Today we’re looking at a teaser pitch from Larry Edelson, who thinks that the government is on the verge of outlawing cash and forcing you to use credit cards and other digital payments.
And, of course, he has a way to enrich you as this trend proceeds… buying the companies who are doing the payment processing and otherwise are involved in “digital cash.” And no, it’s not a wonky bitcoin pitch, these are all real, fairly sizable mainstream companies who process credit cards and do other “normal” stuff. All you have to do to get started on these riches, we’re told, is subscribe to his Real Wealth Report ($159)… or, of course, you can read on and we’ll try to name all the stocks for you and get you started on thinking for yourself for the somewhat more palatable price of “zilch.”
(I’d be remiss if I failed to note that if you DO want to pay for more, faster, better, perhaps thinkier stuff, even if we can’t promise to make you rich… well, we’d love to have you as one of our Irregulars if you’re not already a paying member. A bargain at $49 a year!)
Here’s a bit of Edelson’s spiel:
“I’d like to tell you about an investment opportunity that is simply too good to pass up …
“… a chance to potentially double, maybe even TRIPLE your money in the coming months …
“… all while helping to keep your financial affairs secure from the prying eyes of government snoops, Internet thieves and scammers.
“This rare, once-in-a-lifetime opportunity is only possible because western governments, the world’s biggest banks and Internet billionaires are all doing their level best to eliminate cash from the global economy …
“… and FORCE all business transactions to be conducted electronically with bank debit cards, Paypal, Google Wallet, Apple Pay, and other electronic payment systems.”
And it’s not all about one single company or technology, he’s got a whole “dossier” of stocks who have already generated profits in this area in the past, and apparently he thinks they will be good bets going forward. More from the ad:
“These are companies that I believe will profit most from the War on Cash — and which will also help you do your part to fight back against this unconstitutional invasion of your privacy.
“The title of this report says it all: The War on Cash: How to Fight Back and Cash in on the $15 Trillion Digital Payment Gold Rush.
“This privately printed dossier is chock full of details on the best opportunities right now — red-hot investments that I believe could easily DOUBLE your money in a matter of months … and potentially make you a fortune over the next several years.”
And, of course, it’s top secret…
“In fact, I fully expect that the information I want to send you will soon be classified ‘Top Secret’ by the U.S. government — and perhaps even banned for dissemination under the pretext of ‘national security.'”
Alright, he’s hinting at a huge number of stocks as plays on this “war on cash,” so I don’t have time to pick on the hyperbole for long… let’s just jump right in to identifying the stocks. Ladies and Gentlemen, your clues!
“Stock A: It’s an up-and-coming mobile payment and privacy company, based in Cincinnati, with annual revenues of $2.5 billion.
“This company’s stock price shot up from $19.52 a share in November 2012 to $52.59 a share just three years later.
“That represents a total return of 169.4% — or an average return of about 39.15% per year.”
Edelson also included a chart in his “turn $10,000 into $269,245 in a decade!” pitch about this one, so we can confirm that the Thinkolator is right on the ball in saying this is… Vantiv (VNTV), which is indeed a payments processing company based in Cincinnati… though their annual revenues have been growing, so the trailing number is now a little over $3 billion ($2.5 billion would have been accurate a year ago).
Vantiv came into being as a separate company in 2012 when it was spun out of Fifth Third, the big regional bank based in Cincinnati. It’s a fairly large firm, market cap around $9 billion (plus around $4 billion in debt), and as of the December data in Yahoo Finance, Fifth Third still owns close to 20% of the shares. This is a growth stock, and it has been growing — priced at about 20 times 2016’s expected earnings and with growth over the next few years expected to be in the 10-16% range. They are an integrated payments processor, most of their business is providing card processing services (and add-ons like security) to merchants, and they have a smaller business providing mostly card-related services to banks. You can see their latest investor presentation here for an overview of the business.
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“It’s another digital payment processor that has seen staggering growth in the last few years.
“Stock B’s shares were selling for just $20 in 2012 but have since done a moon shot as digital payment revolution gathers steam worldwide.
“Recently, Stock B has been selling for around $65 a share — which represents a total return of 225% over the past three years.
“That’s roughly 8 times more than the S&P 500 has returned in the same period.”
This one is not so certain, but the best match the Thinkolator has found so far is Fidelity Information Services (FIS), which has a similar but not exactly identical chart and did return roughly 200% from the 2012 low to the 2015 high, and is priced in the mid $60s ($63 right now). Fiserv (FISV) is also fairly close to being a match, as is Euronet Worldwide (EEFT) or Heartland Payments (HPY), and all of those are fairly similar businesses, but neither is as close as FIS. Perhaps there’s a more compelling one that I haven’t yet run across.
