Marc Lichtenfeld has an ad running this week that talks about a business that could be the “most profitable I’ve ever seen” — and one that’s so entrenched in our country that he says the equivalent of 10% of US GDP relies on this one company.
So who is it? Well, he gets into some clues and makes it fairly clear, for an enterprising sleuth, which stock it is… but then he throws a bit of a curveball, saying that he’s got a secret way to earn income from this stock — a stock that doesn’t pay a dividend. And he says he won’t be using options or bonds or anything else income-y.
So there, intrepid Gumshoe readers, is our mystery — let’s solve it, shall we? For those who are keeping track (like us), the ad this time around is for the Oxford Income Letter ($49 first year, $79 renewals).
We’ll start with part one, which is identifying the “most profitable business” Lichtenfeld has ever seen… this is the lead-in to the ad:
“The Company That Gets Paid 2,300 Times per Second
“This business could be the most profitable I’ve ever seen.
“But you can’t collect a cent of income from it… unless you follow the exact instructions below well before January 1.
“I’m going to tell you about a single company that might just have the most profitable – and unusual – business I’ve ever seen.
“It doesn’t need retail stores.
“It doesn’t need to manufacture physical products.
“And you’ll never pay it a cent from your bank account.
“Yet, it’s found a way to collect money during every second of every day.”
So what is the business of this mysterious company? More clues:
“Safest Stream of CASH in the World
“First of all, this company controls the largest share of what is perhaps the largest market in the United States…“Retail stores… gas stations… movie theaters… online sites… electronics… grocery stores… restaurants.
“Anytime a transaction occurs at any of these places, this company makes money….
“… it does this by collecting a small fee from the one thing that virtually every person in America and most people around the world use every day…
“Credit cards.”
And it’s not one of the big credit card networks, or the banks who issue cards — it’s one of the “middlemen” in the payment processing business:
“… this company operates like a tollbooth: It helps facilitate the money distribution and, in return, it collects a small fee on every little transaction.
“You can see why our entire economy depends on the company I’m talking about today…
“While Visa, MasterCard, Discover and American Express fight for their portions of the market… this little company dominates this second part of all credit card transactions.
Are you getting our free Daily Update
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just click here...“The company gets paid on 74 billion transactions per year.
“It holds a near-monopoly on the entire electronic financial system. Banks and credit card companies MUST use this company’s technology.
“It controls nearly half of all electronic transactions… That includes 80% of ALL gas and grocery payments.”
So you’ve probably got an idea of who this is… particularly if you noticed the little bit about the fact that this is actually a recent IPO…
“With that much cash coming in, you’d think it was an old blue-chip stock.
“Quite the opposite, actually.
“The company just went public on October 15, 2015.
“It was the biggest IPO since Facebook… It was the biggest IPO of 2015… Yet it went public with almost no fanfare.”
So yes, he’s talking about the big payment processing company that went public in a private equity-backed IPO a couple weeks ago: First Data (FDC)
First Data was a big IPO on October 15, though the size of the IPO was nothing compared to the size of the go-private transaction when it was taken over by a private equity fund in a huge leveraged buyout almost ten years ago. But, as Lichtenfeld says, it’s a big company and a large and fairly stable business — but it doesn’t pay a dividend or generate income for you directly… so how is he getting you a “payout” from this company?
That’s part two of the tease: the “backdoor” way to earn income from this stock:
“I’m frustrated because regular investors can’t collect a dividend from this company.
“Not one cent.
“And since I’ve built my reputation on enhancing my readers’ incomes, I can’t recommend it.
“To me, it’s like finding a winning lottery ticket… and being told, ‘No, you can’t claim it.’
“Most people would have given up after finding this out.
“But not me…
“I’ve found a backdoor way to get MASSIVE income from this stock.
“I’m talking about income checks as high as $1,888… $4,720… even $9,400.
“Yet it doesn’t require options, bonds or any other less traditional income sources.
“Rather, there is a way to get special dividends – and even bigger capital gains – from one of the best businesses in America.
“But the window of opportunity could close for good as early as January 1.”
So have you guessed that backdoor yet? Here’s a bit more:
“Only about 18% of the company went public.
“You see, the rest of the company is in the hands of the lucky few who already hold private shares.
