What’s Skousen’s “2019 Trade of the Year?”

by Travis Johnson, Stock Gumshoe | January 16, 2019 4:50 pm

Sniffing out the "Trade of the Year" teased by Five Star Trader

We seem to be on a bit of a dividend kick this week, with the “Extreme Dividends” of Monday leading to the “Secret 6.1% Stock” yesterday, so it seems natural to stock with it… plus, readers have been asking about Mark Skousen’s latest teaser pitch, and we haven’t covered him in a while.

So that’s our target for today: What’s Mark Skousen’s “2019 Trade of the Year?”

We know it’s a dividend payer, thanks to this clue dropped in publisher Roger Michalski’s ad:

“… it’s got that ‘special sauce’ Dr. Skousen looks for, because it just began paying a quarterly dividend.”

But what else are we told about this “Trade of the Year” stock? Assuming that you don’t want to pony up for
Skousen’s Five Star Trader service ($995/yr, no refunds) just to find out the name of a “secret” stock, we’ll dig through the clues and get you an answer.

Then you can think for yourself a bit and make your own call… who knows, maybe you’ll even want to subscribe to Skousen’s letter… but don’t ever plunk down money, especially real and nonrefundable money, just for a “stock tip” that you’re convinced will change your life — beyond the obvious cost of the newsletter that you might or might not like, the impact on your investment decisions is likely to be negative. If you’ve paid for information and mentally committed to it to that degree, if you’re like most people, you’re setting yourself up for a situation where it’s almost impossible to think rationally or critically about the stock.

But enough lecturing — what is this “Trade of the Year” from Skousen?

They say that it’s a “wireless communication company in perfect position to let you cash in on the explosion in wireless technology” … though that doesn’t narrow it down very much.

But then the ad goes through Skousen’s “Profit Pillars” to let us know a few things about the financial fundamentals:

  1. Sales Growth: an annual growth rate of 18%.
  2. Profit Margins: a whopping 30% – making it one of the strongest stocks in the sector.
  3. Price-Earnings Ratio: these shares are a bargain at just 23.6.
  4. Earnings Growth: an impressive 34%.
  5. Institutional Investments: 25% of shares are owned by institutions, so you can get in now before the big money really begins moving into these shares.

He has used those pillars in the past, and the numbers are consistent — here are the minimum requirements he has used before:

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1. Sales growth over 11%
2. Profit margins over 12%
3. Profit growth over 23%
4. Price-to-earnings ratio under 29
5. Major institutional buying

That 25% institutional shareholding stands out as a bit unusual, that’s far lower than most established companies… but what can the Thinkolator tell us?

Well, the clues are pretty light — so it didn’t take long to shovel ’em in and get her started up… and I just got her tuned up (on a two for one deal with the snowblower), so she ran nice and quiet, but it did take a little time to get our answer.

So I added another clue, Skousen’s ad also said that the stock was up “nearly 60% in 2018” … and that would put it in some pretty strong company.

And a more specific hint about the sector:

“My ‘Trade of the Year’ designs, manufactures and sells broadband wireless equipment solutions worldwide…

“Equipment that’s going to make the continued growth in wireless… and the 5G revolution… possible.”

Still waiting.

OK, here we go: Thinkolator sez this one is: Ubiquiti Networks (UBNT), which is a stock we’ve seen teased once or twice before over the years (most recently a couple years ago by Louis Navellier[1]). Here’s how they describe themselves:

Ubiquiti Networks is focused on democratizing network technology on a global scale — aggregate shipments of nearly 85 million devices play a key role in creating networking infrastructure in over 200 countries and territories around the world. Our professional networking products are powered by our UNMS and UniFi software platforms to provide high-capacity distributed Internet access and unified information technology management, respectively.

I was tempted by this stock back in the Spring of 2017, and in retrospect I should have bought shares — it has doubled since then, partly because the earnings have gone up nicely and partly because the multiple has risen (it was trading at about 15X forward earnings in the spring of 2017, it’s now at 23X forward earnings estimates, as Skousen notes).

There doesn’t seem to be an obvious indication that growth is going to accelerate, at least according to the few analysts who follow the stock — their estimate of 2019 earnings has stayed pretty flat for the past year. I don’t know that 5G will have a specific impact on Ubiquiti’s business, it doesn’t come up as a significant topic in their conference calls and they mostly provide local network equipment for internet access and improved indoor network capacity (better wifi networks, etc., though they also pitch their networked security cameras pretty heavily these days), but they are certainly growing revenue and earnings, so they don’t necessarily need the 5G investment wave.

And yes, Ubiquiti did just initiate a dividend last year — it’s not offering a meaningful yield at the moment, they’re paying 25 cents per quarter so that’s a dividend yield of just under 1%, but initiating a dividend is a positive in my book. They have also bought back about 10% of shares in the past couple years, so they have been trying to reward shareholders and that has improved the per-share earnings numbers… though they took on debt as part of that, so they’re now no longer in a strong net cash position, their cash and debt basically zero each other out.