“Another mobile payment processor, Stock C, also has seen similar gains that have left the overall market in the dust.
“It sold for around $14 a share in 2010 but has been climbing steadily ever since.
“It hit its recent high in late 2015 at $52 a share — an annual return of 30% a year for five years running.”
The best match here, per the Thinkolator, is Total System Services (TSS), which, yes, is a payment processor. They’ve come sharply off of their mid-$50s highs in December, dipping briefly below $40 in the February slump and now sitting at about $45. They grew pretty quickly in 2015 (earnings growth of about 25%), but are projecting much lower growth in 2016 (in their year end presentation they projected about $2.60 in earnings for 2016, which is growth in the 5% range), so perhaps that’s why the stock fell so sharply during the market swoon. Don’t really know much else about them, most of these payment processors seem to do mostly the same things (recruit merchants, provide back end services for payments, sell equipment and add-on services, etc.). It’s trading at about 17X current year earnings expectations, and is expected to grow earnings “in the high single digits,” so it’s fairly richly valued compared to the market but is actually a bit cheaper than most of the other payment processors I’ve been looking at… mostly, I think, because the growth expectations are lower.
You’ll also see the company call itself TSYS, but that is not the ticker (TSYS is their subsidiary that acquires merchants, it appears). They’re also in the process of acquiring Transfirst, another payment processing company, and that same presentation details the reasons for (and the potential profitability of) that merger.
“Imagine making 12 times your investment in just 2 years!
“And then there’s Stock D.
“Stock D went from $4 a share in 2009 to $54 in about two years — for a total return of 1,250%.
“A $10,000 investment in this digital payment stock would have netted you a tidy $125,000, again in about two years.”
OK, so that’s a ridiculous tantalizer… why does it help us to know about a stock that provided 1,250% returns from 2009 to 2011? This one is very likely Verifone (PAY), which has been an oft-cited “cashless society” stock over the years because of their strong presence in payment terminals (you’ll probably notice that your grocery store or your McDonald’s has a Verifone machine for your card-swiping pleasure), but it has also been extraordinarily volatile — the stock did go from $4 or so at the 2008/2009 lows to the mid $50s at the spring 2011 (and 2012) highs, but in the years since then it’s seen the mid teens and the high-$30s. The shares are now at about $28, and they just reported a good quarter and raised forecasts last week so the valuation looks pretty nice — trading at about 11X expected 2016 earnings, with expected earnings growth of about 15% for both this year and next year. You can see the transcript of their call here if you want to get an idea of where the business stands.
“In 2010, the stock didn’t look like much.
“This company produces global mobile capture and identity verification technologies for thousands of financial services organizations across the globe.
“Not exactly what you’d call a ‘whisper stock.’
“You could have picked up as many shares as you wanted in September 2010 for just 85 centers a share.
“But then the first phase of the War on Cash kicked in — and this stock just kept going up and up.
“By late 2012 Stock E was trading for $11.05 a share.
“That’s a return of 1,200%.”
This one is Mitek Systems (MITK), though those dates are off by a month or few — you would have had to buy by July 2010 to get it at 85 cents, and the $11.05 was for late 2011, not late 2012 — the stock did carry a $12 price into 2012 for a little while, but soon fell apart and went from $12 to $2 in the space of about two months. It’s been doing well over the last six months or so as they’ve started to post earnings (they’ve mostly been losing money for years, though there were a couple positive quarters back in 2011), and the shares are now at about $6.
Mitek made its mark first on the rise of mobile banking, with their “mobile deposit” technology that lets you take a photo of a check and deposit it. They expanded on that “mobile capture and identity verification” with similar photo-based bill payment and credit card account management tools, but I don’t know whether they have a lock on that little niche or if other technology is also used for that “snap a picture of your check and we’ll deposit it” option that seems to be provided by pretty much all banking apps now. I also don’t really know what their prospects are, but analysts think they’re going to keep growing earnings from here — the stock is trading now at about 20X 2017 forecast earnings (though that forecast is from only three analysts).
Getting sick of this yet? Me, too… but there’s more!
“Another example is Stock F.
“It makes the little chip they’re putting on credit cards now, for greater security.
“In 2011, you could have picked up shares of Stock F for $15 each.
“By last year, the stock, was selling for $112 a share — a total return of 646.6%.
“If you had invested $20,000 in Stock F and simply forgotten about it, you would have woken up last year with an extra $129,200 sitting in your brokerage account. In four years.
“With this degree of upside potential, this is the closest thing to a sure thing as is possible with stocks.
“The profits investors are making right this minute in digital payment and financial privacy simply boggle the imagination.”