“These are the people collecting the big income payouts.
“They are selling a portion of the company because even that small amount will make them billions in cash returns.”
So what’s Lichtenfeld teasing here? Thinkolator sez he’s recommending: KKR (KKR)
Which, you may have guessed by now, is the company that set up the big leveraged buyout of First Data back in 2006, and probably the one most eager to finally “monetize” that investment with the IPO this year. KKR used to be known as Kohlberg Kravis Roberts, back in the days when they were the “Barbarians at the Gate” with their biggest ever (at that time) leveraged buyout of RJR Nabisco, and they are an investment management company specializing in private equity and leveraged buyouts, using both their own capital and the money they manage for (mostly institutional) investors.
The structure of the firm has flopped around a few times, the current iteration was publicly traded for a while in Europe but moved to a US listing in 2010 and is structured as a publicly traded partnership (so just like with MLPs, or with other investment partnerships like Blackstone, this is a tax pass-through entity and you’ll get a K-1 form for your taxes if you own this one).
KKR Does indeed pay a substantial dividend, though that has little to do specifically with the First Data investment — the dividend (I should say “distribution”, actually, since this is a partnership, not a corporation) over the last four quarters has totaled $1.68, which at the current share price ($17.61 at last night’s close) would be a yield of 9.5%. So yes, you could have earned annual income of $1,888, as teased, from KKR over the past twelve months by owning about 1100 shares (an investment of roughly $20,000). Not bad… though over the past year the share price of KKR has fallen by about 21% (a loss of five dollars or so per share), so that yield would have been little solace unless you’re confident that the share price will recover and want to hold this high-yield partnership for a longer time.
And yes, in case you didn’t want to do the math: earning income of $9,400, as per the teaser pitch, would have required an up-front investment of about $100,000 a year ago.
Many people owned KKR largely for income, the big quarterly distribution, and secondarily for their investment acumen that they think will increase the distribution over time — the same reasons they own the other huge investment management/private equity partnership, Blackstone (BX), and KKR made a move last quarter to both make investors more confident in what the distribution will be… and to cut the distribution considerably. They will be paying 16 cents per quarter as their “fixed distribution” going forward, starting with the fourth quarter, so the forward distribution yield will be much lower, about 3.6%. They also announced a big buyback authorization. (For what it’s worth, Blackstone cut their distribution considerably in this most recent quarter, too, so if they pay out similar distributions for the coming quarters that would be a yield for BX of about 5.5% versus the trailing distribution yield of 9% — but I don’t know whether BX has changed their distribution policy as substantially as KKR has, haven’t looked into that.)
Here’s what the KKR co-CEOs said at the time:
“Our announcements today, including the introductions of a fixed distribution per quarter and a share buyback program, reflect important changes to our capital management strategy. Our strong balance sheet, with approximately $14 billion in assets, allows us to support a meaningful fixed quarterly distribution. We will use incremental retained capital to invest behind our ideas and buy back our units. Over time, we think the market will value what we do with our balance sheet, including repurchasing our own units, more than the variable distributions we have been paying. These changes, coupled with continued investment performance, will allow us to create significant long-term equity value for our unitholders.”
Analyst estimates have been coming down a bit for both of those firms in recent months, though I can’t say I’ve been following them closely so I’m not sure why. So now, going forward, if you want to get a big distribution yield while having some (limited) exposure to First Data by buying KKR shares, you’d have to own about 3,000 shares (a little over $50,000) to get the hinted-at annual income of $1,888.
Which means, really, that you can take this away from being a “high yield” discussion and think about KKR solely based on its merits. They are changing the way they operate a bit, getting rid of those variable distributions, and they are continually active in setting up new investment funds and making new investments, but most of their success will depend on keeping assets under management high, which will mean, over time, that they have to keep managing money well. First Data is a small part of that, and probably not a particularly successful part — they’ve grown the business, but they also larded it up with massive amounts of debt and it took almost ten years before they could reasonably get away with taking the company public again to get some cash return… they even had to put more cash in last year to further support the company.
