This ad is a re-hashing of a recommendation that Bill Patalon’s Private Briefing was touting back in October of 2015 — so I’m re-publishing the piece below so you can see the details about the company. It has not been updated or revised since 10/30/15.
The ad has changed considerably since last Fall — back then, it was touted as “Trump’s Infrastructure Play” and they were arguing that Donald Trump had made a huge bet on this particular “secret” company (he hasn’t, not really — and he might not own it at all anymore, though it was in his limited financial disclosures last year… though there’s never been any indication that Trump is a particularly impressive stock market investor, so I don’t know why we’d care).
Now, though the “special report” they’re selling is still called “How To Pocket 553% Gains On Donald Trump’s Stealth $15 Billion Infrastructure Play,” they’re expanding on that and trying to push the idea that this company is on the cusp of a major new change as they release “an Advanced New Technology by March 31.” They also say that it’s a favorite of most politicians, not just Donald Trump…
“Donald Trump… Hillary Clinton… Jeb Bush… and 74 Members of Congress… are all stealthily involved in…
“One Silicon Valley Company Set to Release an Advanced New Technology by March 31.
“Insiders have set themselves up to make untold riches on this $15 billion initiative.
“In my urgent briefing, I show how you can get in the potential windfall…”
So that’s the idea — and yes, the “Advanced New Technology” is being rolled out more aggressively this year, after success in pilot programs with many customers, but there’s nothing magic about the March 31 date and no indication that there will be a sudden “windfall” from this technology.
OK, fine, yes, we’ll spill the surprise before I send you down into last Fall’s article — the “Advanced New Technology” they’re talking about is Predix, GE’s new technology infrastructure for their “internet of things” offerings, and they’re teasing an investment in GE (GE). Which is now within a few cents of where it traded when this ad campaign started (and my article first appeared).
More details? Here’s that original article….
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This ad about a “Donald Trump investment” is sending a lot of questions our way, so we’re going to take a look at it for you in today’s Friday File… here’s how Bill Patalon’s ad for his $20/month Private Briefing opens…
“The $57 Trillion ‘Make America Great Again’ Profit Play
“Donald Trump is Talking Infrastructure — and We Show You How You Can Play It for Gains Up to 553%”
“Let me be clear: I don’t work for Donald Trump or his campaign. And I don’t care one iota whether you love – or loathe – him.
“I’m only reaching out to you today because I’ve looked into his financial records… and I’ve discovered a huge opportunity.”
(And, one gathers, because you know The Donald is in the headlines and that will make it more likely that your demographic — people who have some money to invest and who are old enough that they actually are likely to be voters — will read your email ad… lots of newsletters pitch the “secret” investing ideas of politicians mostly because those politicians are polarizing figures and give you a better chance of having your email read.)
But interestingly enough, it’s not just a “Trump” pitch here from Bill Patalon, it’s also an insider buying pitch … which might be a little bit more compelling. Here’s what he says:
“Trump has built a massive position in one company.
“It’s a firm that happens to be at the center of one of the biggest insider buying binges I’ve ever seen…
“One of its top directors recently dropped $20 million on 800,000 shares of his company’s stock.
“And he wasn’t alone.
“Four of the company’s C-level Suite directors acquired another $2.2 million worth of shares. Even the CEO himself spent $2 million buying nearly 105,000 shares last year.
“That’s more than $24 million worth of shares purchased by direct insiders of the firm. And there’s only one reason insider’s buy in massive quantities like that:
“They see a chance for huge profits.”
As we’ve noted many times in the past, there is good academic evidence that C-suite buying, particularly by three or more insiders, is an indicator of likely rising stock prices over the next year or two. Director buying, which is not the same as C-suite officer buying (C-suite meaning CEO, CFO, COO, etc — people who operate the company, not just those who show up for monthly or quarterly board meetings), is not as powerful an indicator.
And “indicator” doesn’t mean “guarantee,” of course — sometimes the insiders are gaming the system with small buys to get attention from investors, sometimes they’re more patient than you are and they’re looking out 20 years instead of one year, and sometimes they’re just too optimistic about their own company, or they’re just plain wrong. But ON AVERAGE, over some substantial past periods of time in the stock market, MOST OF THE TIME stocks with a pattern of insider buying do better than the broad market in the year or two following those purchases.
