That headline might look a little familiar to longtime Gumshoe readers… that’s because Michael Robinson had a very similar ad back in 2013 (and again in 2015) touting MEMS as a “device to end all disease” …
… so, is the ad still about the same stock? Let’s look and see.
Here’s how the pitch begins:
“What’s inside this 14-millimeter chip may soon:
- End cancer, heart attacks, strokes… every illness
- Grow the revenue of an $11.1 billion industry by 63,000%
- Deliver $7 trillion in wealth to Americans”
And then the big promises come that will the attention of all of us… or, at least, all of us who are old enough to have a healthy awareness of our own mortality (which, coincidentally enough, is also pretty much the age range that investment newsletters target)…
“MEMS are the Only Existing Technology That Could Eradicate the Dangers of Disease, Add 30 Healthy Years to Your Life… And Cost Less Than $50….
“Today, the patents for the MEMS set to end disease… 900 of them are controlled by one little known company.
“They Have Been Cleared By the FDA
“And now there’s a way for you to grab a piece of this company’s patent rights for less than $17.”
OK, that is indeed sounding awfully familiar — that’s pretty much exactly the same language Robinson used back in 2013… though at the time, it was 800 patents and you could “get in” for less than $9. The ad is for Robinson’s Radical Technology Profits, which is currently “on sale” for $1,950/year (they say that they’ll send you a $2,000 check for subscribing, but that’s after you pay $3,950, so presumably everyone’s smart enough to realize that’s just one of the typical “50% off” sales that publishers spin in a variety of ways).
So what’s the stock? Thinkolator sez this is, once again, a pitch that teases ST Microelectronics (STM), the giant European chipmaker.
STM has been a hugely successful investment over the past year or so — I last wrote about it almost exactly a year ago when Paul Mampilly over at Profits Unlimited was pitching it with a similar sensor-focused ad that talked about the power of these little tiny sensors and machines, though his pitch was more about the “Internet of Things” and Robinson’s is more about the health applications.
And Mampilly’s pitch was certainly well-timed — the stock was around $6 at the time and was, we now see, just about to begin a huge run of almost 200% to a new 9-1/2 year high around $17. I was skeptical at the time, and, frankly, remain a bit skeptical now even though the stock is obviously far more loved than it was a year or so ago (it’s at about $15 today).
The big change that has happened is that they’ve now had a few good quarters in a row, and growth expectations have come back to STM’s stock — analysts now expect that STM will earn 79 cents per share in 2017 after earning only 28 cents in 2016, on the back of both dramatically improved margins and revenue growth of almost 15%. They have reported one quarter thus far this year, matching estimates and keeping margins at the elevated levels they first hit late last year, but the earnings growth is really expected to ramp up in the next two quarters — so presumably investors will be watching closely to see how this latest attempt at growth goes for STM.
And it hasn’t just been that “the sector is rising” — the semiconductor index has had a great year as well, rising 40-60% depending on which index you use, but clearly STM has done better than that with a rise of about 175% over the past twelve months (over the past three or five years, incidentally, STM has had about the same return as the iShares PHLX semiconductor ETF (SOXX), but that’s because it lagged dramatically for a long time and then quickly caught up this past year).
Skeptics like me have missed the run in STM shares, so you might note that I’m a bit biased on this stock — that’s mostly because it has been a story of government interference and managerial ineffectiveness for so long that I probably am too cynical to give them a fair shake. Too many past promises and reorganizations have failed to generate growth.
This year, that skepticism has certainly been a mistake — the first quarter included a slight improvement to their guidance for the second quarter, so they’re not backing off on their growth hopes. The company is focusing on MEMS and sensors for the Internet of Things as well as on Automotive chips, and those are certainly areas of strength — so perhaps it will work this time (STM in the past has tried to compete in almost all areas, including going up against Intel a decade ago for PC chips, partly because of their mandate to be a “European Champion” in the tech sector).
The remaining bit of skepticism I’ll leave you with revolves simply around timing… STM was also widely expected to be on the verge of returning to growth thanks to their MEMS business four years ago, when Robinson’s similar ad first started running, and the stock was pretty much stuck in a slow decline for about three years after that.
Yes, STM does have about 900 MEMS-related patents these days, and they can churn out roughly four million MEMS chips a day. That sounds impressive, and it may be if the patents turn out to be truly critical for Internet of Things sensors in particular areas, or if STM wins business from its competitors, but STM is far from the only company with a large pile of MEMS patents or strong production capacity — their large European competitor Bosch (which is mostly private, owned by the Bosch f amily foundation) claims about 1,000 MEMS-related patents and patent applications and also has capacity to produce about four million chips per day, and lots of other major chip companies, including big guys like Texas Instruments (TXN) to NXP Semiconductor (NXPI), are active in a lot of the same areas.
So it may end up working great for STM, I don’t know, but the expectations have risen quite a bit over the past year — analysts now expect 79 cents in earnings for 2017 (a year ago, that expectation was more like 40 cents for 2017) and 93 cents in 2018, so that means STM is trading at about 17X forward earnings. That’s not wildly expensive for the tech sector, for sure, and STM is small enough to grow (with a market cap of about $13 billion), but it’s also not unusually cheap — Texas Instruments trades at about 20X next year’s earnings, Broadcom (AVGO) at about 14X, NXPI at about 15X (though they’re still awaiting the Qualcomm buyout), and the truly growth-challenged giants like Intel are much cheaper (INTC has a forward PE of 12). So if the growth continues, the stock is at a rational valuation — the next quarter, which should be reported in late July, will probably be the next indication of whether that expected second-half growth will really materialize.
And… I’ve been quite wrong on this one over the past year, so I’ll pass it back to you — have any confidence in STM’s new growth pathway? Think this will pan out nicely? Let us know with a comment below.
P.S. If biological sensors using MEMS “end all disease,” it won’t be this year… and STM does not own every single idea in the MEMS space… but cool new things do get developed and pushed forward every year. There’s an interesting article from Electronic Engineering Journal here from about 18 months ago that summed up where some of the MEMS technologies were at the time, which I think helps to provide some good perspective.
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Disclosure: I own shares in Qualcomm, which is mentioned briefly above. I don’t own any other stocks mentioned above, and will not trade in any stock covered for at least three days per Stock Gumshoe’s trading rules.