Overall, they look like they’re in pretty good shape — at the partnership level they have about $65 billion in investments and $16 billion in debt, though the balance sheet looks worse than that because of the large entry for “minority interest ownership,” and they did increase their borrowing this past quarter. Assets under management (AUM) continued to rise, so they have a base from which they can probably keep earning a pretty penny… it’s just that they will be dependent for good years and “exits” on how amenable the public markets are to buying IPOs at nice prices, and on bad years for opportunities to buy distressed assets, load them up with debt, and improve their operations. Can’t say that I’ve been deep into the bowels of their SEC filings, and I don’t know how much each individual investment means to their success — First Data is one of the bigger ones, but it won’t make or break them, even though they still control a large chunk.
If you check out KKR’s latest presentation for investors, you might find their plans appealing — they are focused on growing book value in the mid-teens and think that the flat distribution will help, their presentation includes a “what if” scenario: If they had had the fixed flat distribution since their US IPO in 2010, the book value would have risen to over $15 a share instead of the current $12. Of course, whether that means you want to pay 1.5X book value for the stock now, with the book value really at $12, is up to you. Just don’t buy it for high yields, or for access to First Data shares.
Been in and out of KKK the last couple of years. Currently <$17/ share I bought it this time at $21. It currently pays a +9% dividend. Earnings $1.57 paying $1.68. Trying to decide whether to hold on, or dump due to the differential and continuing losses. Only own 200 shares and it represents a very small portion of my wife's IRA which I manage.
Maybe I should sell or being tagged an incompetent buffoon by Obama's IRA Confiscation Team.
Some people don’t blame Obama when discussing their mistakes, others do.
I am sure you love him and think he is doing a fabulous job….don’t you?
Don’t let it upset you if someone criticizes your love.
The economy was losing 600,000 jobs a month when Obama took office but has since delivered 60+ months of job growth, Lehman Brothers and Bear Stearns fell off the edge of the Earth under Bush but key financial firms have survived, some by the expedient of shotgun marriages, under Obama, ditto the auto industry. And don’t cry to me about that awful “Obamacare”, fact is the healthcare/biotech sectors made money for decades now in anticipation of the boomers aging when we did nothing meaningful to address the gaps in the healthcare system, now we have and the sector continues to make money. This is so even though some jackass tried to increase the price of a niche drug by thousands of percent giving Hillary a no brainer opportunity to match Sander’s rhetoric. The healthcare stocks experience a short term pullback but you can bet the farm the sector is still making money. I know this because my Roth has been in the T Rowe Price Health Sciences Fund since ’99, best damm investment decision I ever made. So good in fact I doubled down with a pair of bio tech etf’s as core holdings in my taxable account and have done fine, thank you very much. What have you been invested in during these years, coal? Don’t blow a gasket when somebody disses your hate.
You geaux Jim 🙂 Best2U-Ben
Yeah too bad hospitals are shutting doors and on the chopping block. Ours is tops in the region, first in kidney, liver, pancreas, hand, heart and lung transplants in the region and we lost over 40 million last year. Obamacare is a failure. Many of your healthcare stocks are in jeopardy if hospitals continue this death spiral. And then if Bernie gets his way w Medicare for all kiss away your health insurance stocks.
I didn’t blame Obama for my mistakes, I’m a big boy. I just wanted to warn readers that our POTUS and his minions want to confiscate our Savings, Brokerage Accounts, 401k and IRA funds. The reasons cited by my sources, The Sovereign Society, Stansberry and others is that Americans were dumb enough to lose money in 2007-8. Consequently our Gobmint figures they can do a better job like our $19 Trillion Deficit and their $120 Trillion in entitlement obligations.
Obviously you and your 12 friends don’t read alternative financial opinions. Just remember when the sheet hits the fan don’t say I didn’t warn you all.
The amount of economic ignorance and fabrication in this posting is
exceeded only by the level of paranoia. Is there any proof that sometime after 2008, the government figured out it could do “a better job” of causing Americans to lose money? Not likely. The alleged $19 trillion “deficit” is factually non-existent; this number is close to the aggregate national debt. In fact, the budget deficit has fallen significantly to about $500 billion dollars annually. It can be seriously argued that this amount is too SMALL in view of the need to further stimulate shaky economic growth. The $120 trillion in alleged ‘entitlement obligations’ is at best grossly exaggerated, at worst made up. The U.S. Chamber of Commerce estimates that keeping Social Security and Medicare going for the next 75 years will cost at most $40 trillion. I would suggest you find another set of ‘alternative financial opinions’ if you truly want reality.
