What’s Robinson’s “Little Black Smart Box” teased for Radical Technology Profits?

by Travis Johnson, Stock Gumshoe | June 16, 2016 12:26 pm

This one already has a little discussion going among some of our intrepid Gumshoe Irregulars, and at least one of them has ID’d the right stock … but I’ve been asked to weigh in, so I’ll give it the full treatment today.

The ad is for Michael Robinson[1]’s Radical Technology Profits[2], which comes from Money Map Press[3] — and Money Map seems to have surpassed even Stansberry and Agora[4] Financial in its ability to overwhelm our inboxes with multiple iterations of the same sales pitch, whether it’s for Robinson’s letters or for the stuff from Dr. Kent Moors[5] or Shah Gilani[6] or Keith Fitz-Gerald[7]. They’re not shy.

And as Robinson has done with several other ads in the past year or two, this is one where they overwhelm us with repetitive promises of mountains of wealth, with lots of photos and charts, but keep the actual clues pretty light. There’s enough for us to ID the stock, but, as with a lot of ads, most of the pitch is really about the big potential of the end market more than it is about this specific company.

Here’s how he gets us going:

“Tiny Niche-Sector Surges 687,000% — $37 Trillion Fortune on Horizon

“This little black box — hidden in your neighborhood — holds the KEY that could unlock your share.”

And then he runs through more about this “little black box,” which he later dubs a “smart box” — including dozens of photos of various little boxes attached to lamp posts and street signs, and then the promise that…

“I wouldn’t be surprised if these little black boxes created the world’s first TRILLIONAIRE…”

He even quotes a few of his colleagues at Money Map, without mentioning that they share an employer…

“Retired hedge-fund legend Shah Gilani agrees, saying the opportunity DWARFS every fortune ever created in the history of man.

‘It’s simply mindboggling,’ Gilani told me from his posh Hamptons estate.

‘We’re talking about $37 trillion,’ Gilani said.

‘Maybe more. We’ve never seen anything like this. And we never will again. At least not in my lifetime.'”

And Dr. Kent Moors, who in every other instance puts himself forward as an energy expert but today is apparently also quotable when it comes to telecom…

“Dr. Kent Moors, a 30-year veteran of the U.S. Intelligence community, and consultant to 29 governments worldwide, puts it this way:

“He says and I quote:

‘I doubt they’ll build another cell tower ever again. These little boxes are the new mobile network. And they offer extraordinary opportunities in commerce, national defense, healthcare[8], education, EVERYTHNG!'”

This is all really just another take on what’s usually called the “Internet of Things” — the increasing connectedness of all kinds of objects, and the movement toward “smart cities” and self-driving cars and everything else that will swamp our current mobile internet’s ability to handle the data… so the opportunity with these “smart boxes” is, really, creating a faster and more responsive and more distributed mobile network that relies on more than just cell towers.

From the ad:

“The existing mobile wireless network can’t support the NEW WORLD that’s emerging…

“And it all comes down to those old cell towers…

“Those hulking masses of metal simply can’t handle the amount of traffic the new Smart World is demanding…

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“Think of it…

“Governments. Fortune 500 companies. Seven billion people. And ONE TRILLION DEVICES! All connected. Talking. Texting. Tweeting.

“Holy freaking cow…

“The cell towers can barely accommodate today’s traffic generated by seven billion devices… let alone one trillion devices all talking 24/7…

“And it’s easy to understand why…

“They were built for a world that no longer exists…”

What, then, is this secret company with the magic smart box that can solve this problem? As I said, the clues are a little bit thin and spread through the extraordinarily long ad (63 pages in transcript form!), but I’ll walk you through what I found when giving it a read…

“… at the center of it all sits a $6 company using patented technology to help make it all come true…
“It is rare for one company to be the lynchpin for such a massive, all-encompassing, earth-shifting transformation…

“Microsoft. Apple. Google.

“All dominant, world-changing companies…

“And yet, they are all replaceable…

“You might prefer Apple, but there ARE other computers…

“You might prefer Google, but there ARE other search engines…

“You might love and adore Microsoft Word. But in a pinch, there ARE other options[9]…

“The tiny $6 company I’d like to share with you today is different…

“You see, while there are different boxes on the market, this $6 company is totally rare and unique…

“In fact, in a stroke of visionary brilliance, they’ve implemented not one… not two… but three patented technologies that are poised to transform society…

“We are talking about complete and utter dominance, the likes of which we’ve never seen before, and may never see again…

“And make no mistake: The potential winnings will not be measured in millions…

“They will not be measured in billions…

“They’ll be measured in TRILLIONS…”

OK, nothing soft-pedaling about that — apparently this company is going to be the most powerful monopoly in the world if all that’s true. Assuming, of course, that Robinson isn’t exaggerating to get our attention….

