Rogue Investing is selling subscriptions to their Rogue Investing Daily ($97/yr), which apparently recommends 200+ trades per year — that’s not exactly my cup of tea, that kind of churning and trading would do a lot of damage to most portfolios over the long term, but I know a lot of folks like to do more tactical trading in and out of ideas more often than I do, or just like sifting through actionable ideas… and, more importantly, the newsletter is being teased with something that sounds more like a longer-term opportunity, Mr. X’s “Trade of the Decade.”

So… what is it? Might we be curious about that, even if we don’t want to make half a dozen different stock trades every week? Let’s see what we can divine from the clues that Cory Snyder drops in his teaser ad.

The person throwing tips at Cory Snyder for this newsletter is a mysterious “Washington insider” named “Mr. X”, and he apparently had a very good run in 2020 and 2021, when everything was going bonkers…

“The man who predicted the rise of Bitcoin in 2020… the explosion of Zoom… the rocket ride of Moderna… and the collapse of all three… now issues an urgent alert for:

“The Trade of The Decade

“Four of the world’s most powerful trends are converging on one stock…

“Its technology is the bedrock of modern civilization…

“And the next moves it makes could ripple through more than $44 trillion in global capital…

“Mr. X has already forecasted 15 separate stock picks with gains north of 100%… including one that returned 442%”

And there’s more hype about that “secret insider”…

“The service is spearheaded by an elite Washington insider known only as Mr. X.

“He’s a private, well-connected man who hears all of the whispers on Wall-Street…and keeps close tabs on the sensitive closed-door meetings in D.C.

“In fact, you may have read about him before –

“But due to the sensitive nature of the information contained in this special report, and dozens like it…

“We can never share his photo or his real name.

“He is notoriously secretive about his connections and colleagues…

“But the power of his ‘black book’ network has shown itself time and time again –

“Mr. X always seems to know exactly which way the wind is blowing…”

We’ve certainly heard our share of “Mr. X” teases over the years, publishers have discovered that having a shadowy figure behind the scenes, supposedly picking stocks in secret because they’re too “connected” to release their name, is a good selling point. I have no idea who this particular “Mr. X” might be, or if there’s such a person at all at Rogue Investing, but it’s a fun trope. Plus, it means that if your “Mr. X” happens to have a terrible track record or make some really lousy picks, or made a bunch of people mad in the past… nobody knows, and nobody just learning about “Mr. X” can check!

But let’s move on to what we’re really interested in, our secret stock.

Some more hints about what business this company is in…

“This stock is the foundation of the world as we know it.

Are you getting our free Daily Update
"reveal" emails? If not,
just click here...

“Without it –

“Energy grinds to a halt.

“The surging developments in automation – dead in their tracks.

“Healthcare. Military systems. All of it stutters out, and society comes crashing down around us.

“This one company is carrying the entire weight of a market sector that’s worth over $429 BILLION… and poised to approach $730 BILLION in just six years.

“All told, its technology directly impacts more than $44 Trillion in global industry.

“Even McKinsey says, ‘Our world is built on [their product]'”

OK, so that’s all just pointing us at the semiconductor space — the little chips and microprocessors that are in pretty much everything these days. As we saw during the COVID lockdowns and supply chain fiascoes over the past couple years, almost everything that anyone wants or needs to buy has a chip in it, and many supply chains are dependent on just one chip supplier, sometimes a vulnerable one.

More from the pitch…

“In ‘Trade of The Decade: The Most Critical Stock to Own Now’ you’re going to learn exactly how these forces are poised to blow the lid off this stock…and mint you a potential fortune in the process.”

And they have a quote from that “Mr. X” about it…

“This is the critical moment for investors to move in — [this company] is literally irreplaceable, and this opportunity will never present itself again.

Amazon, Apple, Tesla… they’re nobodies in comparison.”

What else? These are the other hints dropped in the ad:

“This one company holds the keys to a global market that McKinsey declared ‘critical to the smooth functioning of the global economy’ ….

“And the world’s leading investors are racing to claim their stakes.

“Blackrock currently holds 32 million sharesin the company…

“Fidelity Management has over $1 Billion invested…

“The United States government is spending up to $52 billion to bring their product’s manufacturing to American shores…

“And China, the manufacturing powerhouse of the world, spends nearly twice as much money on this company’s product than they do on oil.”

Again, mostly generic references to semiconductors in there … but a little hinting about our target company. What else?