This one, sez the Thinkolator, is almost certainly NXP Semiconductor (NXPI), which was touted and teased for years as the hot play on NFC payments (near field communication, non-contact payments using a chip in your cell phone) and also provides chips for the newer “slide the card in” payment cards — though that’s not the majority of their business. After the acquisition of Freescale Semiconductor that closed last Fall, NXPI is now the market leader in automotive semiconductors and also has a huge position in “mixed signal” and analog chips, including payment chips. They do not “own” anything proprietary in payment processing, as far as I can tell, but they have a large market position in lots of areas and I’ve been tempted by the shares recently myself even though they’re in the terribly competitive semiconductor space — I noted as much to the Irregulars on Friday last week, here’s what I wrote then:
“It’s probably being too optimistic to buy in to the analyst projection that NXPI will grow earnings at 25% a year for the next five years… but even if they grow at half that rate, the current valuation (a PE of about 10 on 2017 estimates) is too low. I’m looking into this one more, and I haven’t yet bought, but it’s certainly on my short list at this price.”
Still on that short list, for whatever that’s worth. The stock is at $80, down almost 30% from those 2015 highs when excitement was riding high about the newly-announced merger. I suspect that the stock is cheap because the expectation is that they will not really grow earnings this year, and probably because of trepidation that we’re at “peak auto sales” now, since autos are a huge part of the business… but if the analysts are even close to being right about their potential in 2017 and beyond, after the merger has really settled in, then this may be a way to buy cheap growth if you don’t mind being a bit patient. But I wouldn’t buy it primarily because of the “cashless society,” post merger that’s probably going to be a smaller part of their business than it was a year ago.
But wait! There’s another one!
“Stock G, a digital payment processing company, based in Kansas, that operates in Asia and Europe.
“Its shares have climbed from around $16.50 in mid-2012 to $80 a share late last year.
“That’s a total return of 384.8% or an average of 69% a year.
“Again, gains like these could grow small amounts of money into very large amounts fairly quickly: $10,000 would become $137,858 in just five years at that rate!
“Now, we can’t go back in time to grab any of these profits, and catching the entire move will be difficult. But that’s okay because even if we can grab a fraction of these opportunities, your profits could be enormous. I also see so much more profit potential on the horizon….”
Ah, now this one is Euronet Worldwide (EEFT). I had no idea there were so many mid-sized payment processing companies. Euronet is indeed growing, though not particularly fast, and it does match the chart given after a ride from $16.50 in 2012 to $80 in late 2015, though it did come down sharply early this year (like several of the other payment processing companies — a bit of a trend there)… there’s been some recovery as the market has turned back up, the shares are now around $72. Earnings expectations for this year have come down a bit in recent months, presumably because of the weak fourth quarter report, but expectations are still high — analysts think EEFT will post 40% earnings growth this year and grow by another 20% in 2017. If this is really going to be a great year for earnings for EEFT, and they really can hit that $3.69 that analysts expect, then the stock trades at about 20X this year’s earnings and 16X next year’s earnings… which is a fine price to pay if they can really grow that fast.
And this is probably less of a “cashless” stock that some of the others, since a substantial part of their business is from their ATM network, which apparently is largely in Europe, and their money transfer services that are presumably depended upon by the unbanked (migrant workers sending cash home, etc.). You can see their fourth quarter presentation here. Looks like an interesting business, and they do have a cool little ATM car that they feature as one of their earnings drivers in Eastern Europe (for secure late night deposits, I take it), but this is a very different business than the more mainstream “payment processor” firms who sign up local stores to their network, rent or sell them card readers, and process their credit card payments for a tiny fee.
So that’s about all I can tell you in the few minutes I looked at each of these companies… my head is spinning a little bit, and it seems to me that the payment processing business is a good one but also a highly competitive one, where margins into the future aren’t necessarily guaranteed. And, of course, there’s always an upstart — like Paypal (PYPL), which is getting some real traction outside of eBay for the first time… or Square (SQ), with their iPad-based cash registers that are cropping up all over my little town in Western Massachusetts all of a sudden and seemingly taking the world by storm (but not, of course, generating enough revenue to justify Square’s $4 billion valuation just yet).
I don’t own any of ’em. And yes, I expect the cashless society will continue to grow, though I don’t know that we’ll see cash outlawed — that seems unnecessary, since it’s being used less and less every year anyway. Heck, we can’t even get Congress to do away with the penny or the dollar bill, both of which are expensive and unnecessary anachronisms at this point. People are giving up cash on their own because of convenience… we don’t need to build conspiracy theories about the government’s desire to take it away from them so they can watch your every move, because we’ve all given up almost all of that privacy already as we track ourselves on our phones and use credit cards for almost all purchases.