And then we get into some clues that give the Thinkolator a little to chew on…

“To tighten things further, we’ve just gotten word that a legendary billionaire has taken a $100 million position in this $6 company.

“This man is an absolute genius…

“He’s known as the “Quant King” – and with good reason.

“In fact, he’s a former Harvard mathematics professor who worked as a Cold War codebreaker for the National Security Agency in Washington, D.C.

“Now, full disclosure right up front: This billionaire – I call him Simon – started a hedge fund in 1982, right about the time I got to the Valley…

“Over the years, I’ve watched as Simon’s positions in Apple, Facebook, Google, and Microsoft have transformed him from the son of a shoe factory owner…

“Into a billionaire sitting atop a $15 billion personal fortune.

“Heck, his hedge fund has grown to $65 billion!

“And at this moment, he’s in position for what could be the crowning achievement of his career… the $6 company I’ve been telling you about.

“He’s already taken a $100 million position in this $6 company.

“And if history is any indication, he may be looking to swallow the remaining shares as early as tomorrow morning…”

Seriously? Those clues are clearly pointing to James Simons, who founded Renaissance Technology, once (and maybe still) the most powerful hedge fund in the world — and the one that we all pointed to as the rare example of a hedge fund earning its fees, since it charged completely absurd fees, twice as large as competitors (as high as 5/44, versus the typical and still too high 2/20), but still generated huge returns for investors who reportedly saw annualized 35% gains for 20 years.

That’s how Simons went from academic math whiz into the ranks of the world’s wealthiest people, with a $10+ billion fortune, though regulatory pressure and an insider trading scandal essentially pushed Renaissance out of the business of managing other peoples’ money — they now manage mostly money that belongs to Simon and the many employees of the company.

And no, Renaissance and Jim Simons are not going to buy or take control of an entire company… or at least, they never have. They run quantitative trading programs, largely through their flagship Medallion Fund (that’s the one with the extraordinary long term returns), which use advanced math and huge data processing power to find correlations, aberrations and other flags that send them to trade particular securities — Renaissance is full of computer scientists, mathematicians, physicists and other deep thinkers on data who think of ways to exploit trading patterns or trends or anomalies, no one is looking at individual companies and assessing whether their products are going to give them an edge over the next five years.

Oh, and Simons himself is officially retired — he still is involved with Renaissance, but seems to spend most of his time in philanthropy now, most of it directed at science and math, particularly math education. There are a lot of people who are worth following as you watch their quarterly filings to see what kind of stocks they have conviction in, like Carl Icahn[10] and Warren Buffett[11] and many other lesser-known institutional investors who buy stocks because of specific value propositions in the business and typically hold for longer periods of time, but I suspect there’s a lot less value in trying to follow the Quant investors like Renaissance and Jim Simons — given that they are in and out of many of their positions in a few quarters, and the reports on their portfolios are released only quarterly (and with a 45 day time lag), it’s hard to see much value.

To give you an idea of the relative importance of this “secret” stock to Simons and his company, Renaissance manages $50+ billion, so a $100 million position would be two tenths of a percent of the portfolio (in a typical quarterly filing, they might report 3,000 or more equity positions — last quarter it was about 3,700). Renaissance doesn’t make focused, fundamental bets on specific companies, their top ten holdings are only about 7% of the portfolio.

So Simons holding shares is not necessarily a good reason to buy a stock… but what else do we get by way of clues?

“‘Say goodbye to big, bulky, unsightly cellphone towers. Say hello to the future,’ says Forbes[12] magazine…

“And sitting at the center of this frenzy is a $6 company using patented technology to help make it all happen…

“To say this company is in the catbird’s seat would be an understatement of epic proportions.
Remember: Earlier generations of these boxes have delivered 8,900%… 17,000%… 62,000%…

“Savvy institutions have already snapped up over 225 million shares of the available float…

“I’ll tell you how you can get all the information to play this in a moment… even how you could own this $6 company for pennies on the dollar… magnifying your potential winnings mega-fold…”

OK, so that “pennies on the dollar” bit is likely a reference to using options to get exposure to whatever this “secret” stock is… which you can do with most any major stock, but the bit about institutional ownership is a little clue.