“It will impact every facet of the $85 Trillion global economy…

“With implications reaching from advanced government tech straight out of MIT… to your kitchen countertop.

“The Wall Street Journal says this company has ‘one of the best spots in a temperamental industry.’

“And this one company is the key to unlocking everything.”

Well whaddya know… sounds like Mr. X and the Motley Fool are on the same train here, this is almost certainly another teaser pitch for the Dutch chip equipment giant ASML (ASML).

I was a little tempted by ASML when the market was looking a bit uglier, I happened to write about it when the Fool touted this one about six weeks ago… though sadly, in retrospect, I didn’t jump on it at the time. Here’s the Quick Take that I shared with our Irregulars back in October:

“This Fool tease for a monopolistic technology leader in the semiconductor equipment space points directly at Dutch leader ASML (ASML), which dominates the market for high-end photolithography machines that are used in “burning” circuits into semiconductors. The shares have come down hard from a very rich valuation last year, and are now at a pretty rational level if you assume that semiconductor demand continues to grow — roughly 23X expected earnings, with a weak year in 2022 but ongoing growth of probably at least 15-20% per year. They reported earnings this morning, beating estimates and offering a pretty optimistic outlook, so the shares have bounced a little off of the recent bottom. I’m beginning to get tempted by ASML, it’s still trading at a rich premium to other semiconductor capital equipment companies, roughly twice the valuation of their big near-peers, but the growth has been and should be much better, as well, and the margins are higher and improving. Definitely a “growth stock” in a cyclical industry, so there’s some reason for caution, but it looks more appealing to me today than it has in recent years.”

That happened to be one of the few moments when a big newsletter got the timing almost exactly right, issuing a big teaser pitch very near the bottom for the share price (that was Motley Fool Stock Advisor, which is probably the highest-circulation “mainstream” investment newsletter). ASML stock dipped briefly below $400 that week, popped a bit thanks to their solid earnings, and then recovered more dramatically when the whole “growth” stock market bounced back higher in early November — particularly because that also coincided with their November 11 Investor Day, which reassured investors about their growth plans and the very strong customer demand.

You can still make a valuation argument for ASML, it’s the market leader and provides critical equipment for chipmakers, including those who are building out big new foundries in the US and Europe to reduce reliance on Taiwan and China, so they should be able to continue to grow over the long term — but it’s not as easy an argument today at $600 as it was at $400 in October (though the share price is really just back to where it was at the beginning of 2021… for a while, in the heat of the mania last year, it tickled the edge of $900 before coming down this year).

The company is expected to stay in an earnings lull this year, dropping a little bit from last year’s peak, but then to begin growing again, with average growth of almost 30% if analysts are on target (they probably aren’t, but they’re often pretty close). That doesn’t make it easy to pay a super-premium price like 40X earnings, not when valuations have come down across the board, but 40X earnings for 30% growth is still pretty reasonable. And that’s remarkable growth, still, for what is one of the largest companies in the world (ASML has a market cap of about $240 billion, so it’s similar in size to Coca-Cola or Bank of America — if it were a consumer brand instead of a business-to-business supplier, it would probably be much more well-known, even if it is a Dutch company).

There aren’t many “higher quality” companies than ASML, their technological lead and their huge installed base means that they have extraordinary financials, with return on equity of well over 50%… but there are plenty of cheaper companies who might be almost as good.

There are other very good and very large players in the semiconductor space that are exposed to many of the same trends, and almost all of them trade at much lower valuations — that list would include big ASML customer Taiwan Semiconductor (TSM), as well as chip equipment competitors (sort of) like Applied Materials (AMAT) and Lam Research (LRCX), which also have fantastic financials and hugely profitable businesses, and which are also generally having the same “flattening” problem as their revenue growth pauses (or even may shrink a bit this year or next).

For some context, Taiwan Semiconductor (TSM) has grown earnings at more than 25% a year, with a ROE of 38%, and trades at 13X earnings, either because of the Taiwan risk or because investors expect earnings to dip about 10% next year before they begin growing again… though analysts expect them to grow earnings at 20% a year over the next five years. Lam Research (LRCX) has grown about 25% a year, and boasts a ROE of 75% and a PE of 13, again with an expectation that earnings will flatten out for the next year or two before growth resumes (with lower expectations — analysts see 7.5% growth ahead for Lam). Applied Materials (AMAT) has grown earnings at almost 20% a year, with a ROE of 54% and PE of 15, and analysts see the next five years bringing 11% earnings growth. Those are all impressive, and all pretty cheap, as you would kind of expect if semiconductors are near the top of their cycle and are going to see a challenging market in the next couple years.