The real issue, I suppose, is that this is still situation where either the company is being wildly optimistic in what is often a commoditized business where profit margins should decline, or analysts don’t understand them or have a real handle on their business prospects and unique “democratizing networks” proposition — and that’s been true for years. They’ve also been the target of short sellers, including Andrew Left at Citron back in 2017[2], and even the fairly optimistic analysts have price targets right around $100, where the stock currently sits (the average analyst has an $80 price target).

I ended up deciding this one was too hard to understand, and haven’t owned the shares. That’s still where I come down, given the huge amount of competition they should have… but if you can convince yourself that they have a unique enough business and strong enough customer retention, despite the lack of a really pushy sales force, then there is plenty to like in the reported numbers.

I should mention that institutional ownership thing, however, because it’s a big deal — the reason that institutional ownership is very limited, at about 25%, is that CEO and founder Robert Pera owns about 56 million shares and hasn’t sold any in about 18 months[3]… with only 70.8 million shares outstanding, you can see that there’s barely room for anyone else to own any at all. The institutional shareholder who stands out for me is Chuck Akre, who I’ve seen present at conferences and think has some good ideas, but that’s not necessarily a huge signal for this stock at the moment — he has been a substantial shareholder for years and hasn’t changed his shareholding since early 2015.

So you’re on your own with this one — it’s priced for growth, the fundamentals look very good even with an expected hit to margins and possibly sales from the trade war, and it tends to be a stock that people can debate pretty well on both sides. The shares and the board votes are overwhelmingly in the hands of Robert Pera, which is encouraging for those who like to see CEOs owning a lot of shares and very committed, but also means no one else has any influence over the company…. and it makes the shares more volatile, just because as long as Pera is sitting on his stake there isn’t much stock that’s available to trade on days when people are in a hurry to get in or out, so if you’re inclined to build a position it might be better for your heart to do so slowly and opportunistically.

Whaddya think? Sound like your kind of investment? Worth some more research as the “Trade of 2019?” Let us know with a comment below.

P.S. Part of Skousen’s strategy with this newsletter is recommending both option and stock positions, so he can get higher returns with the leverage of options. There aren’t any overwhelmingly dramatic option positions for UBNT that I’ve noticed (meaning, contracts that have huge volume or huge open interest today, implying that someone has told a lot of folks to trade a specific option contract), but if forced to guess I’d speculate that he’s looking at something shortly after the next earnings report (which is expected February 8), perhaps either the February $105 calls or the March $110 or $115 call options (maybe reduced in price somewhat by selling the $125s). There are generally a lot more put speculations than calls in UBNT going into the next few months, perhaps a bet that the February earnings report will be a big “miss” like last year’s (in the couple weeks following earnings a year ago, the stock fell from about $80 to $56… and the stock moved sharply around other past earnings dates as well, though more recently the moves have been positive).

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  1. a couple years ago by Louis Navellier: https://www.stockgumshoe.com/reviews/quantum-growth/navelliers-the-man-who-went-the-last-mile-pitch/
  2. Andrew Left at Citron back in 2017: https://citronresearch.com/citron-exposes-ubiquiti-networks/
  3. CEO and founder Robert Pera owns about 56 million shares and hasn’t sold any in about 18 months: https://www.sec.gov/Archives/edgar/data/1511737/000141588917001438/xslF345X03/form4-08302017_010817.xml
  4. You and I can each earn a free share of stock right now if you open an account!: https://join.robinhood.com/travisj369

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  1. Avatar
    Chuck Burton
    Jan 16 2019, 05:17:51 pm

    Stock buybacks usually help investors very little, if at all. They chiefly benefit insiders who may receive stock bonuses or options. And if they are done with borrowed money, they just increase company debt, again to possibly benefit insiders. Any stock price bump is likely to be temporary. A dividend increase or initiation does help investors, however, if it can be maintained. I am always suspicious of buybacks.

    • 12 |
      Jan 19 2019, 08:17:22 am

      And yet the pundits continue to praise the practice as “returning cash to the shareholders”. The only shareholders who participate are those who sell their stock. There is only one way to “return cash to the shareholders” and that is through dividends, regular or special.