How about the product itself? From Robinson:

“I call their arsenal of unique technologies the ‘Smart Box’… and it is the perfect bridge to the SMART WORLD we are ready to step into…

“The Smart Box array is like a mini-cell tower and so much more.

“It transmits and receives signals making mobile communications possible…

“It’s a fraction of the size – and a fraction of the cost – of the old cell towers…

“And it opens the door to a whole new network – a BLAZING FAST network… with virtually ZERO LATENCY … and virtually UNLIMITED CAPACITY…

“All critical, no doubt. But the thing that makes the Smart Box so extraordinary is that it’s, well, SMART…

“That’s right…

“This $6 company’s Smart Box is… SMART!

“I’m talking real intelligence….

“Incredibly, the Smart Box actually LEARNS and ADAPTS…”

OK… what other clues can we feed to the Thinkolator?

“… the top executives hail from all over the globe – the United States, India[13], France, Germany, the United Kingdom – and have a combined 285 years of frontline telecommunication experience.

“This $6 company has a GLOBAL ARMY of telecom giants – the biggest in the world – rushing to spread their Smart Box around the world…

“In China[14], they are working with China Telecom who is expected to rollout as many as five million little black boxes in the next couple years.

“Demand is so extensive they’ve set up offices in Sichuan, Hunan, and Beijing.

“In addition, they’ve set up factories in Shanghai and Qingdao to ramp up production on a MASSIVE SCALE!

“In Russia[15], this $6 company has offices in Moscow and St. Petersburg…

“In India, they have offices in Bangalore and Mumbai…

“In Brazil[16], they’ve set up offices in São Paulo and Rio de Janeiro….”

That’s probably enough… but we also do get a couple financial metrics:

“I project 2016 sales could reach a staggering, mind-blowing $14 billion, so you can be sure:

“This stock won’t stay at $6 for long…

“In the coming weeks, I wouldn’t be surprised to see big institutional investors scrambling to get in for $10, $15, even $25 a share….

“In fact, a major announcement is expected imminently, and I wouldn’t be surprised to see the share prices double, triple, or even quadruple on the news….

“If you could only own one technology company for the next 10 years, this would be the one.”

Nothing subtle about that… “staggering!” “Mind Blowing!” “If you could only own one!”

So who is this? As a couple readers have noted in discussing this over the past couple days, Thinkolator sez this must be Nokia (NOK)[17].

Why is that the match? Revenue close to the $14 billion figure noted, Renaissance Technologies does own roughly a $100 million position, the share price is close to $6, they do provide hardware and services related to distributed “microcell” systems, including new products for 5G that could feasibly be described as similar to the mysterious “black box” Robinson revers to.

So yes Nokia is still around. Remember when Nokia was the world’s leading cell phone manufacturer, by far? Yes, those days are gone — but they are still a major telecom supplier, they’ve always worked on the network side as well as on the handset side, and they are in the process of integrating their recent acquisition of Alcatel-Lucent[18], another company that’s been pretty disappointing for investors over the past decade or so… here’s what Alcatel and Nokia shares have done over the past five years (the S&P 500 is in red):

I’m generally a little skeptical about the value of putting two growth-challenged companies together and hoping that 2+2=5, but I think we sometimes do write off “old technology” companies too early just because the public perception of them has lagged and they’re not so “sexy” anymore, and cycles of business can turn — so perhaps there is a market opportunity for all the new telecom and wireless demand from the Internet of Things and the increasing demand for data transmission. That’s certainly the motivation behind the Alcatel-Lucent acquisition, which is designed to give them more scale and expertise in the next-generation 5G networks to support the Internet of Things.

The stock is not particularly expensive — but don’t get too excited about that “staggering” $14 billion revenue number that Robinson throws at us… Nokia had peak revenues of $74 billion back in 2008, and has been in decline since (partly because Nokia sold its phone handset business to Microsoft for about $7 billion in 2014), so the revenue number was in the $15-16 billion range in 2013 and 2014. It did dip to below $14 billion last year, so even getting back to $14 billion would be at least mild growth… but it’s ridiculous to call it “staggering.”