So insider buying doesn’t mean you no longer have to think for yourself or diversify, but it is a good thing (and to a much larger degree, according to those same studies, than insider selling is a bad thing — which it really isn’t, statistically and on average… probably because, as you’ve probably noticed, insider selling is much more common. A lot of people are essentially paid in stock, and you can’t eat stock. Or buy a boat with it. Or send your kids through college.)
So what’s the company? Well, it’s got something to do with infrastructure:
“Why have Trump and so many insiders spent piles of cash in this one company?
“It all comes down to what the McKinsey Global Institute calls a $57 trillion infrastructure build-out .
“You see, this Silicon Valley company has recently developed an advanced new technology that could completely overhaul America’s decaying infrastructure – and do it quickly.
“They plan to fully roll out this technology by year’s end.
“And because this company already has a deep foothold with nearly every department in the U.S. government – and is closely involved with practically every industry across the country – it’s bound to make unbelievable money for its investors.”
So yes, this is going to be a big company. Trump’s disclosures about stock holdings are not all that specific, despite the fact that his press releases are careful to remind everyone that he made money on most of his picks (over some completely undisclosed timeframe) and that they are “his own picks” — they use the broad characterizations common to FEC filings about ranges of income and asset values that his holdings fall into, not the specific share count disclosures that, say, institutional investors have to file.
But they do at least name the stocks he has earned money from as of his latest disclosure, both capital gains and dividends — and he has also reported that most of his individual stock holdings were sold last year, so he may not own this “Make America Great Again” investment at all today. And really, there’s essentially no point in following Donald Trump’s stock picks, from the disclosure he made the only real conclusion you can make is that “The Donald likes blue chips” — essentially all of his holdings are megacap stocks, and it would be pretty shocking if his stock investing performance is dramatically different than the performance of the DOW or the S&P 500. He owns almost exclusively the stocks that dominate those indices.
But still, we want to figure out who it is… so let’s check a few more clues.
Here’s the promise of this technology, as it relates to the “infrastructure” pitch Patalon is making:
“For example, let’s say you’re rebuilding a bridge.
“My research shows that with this company’s Digital Infrastructure technology, this new “modernized” bridge will be loaded with tiny devices called MEMS, or Micro-Electro-Mechanical-Systems.
“These are tiny sensors that are often so small they’re invisible to the naked eye.
“Yet they’re constantly reading and recording everything – such as how the bridge moves, tilts and sways under a variety of conditions.
“These MEMS also communicate with each other and the other MEMS in the computer systems to detect patterns that suggest damage.
“Most importantly, they can look inside beams where bridges are compromised and very precisely make lightning quick assessments of what needs to be done – in real time.
“Make no mistake: Had this technology been available on the I-35 Bridge in Minneapolis, engineers would have been notified of a problem long before a collapse – and no lives would have been lost.”
And then we get a bit about the size of the opportunity…
“… it’s already been wildly successful in its initial private-beta commercialization phase this year.
“In fact, this company has already pulled in an astounding $5 billion worth of revenue so far – and that’s before it’s even been officially released!
“Plus, they have another $6 billion on the books.
“And now it’s getting set to roll out to everyone across America”
And we’re given a few more clues, too — such as that this technology will connect the railroad system, with locomitives that have 200 sensors on them, that it will fuel digital power plants, including some for PSE&G, and that it will be deployed by the US nuclear power fleet. And the revenue from this will triple to $15 billion over the next four years.
So who is Patalon pitching here? This is, as you may have already surmised, General Electric (GE), which is definitely trying to rebrand itself as the “Industrial Internet” company.
And it’s a good megacap “blue chip” stock and, I think, a pretty compelling long-term opportunity for those who are inclined to be patient buy-and-hold’ers. I’ve considered it a couple times as the shares have been pretty stagnant over the last year or so, mostly because of some concern about their exposure to the oil & gas industry, but I missed my chance to buy the dips into the low $20s a couple times and don’t own shares — and the stock has recovered pretty nicely over the last couple weeks to the current $29 neighborhood. [12/8 Update: I dipped a toe in the water and do now own some GE 2018 LEAP call options, bought on November 19 — the price of both stock and options today is about the same as it was then.]