So, basically what you are saying is:
KEEP ON SPENDING OUR WAY INTO OBLIVION
SPEND SPEND SPEND!!!!!!!!!!!!!!!!!!!!!
KEEP ON SPENDING!!!!!!!!!!!!!!!!!!!!!!!!!!!
SPEND BABY SPEND!!!!!!!!!!!!!!!!!!!!!!
B Y Y O U R O W N N U M B E R S!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
35 years @ $500B = SURPRISE
Drum roll please…
$17.5 Trillion
That’s the way! Show us you logical, analytical, objective mental process! Nothing “crazed”, or “insane” about YOUR frothing rant!
NO! I was planning to dine outdoors at a nice new bistro I’ve been hearing about. What happened? It RAINED! Damn that Obama!!
This might not be a bad recommendation. The stock is down today on poor earnings and at current prices yields nearly 10%. A few shares could be a good investment.
The trailing yield is nearly 10% — the expected forward yield, as noted above, will be more like 3.5% because of their changed distribution policy.
Thanks for the article Travis
I also received Mr. Lichtenfeld’s e-mail this week
Incidentally I have received to-day a similar invitation from Mr. Lichtenfield.
This time for the “Lightning Trend Trader”, a rather kinky sounding service for $ 1,450 per annum:
http://pro.oxfordclub.com/BET1495MLBNDCAETTTSPESDBNIUP/ETOTRAB8/?email=rancho_cucamonga%40msn.com&a=9&o=105865&s=115008&u=2289235&l=524086&r=MC&vid=RlZn5b&g=0&h=true
However, contrary to the last word of his link (=true), this exalted message sounds too good to be true to me.
Anybody a more accurate opinion than me?
That’s the one we covered a few months ago — I updated it this week here: http://www.stockgumshoe.com/reviews/lightning-trend-trader/marc-lichtenfelds-gms-stock-revealed-most-profitable-stock-opportunity-ive-found-in-my-20-years-in-the-markets/
Thanks Travis for calling my attention to KKR. Have smallish (250 shares more or less). Bought at 15 some time ago so even at 17 am still a net gain, Just bought additional today as my last re-invest was at about 22. You didn’t say in your latest why you think the approximately $5/share drop was attributed to (may be this was slightly out of scope for your article). Keep up the good work. Always try to read all of your stuff.
Travis
As always, I love your work and you deliver the goods. When you read what wealthy people have to say about how they got there, the answer invariably is to first of all protect what you have, and second then where warranted, generate multiple and diverse streams of cash flow.
KKR I believe is one of those companies where the principals are very focused on these two goals, so worth considering as an investment, but only after investing in Apple and Berkshire (Buffet)
A good stream should generate 7% return on investment. Most companies can’t deliver that kind of return, but keep looking and Travis let us know when you find one worth buying. High dividend payouts are always a red flag. As you clearly pointed out, a red flag is indeed warranted on this questionable recommendation.
Cheers
I like to say a “caution flag” more than a red flag — often, all I have time to do with these articles is give a small counterpoint to the hype so readers have a hope of a more balanced look at the stock. For what it’s worth, KKR also says that their employees and insiders own “or control” something like 45% of the company, so they are motivated to improve performance — haven’t checked whether or not that’s true, and today KKR sure took a hit on their earnings miss.
I remember the movie about KKR, James Garner was running RJR – Nabisco it made for an interesting story.
On the subject of payment processors, this equity came in as chart of day:
The Chart of the Day belongs to Vantiv (VNTV). I found the payment processing stock by using Barchart to sort the Russell 3000 Index stocks first for a Weighted Alpha of 50.00+ or more, then for technical buy signals of 80% or better and then again for a 50-100 Day MACD Oscillator buy signal. Only 55 stock passed these benchmarks. Since the Trend Spotter signaled a buy on 8/27 the stock gained 13.69%.