There will actually be a staggering growth number in 2016, with revenues rising by probably about $14 billion, but that’s because of the addition of Alcatel-Lucent to the numbers this year (Alcatel-Lucent had higher sales than NOK in 2015, but also has generally seen declining revenues over the past decade). And analysts see revenues for both 2016 and 2017 that are still a bit less than what Alcatel-Lucent and Nokia hit separately in 2015, though hopefully that’s because of the shedding of some of the lower-margin businesses.

And the profit expectations are similarly pretty tepid, and have been getting worse — earnings this year will probably come in about 40% lower than last year (22 cents a share is the expectation, versus last year’s 40 cents), and while analysts do see growth to 33 cents in 2017 it’s worth noting that both the 2016 and 2017 estimates have come down sharply over the last quarter. Those same analysts do predict good long-term growth in earnings of better than 20%, so there is some underlying optimism about the possibilities, but it’s always good to take those far-future estimates with a bit of skepticism.

If those analysts are right, then NOK is now trading at about 17 times next year’s earnings estimate (23X current year estimates), so if there is really 20%+ earnings growth in their future that’s not bad. A lot of this undoubtedly hinges on Nokia and Alcatel-Lucent having a good integration this year, and a strong market presence and good product rollouts into the big investments that everyone expects from telecom companies over the next couple years (Verizon has tried to take the lead with commercial launch of 5G networks in 2017, for example).

Oh, and is there a magic “smart box?” Well, not one that looks like the mysterious cube in Robinson’s presentation, but Nokia builds many of the distributed antennas and base stations that can be used for next-generation networks (and are distributed for current networks) — I suspect that what he’s talking about is Nokia’s latest generation AirScale products, which are described pretty well in one of Nokia’s blog posts here[19]. They do have low-latency, adaptable systems that “learn”, and I have no idea whether or not they’re better than competing products from Huawei or from the Cisco/Ericsson partnership or anyone else. They did have good news this week, as Robinson alluded to in the ad, thanks to an announced deal with China Mobile that means the major Chinese network operator is the first to commit to deploying AirScale base stations[20].

Nokia has also paid a dividend pretty regularly, though the amount has fluctuated — they pay annually, and today is actually the day that the shares go ex-dividend for the payout they announced based on 2015’s results. So if you owned the stock yesterday you’d be in line for about a 30 cent dividend (16 euro[21] cents for the regular dividend, plus a 10 cent special dividend), which would give the stock a yield of about 5.5%. Presumably they’ll keep paying a dividend in future years, as long as they’re profitable. That’s a high payout ratio, paying out 75-80% of last year’s earnings, so if analysts are correct about this year’s earnings being substantially lower it’s entirely possible that the dividend will be smaller a year from now.

So I’ll leave you there — a major merger between two networking companies, designed to enable a large-scale, integrated business across most of the telecom and networking marketplace at a time when we’re expecting a significant investment in both big telecom networks for 5G and a big global investment in “Internet of Things” connectivity. I can see the logic in it, and it’s not horribly expensive, but they do also have strong competitors and it’s a business that’s been in decline for a while — and they’re in the midst of what could be a challenging integration of two very large and very old firms.

Sound like something you’d be interested in? Have any experience with or insight into Nokia or Alcatel-Lucent? This is the first I’ve even glanced at either company in many years, so there’s a good chance you’re better informed than I am — why not share your wisdom with a comment below?

P.S. If you do care about the Renaissance Technologies position in NOK shares, they do still own it — it has been in the portfolio since late 2013 and the size of the position has fluctuated (as all of their positions move up and down pretty much every quarter as their computers trade in and out of things). As of the most recent quarter, they had sold about 7% of their NOK shares from the prior quarter and it was just barely a top-100 position in Renaissance’s funds at 0.18% of the portfolio.

It might actually take you a few minutes to come up with a decent-sized stock that Renaissance doesn’t have represented in its portfolio. Nokia is not in the S&P 500, but it’s big enough to be a medium size component of that index — so if you think of it that way, a $30 billion-ish company like Nokia (examples in that range that are in the S&P 500 might be Yum Brands, Boston Scientific, Praxair, etc) would get about a 0.15-0.2% weighting in the S&P 500… so having that kind of weighting in Nokia sounds pretty “neutral” to me.

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