confess to never having looked at this company before today, probably in part because it has been fairly boring for the past ten years or so and hasn’t been touted by newsletters or breathlessly drooled over on CNBC very much. And this is an interesting transition they’re embarking on, one that will really hit their earnings in the near term (selling those divisions to NXPI will mean they’re losing a lot of revenue), but the hope is that it helps them to establish some new growth businesses and improve their margins again over the next few years. This year and next year will be worse than last year, analysts think, but then in FY 2022 (which is pretty much calendar year 2021) the expectation is that a new revenue growth trend will have been established and they’ll get their earnings back up over $1.20 again ($1.19 in EPS is what they posted last year, the next two years are expected to be below that before they hit $1.47 in FY2022). So if you average all of that out, the growth from (calendar year) 2018-2021 is expected to be about 8% a year… and the hope, I assume, is that it continues to accelerate beyond that.
If that works out as expected, or better, then $25 is a perfectly reasonable price to pay — that’s a pretty steep valuation on current year earnings (70 cents, so a PE of 35), but the current year is widely expected to be the trough. If you look forward 20 months or so and believe analysts will be right about the growth emerging, presumably thanks to 5G investment, then the shares are trading at about 17X the earnings that are expected the year after next. That’s arguably a rational valuation for a stock that can grow earnings at 8% a year… but you do have the uncertainty that the reorganization and shakeup of the company might not go as well as hoped.
The good thing, if you compare Marvell to some of its larger peers like NXP or Broadcom, is that their balance sheet is a lot less worrisome — so if the cycle turns and debt becomes a problem for levered chip companies, it won’t be nearly as big a problem for Marvell as it might be for others (Broadcom has been on a debt-fueled acquisition binge for years, NXP and some others have big debt burdens from the years when they were taken private in leveraged buyouts and then re-IPO’d). And yes, that does mean they have some fuel for “shareholder returns” — they pay about a 1% dividend yield at the moment and haven’t generally been focused on raising the dividend, but they did announce a $1 billion share buyback authorization last year (we’ll see what impact that has, they haven’t done much of the $1 billion yet as far as I can tell, in recent years their buybacks have been only enough to keep pace with stock-based compensation).
I haven’t looked into the company enough to have a strong opinion, but at first glance it’s neither crazy nor super attractive to me. I would be surprised if this turns out to be the best stock of the next 20 years and becomes a “one stock retirement” pick, as teased, but I’d be surprised if that was the case for pretty much any stock… the key, of course, is not buy any one stock with the expectation that it will “save your retirement” — sadly, for that we’ve still just got the long-term prescription of “save more, diversify your investments, and don’t make big bets or try to time the market.” It’s boring, but it will probably work better than the alternative.
That’s just my thinking, though, and I’m sure there are some folks out there in Gumshoeland who’ve owned Marvell or have been following the turnaround story — have you a thought to share? Let us know with a comment below. Thanks for reading!
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