Vantiv, Inc. is an integrated payment processor engaged in providing advanced technology solutions for businesses and financial institutions. The Company operates in two segments: Merchant Services and Financial Institution Services. Vantiv offers acquiring and processing transactions, value-added services, merchant services and reporting for electronic payment transactions. It also provides card issuer processing, payment network processing, fraud protection, card production, prepaid program management, automated teller machine driving, network gateway and switching services. Vantiv, Inc. is headquartered in Cincinnati, Ohio.
Interesting… Best2ALL-Ben
A caution for potential newsletter subscribers. Bad luck on the timing of solving this teaser Travis, because he only recommended KKR for his more risky Retirement Catchup / High Yield portfolio (one of three alternative portfolios depending upon an investor’s timeframe). For this portfolio, stop losses are used and because of the massive Samson Resources private equity bankruptcy (KKR owned ) that was “revealed” in late August, KKR collapsed before the newsletter ink was even dry and hit its stop loss in Sept. The investment would have probably been sold this week anyway because the new conservative “fixed distribution” would no longer qualify as high yield.
You have become much more interested in stop losses this year, and have commented you don’t know why someone would use stop losses on a consistent dividend paying company if the original investment thesis was sound, so just a note that Marc uses NO stop losses in his “Compound Income” portfolio, but uses them in his other two portfolios.
Stock price losses are actually an occasional benefit in the Compound Income portfolio because reinvested dividends can buy more shares, and if you do this over decades its a great opportunity. But of course the down periods have to be a lot shorter than the rising price periods otherwise these would be bad long term investments. But the only exit rationale in that portfolio is if the business prospect for the long term investment thesis changes dramatically.
If its true this KKR spiel is currently being used in advertising emails for Oxford (and not just recirculated emails), it says a lot more negative about the service and the newsletter management company than one bad choice of an investment. Clearly Marc was blind-sided by KKR’s change in capital allocation policy, but should not have been surprised by the pending Samson bankruptcy and fortunately this time I was not suckered in because I am staying away from all partnerships that have anything to do with energy, i.e. depleting assets. KKR is still too heavily leveraged to the energy sector through its investments (especially natural gas that is in a real tailspin), and while even I would bet the worst is over if it was someone else’s money, my money is staying on the sidelines if energy appears anywhere in a company’s SEC filings.
The conversion last year of Kinder Morgan to a regular C corporation from an MLP (not to mention their “child” MLP’s) shows how corrupt the management became. Yes, there were nice distributions over the years, but the reduction in capital was much larger than the distributions for return of capital, and they depleted the partnerships of capital to the point where capital equaled zero for many unitholders like me and all the conversion price was taxed. And half of the tax was ordinary income (those friendly IRS deductions just for the oil companies that aren’t available unless you are an energy MLP) . So much for tax deferred cash flow.
Unless an investor is fully prepared to hold MLP’s until they die (when the basis gets a step-up under current tax law), I strongly recommend against owning any of them. They are too easy for corrupt management to manipulate, and too easy to hide poor investment decisions that deplete capital with no benefit to unitholders. In some ways its similar to a pyramid scheme. As long as the MLP can keep making new investments that increase the capital structure (usually leveraged by debt) and allow them to continue distributions while other assets are getting depleted to zero, then all is OK. Hit a major downturn in the ability to finance new capital and they are sink holes. But of course I am just an angry investor, not a tax expert. So as always, consult your tax advisor whenever considering investing in a partnership to see if its appropriate for you.
Aren’t these “MLP’s” with high dividends actually “Master Limited Ponzi” schemes?
Butitom, your comments and reasons as an angry investor are well detailed. Have in this current market any stock investment made positive sense to you. The lack of investors in the stock market (small investor) has been apparent for a long period of time because of computer trading and other issues, viz management that is more skilled at taking money out of a company than taking it in and creating wealth or value (dividends) for the stockholder. Morality has always been abandoned in favor of self interests at most companies. “Barbarians At The Gates” book is a classic well written study of a massive buyout and conversion of assets by two large firms and a Canadian involved CEO.