The actual direct revenues from their “industrial internet” offerings are, so far, in the $5 billion neighborhood, and they have said that they expect it to be a $15 billion business for them by 2020. Which sounds very impressive, and it is, but $5 billion is about 3.6% of GE’s revenue over the past year. This business should be punching above it’s weight, both because it’s going to be a higher-margin software/service business and because it’s going to be tied in with all the equipment that GE sells that is made better by their industrial internet capabilities, but that’s still a fairly small part of the business. If the economy slumps and people order fewer jet engines or power plant turbines, the industrial internet won’t necessarily be enough of a driver to mitigate that kind of cyclical weakness.
GE is a tricky company to understand, mostly because what’s been driving the results this year is both the story of the “re-industrialization” of GE as they sell of their GE Capital assets and stop acting so much like a financial services company, and the fact that the sales of those GE Capital assets have generated more money than many folks expected, which has helped to make the stock a bit more buoyant. So far GE has announced deals, some of them completed, to sell something like $80 billion worth of assets as they refocus the company on their industrial capabilities — power, oil and gas, transportation, big heavy stuff — and on the industrial internet initiatives to make the big, heavy stuff work better, communicate more and more data, and improve safety and efficiency.
The headline part of this is GE’s cloud product that they call Predix, which is what some early stage initial customers are using now, and what GE expects to roll out to many more customers in 2016. There’s a nice little summary of the opportunity in an analyst note from Barron’s here.
I have no complaints about GE, other than the fact that they are a little bit expensive based on the forecasted earnings, since the stock trades at about 20X expected 2016 earnings per share. That’s probably understating the earnings potential they will have once they’ve finished their restructuring, but that’s going to take another year or two to really generate. Not cheap for an industrial company with relatively slow growth to this point… and it is a very, very large company so they can’t turn on a dime, it would be an absolute shock if the stock doubled in price in the next year even with the big buyback that’s planned.
If I had caught an opportunity when the price was dipping and bought it, I’d be pretty happy to own it here — and if I had been looking at it back when volatility was very high I might have sold cash-covered puts against the stock, because it strikes me as a safe stock with a strong yield (3%+) and a good plan for reorganizing and refocusing on growth in their core business. The big cash infusion from selling assets will help them to grow the dividend in the coming years, and to do a pretty massive buyback planned at $50 billion.
It’s no longer like a bank, which is what it really almost was when Jack Welch was running the show and playing the income statement like a virtuoso plays the piano, with never a wrong note nor a missed quarterly earnings report, but the bet is that better focus and a less bloated balance sheet will help them to grow the business much more strategically. The earnings reports aren’t very clean just yet, largely because of the huge asset sales they’re doing as they work through getting rid of most of their GE Capital division.
And yes, in case you were wondering about those insider purchases — a director, William Beattie, did buy 800,000 shares back in February for about $20 million (roughly $25 per share), and there have been a few other purchases by members of the Board since then. Purchases by Board members don’t have the same weight as purchases by C-suite officers, but it’s not a bad thing. CEO Jeff Immelt did also buy shares last year as teased, as did some other executives — Immelt’s last purchase was also around $25, about 18 months ago, and was pretty tiny compared to his total holdings and (huge) compensation package.
So… I wouldn’t put much weight on Trump owning GE (and he might not right now, the disclosures aren’t particularly current), and it’s one of the largest companies in the world so you’ve already got a fairly decent slice of it if you own an S&P 500 index fund, but if you’re looking for large cap companies with some growth potential and a big buyback and dividend to minimize the downsize risk a bit, well, you could certainly do worse than GE.
Sound like the kind of stock you want to buy? Not interested? Let us know with a comment below (you can hold off on your comments about Trump — there are better places for you to discuss him if you like).
Disclosure: As noted above, I do now own 2018 LEAP call options on GE. I will not trade them for at least a week following this re-release of this commentary, and won’t otherwise trade any stock mentioned for at least three days per Stock Gumshoe’s trading restrictions.