    • 48
      Jan 17 2019, 04:57:51 am

      Their main product is easy to understand if you strip away the jargon on their website. If you have a LAN in one place and want to extend it to someplace else, or connect two LANs, their Bullet creates a WiFi “bridge”. We have a Ubiquiti Bullet on our boat. It connects to Marina WiFi – we don’t use it much because 4G cellular connectivity is better in most places. But I am specifying Ubiquiti again for another wireless bridge I have to install for a relative to connect their stables to their house. Ubiquiti pretty much invented the WiFi bridge and their bridges are the best in the business – at the moment. We ripped a competitor’s product apart last year and lo and behold there was a Ubiquiti motherboard sitting inside, flashed with the competitor’s firmware (which we nicked and put on our own Bullet). I’d want to know about patent protection before buying the shares at a high multiple, but their reputation for good quality is so solid at the moment that anyone undercutting them would probably be regarded with suspicion. The cameras are not so good – I’m not specifying them (we need remote controlled PTZ which they don’t do yet). Buy on weakness I’d say.

      • 22 |
        Feb 5 2019, 05:06:26 am

        @goingloco can you help me understand your application in more detail? Why would you prefer to use a wifi bridge on your boat, rather than just connecting up the end devices by wifi as clients? Are you hardwiring ethernet on your in-boat devices to a switch, and then the back-end of that switch is a wifi client to the marina’s wifi?

        Can such a specialized application really be driving most of their revenues? There has to be more to this than just that?

  2. Avatar
    Joe shangraw
    Jan 16 2019, 06:20:18 pm

    Hard to get your head around the idea of paying almost 1000.00 to this kind of “opportunity “. Thank God for the GUMSHOE.

    • Avatar
      Jan 17 2019, 01:02:16 am

      I think it makes more sense to buy if it dips than to short it now or buy puts. Bert Hochfield at Seeking Alpha gave a good justification for UBNT as an investment. Their business model IS different from theiir competitors, and it says something that the recent market drop didn;t affect the share price much at all.

  3. Avatar
    Jan 18 2019, 07:41:02 am

    Skousen’s “Best Stock of 2019” Summit was scheduled for Jan. 10, so reporting on the 16th was a bit late. Whoever was taking advice to buy wasn’t making a big impression but may have caused the uptick that occurred on Thursday the 10th. That was the high close over the last 10 business days ending the 17th. It was also one of the two highest upticks in that period, the other being on Monday the 7th. Analysts seem to mostly rate it neutral, hold, or market perform. I have no idea where it will go.

  4. 12 |
    Jan 19 2019, 11:43:07 am

    My two cents … over the last 5 years we probably bought around 8 Ubiquiti APs of various sizes for our private home to cover the three floors and the garden. Uniquiti was my choice because back then they were the only one that offered Enterprise Grade Management Software along with their affordably priced APs. Where before we had to guess how well the devices were working we could then see it all in the management interface which saved me countless hours over the years …

    Similar Software solutions from Cisco etc. would have easily cost 5 times more … not sure how much the competition has caught up though. Funnily enough, impressed from their software, I also bought a small stock position back then that I hold till today and is probably my best performaning stock.

    • 22 |
      Feb 5 2019, 05:10:38 am

      @digitalgoldfish The UBNT Access Point (AP) is a wireless bridge to a switch, or to a wireless router that also delivers wifi directly to clients?

      How would you make their product work together with a cable modem, to supply Internet service to the home?

  5. Avatar
    Jan 22 2019, 11:43:45 am

    I designed and operate a wireless UBNT network for GPS on heavy equipment. Just over one hundred radios and it beats anything that was available for a fraction of the cost. I understand that UBNT was started by a bunch of Motorola engineers who quit to start their own company. I took a chance with them and I’m still amazed at the value you get with these radios. Software to run the network is free and I can replace bad radios by ordering on Amazon. Amazing! Don’t know how they are posed for 5G but I’ll bet there on top of that too.

    • 22 |
      Feb 5 2019, 05:13:46 am

      @dmeas How does the GPS product work? How does the GPS unit installed in each piece of heavy equipment communicate to the base station?

  6. 22 |
    Feb 5 2019, 04:39:45 am

    How does a company sell commodity networking hardware at Cisco-like margins? I understand why their product is clever, but it should not have a sustainable competitive advantage. I really want to understand where their competitive advantage is coming from. The comments below speak to significant user loyalty.

  7. 12870 |
    Travis Johnson, Stock Gumshoe
    Travis Johnson, Stock Gumshoe
    Feb 11 2019, 02:19:54 pm

    Great earnings for UBNT late last week popped the stock up by about 20%, looks like this is the best short-term teaser pick so far this year… not that it means much a month out, but so far so good for Skousen’s pick here.

    • Avatar
      Guy Stephenson
      Dec 3 2019, 04:00:35 pm

      I’m new to investing in stocks and always dubious about projected claims, especially when it requires $100’s or $1,000’s just to become an insider on sites like Skousen’s. I will say I’m blown away though by his prediction on this stock. According to the chart on Motley Fool, tthe UBNT stock has soared from 103.8 on 1/16/2019 to 196.93 today, 12/3/2019. Not bad. Would I still pay the huge annual fee? Doubtful.

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