But it’s true, nobody really quite keeps up with ASML on the growth front — they’re bigger and growing faster, they’re expected to grow earnings faster over the next five years than they did over the past five years (they’ve grown at 26% a year, analysts expect an average of 30% in future years), they’ve got a great return on equity (58%), because margins have been so persistently high. They did not grow last quarter, they have hit a bit of a speed bump, and there are always geopolitical concerns as well, but ASML is holding pretty firm on the assertion that they are happy to trade with both China and the US… and that since they’re a Dutch firm, and they don’t rely on US-owned technology, President Biden can’t tell them to withhold chipmaking equipment from their Chinese customers. So far, investors are reassured.

The future of the economy is really the underlying caution here, once you get past the geopolitical pressures or the fears of war in the Taiwan Strait (Taiwan Semiconductor is their largest customer) — semiconductor stocks have historically been very cyclical, which means that they’re economically sensitive… they rise a lot when the economy is growing, and fall hard during recessions, when the economy shrinks. A lot of the cyclicality in the past has come from what has been a pretty predictable “overbuild” cycle, when these companies expand dramatically during good times and then are stuck with idle factories and too much inventory when the demand for chips falls during bad times.

It’s dangerous to say that the cycle will be different this time, but it’s also true things might be less predictable in this particular economic cycle — we’ve certainly seen that advanced semiconductors are growing ever more important, and we have an unusual geopolitical backdrop that means some customers are expanding and building new semiconductor factories for strategic reasons, even if the capacity might not be needed globally, so perhaps the big chip equipment companies won’t see a lull in demand from the next “overbuilt” moment.

On the other hand, chip inventories have already recovered for almost everybody, and chipmakers might indeed pull back aggressively if they can’t clear out their inventory in the next couple quarters (Taiwan Semiconductor got everyone worried back in the Summer about “excessive inventory” at their major customers, like Apple and NVIDIA and Qualcomm). Cyclical stocks tend to react both to the fact that earnings are cyclical, falling during times of economic weakness, and that investors expect that cycle to play out in a way that rhymes with history. Even if the reality changes on the ground, investor expectations might not change all that quickly.

I still like ASML, though I have never owned it… and, yes, I’m a little irritated that I wasn’t ready to be a little more aggressive and buy shares when they were dipping more dramatically a couple months ago, and got down to more obviously rational valuation. It’s relatively expensive, but it’s also a relatively excellent company — if you adjust for the growth expectations, it’s not really any more expensive than the “lower PE” stocks I compared it to above.

Yes, it’s hard to buy after a quick 40% pop in the shares, like we’ve seen for ASML in the past couple months… but if you can wash that recent past out of your mind, and have any optimism about the future, it’s a pretty simple argument in their favor — they’re growing at close to 30%, trading at “only” 40X earnings, and dominate an industry that is seeing a lot of capital investment. Everything is set up for them to do quite well — my primary concern would be that politics or a stiffer recession might throw a spanner into the works in the near term. If you like the potential in general, your risk tolerance will be the deciding factor for whether you want to jump in now… or hope to see the whole group come down further the next time we have a wave of negative headlines.

As to whether “Mr. X” has any special insight on ASML, or might offer some different perspective in the special report they’re peddling… I don’t know. I also don’t know if this “Trade of The Decade” is an idea that he’d want to hold for a week or a month or for the whole decade… I’m just pretty sure that the stock he’s touting is the chip equipment giant ASML. And it’s not a bad idea.

That’s just what I think, though — and when it comes to investing your money, it’s your thinking that matters. So what say you? Ready to invest in chip stocks as the valuations look more appealing? Afraid that we’re at the peak of the cycle and looking at uglier times ahead, or think that the cycle will restart because of all the new fabs being built? Like the king of the hill stock in this space in ASML, or do you prefer one of the somewhat smaller and slower-growing firms that doesn’t get quite as much attention? Let us know with a comment below… and, thanks, as always, for reading Stock Gumshoe.

P.S. We’ve not covered Rogue Investing Daily before, so if you have some experience or have subscribed to “Mr. X” and his ideas in the past, please click here and visit our Reviews page to let other investors know what it was like — worth it, not worth it, great or godawful, readers want to know. Thanks!

Disclosure: I own shares of Amazon, which is mentioned above, and have no position in the other companies mentioned in this article. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.