Travis’s daily and weekly Gumshoe advisory has been and is essential reading to the tag-a-long newsletter gurus that pretend to make you rich while the returns end up with the letter writers.
dcinvest: Just for your information, I am trying to generate large amounts of cash flow for my ill mother ( who needs 24 hour care) through covered calls and cash covered puts (in addition to more “traditional” high yielding BDC’s, REIT’s, and previously energy MLP’s). So yes I am heavily invested in the market, trying to stay diversified, and am following news on my investments and watch list daily to the point of exhaustion. Because of the recent market volatility, returns on the options are very good (cash flow this year will be 300% after taxes of the 2013 level before starting this strategy), but the risk of collapse in stocks like NXPI Thursday, Valeant (my most hated company for years and one I am getting great enjoyment watching these days), the energy complex last year, and the entire solar sector this summer make this form of investing vs. taking the long term view particularly challenging. My successful picks rocket up, they get called away, and I often get only a small % of the gains. Put options sold on stocks of good companies that collapse (like Ambarella, a recent painful mistake despite chossing a put option price 25% below the market price at the time) are just as risky in this “take no prisoners” market as buying a stock and getting out fast with a tight stop loss when it disappoints. When stocks I own fall too far, then subsequent call options may need to be sold at a level that will get called away at a net loss, even if the stock recovers to the previous entry price. Then again, there are times I get lucky with NXPI getting called away (for the 3rd time with gains) on Oct 16th just before yesterday’s collapse. Travis’ analysis of NXPI on a separate article today was great and timely, and he appropriately points out the potential risk of their big Freescale acquisition. Its possible the terrible outlook from NXPI Thursday is after looking under the covers of Freescale and finding a lot of dirty laundry. Its a no touch for me now until there is more clarity on the merger. And automotive manufacturers can be just as brutal on forcing low margins on their suppliers as Travis speculates Apple might be, so not sure NXPI is prepared for what is coming.
There is a positive to the call option strategy however. Booking gains on stocks that later collapse is more rewarding sometimes than the old approach of buy and hold, gloating on paper gains, agonizing over paper losses, followed by relief when there are long term gains. The covered call approach is a method of forcing reallocation of investments on a regular basis, booking gains when you can get them, and re-evaluating the wisdom of an investment every time an option expires with the underlying stock underperforming. This assumes of course you don’t automatically buy the same company back that gets called away. There is also a risk with the call option approach that with too many losers and not enough big winners, the investment basis (principal) will fall too much and reduce the long term income potential. I would not recommend this approach for the average investor because of the amount of work. Yes I could reduce the number of positions to reduce the workload, but that would also increase the risk.
The information I find on this website from Travis and the community of people who comment is invaluable. There are members with special expertise in almost every field that add to the wealth of knowledge, but Travis breadth of knowledge is unparalleled in the online universe and worth recommending to any non-members. I only hope Travis will have the energy and time to keep up this frantic pace in a market that seems to change sentiment and direction every few weeks.
Thanks for the insight, butitom — I received the ad directly a few times this week, so I don’t know if it’s being actively sent out today but it certainly was over the weekend and early in the week.
I hear from newsletter editors from time to time (though never Lichtenfeld, as far as I can remember), and it’s a common complaint from them that they don’t really know what the marketing folks are doing with their ideas. At some publishers, it seems (I don’t know about Oxford specifically), the marketers just take a recent(ish) recommendation that they think they can sell and spin to get attention, run it by the lawyers, and turn that into an ad…. and if the ad works and generates good subscriber numbers, they keep running it over and over, without much thought to whether the stock being teased is still in the portfolio or still a top recommendation of the newsletter. I’ve even had at least one newsletter editor say that the teaser pitches are so convoluted and hyped up that he had to read my article to realize which of his stock picks the ad was touting. I don’t know if these kinds of editor/marketing relationships are standard or common, but it has happened at least a couple times in my experience that a stock has already been sold by a newsletter before it’s advertised as their “next big thing.”
Travis, thanks for your valuable review of the pitch which I received via my Oxford subscription sales pitch just 2 days ago.
Fast forward 6 months. If you buy KKR in a non-tax deferred account, which Lichtenfeld recommended in his August 2015 newsletter, you will receive a K-1for tax filing purposes. The 2015 K-1 for KKR is 28 pages long and is a nightmare if you do your taxes using the H&R Block Premium tax program. Depending on your tax situation it is possible that you may have to file a non-resident tax form in some states that you do not reside in. And because KKR invests in companies world wide it is even more complex. I have done K-1 investments before but KKR’s is far more complicated than I have previously dealt with.