Who’s getting rich from “The $33 Billion Gold Chip Mandate?”

What stock is being teased by Small-Cap Rocket Alert?

By Travis Johnson, Stock Gumshoe, December 10, 2015

This ad for Sid Riggs’ Small-Cap Rocket Alert has been pitched a bunch of different ways — starting in August with the promise that they had some special way to get in early with a “royalty” on these “gold chips” that are being sent out (the new EMV chips in credit cards that are beginning to replace magnetic stripes in the US this year), and that seems to have been mostly huff-puffery… it’s pretty clear they were probably just recommending that folks simply buy the stock in CPI Card Group (PMTS) at or near the IPO.

And now they seem to think it’s worth buying still, because of their large market share in this business and the huge demand still for new cards as more banks convert to the “gold chip” EMV cards. There was a little uncertainty in the teaser solution article I’ve appended below, but that uncertainty is now gone — clearly, now that the stock is public and the ad has morphed slightly to reflect that, they’re continuing to tease CPI Card Group shares as an investment they like.

The IPO talk about this one back in the Summer was for pricing at $16-18 a share, but the expectations were dropping even as the original ad ran (and as we covered it in August), the expectations dropped to $12-13/share, and then the IPO actually went off at $10 a share. It jumped back up to $12 or so for a little while, perhaps the ad campaign from Sid Riggs’ publisher helped to boost that attention… and then it dropped back down again, so now the price looks quite a bit better now than it did a few months ago (to me, at least) — following a decent but not very sexy first earnings report two weeks ago, analysts think they’ll earn close to a dollar a share this year and next year. Even though I don’t expect that their growth will be substantial from that level, it’s not entirely unreasonable to pay roughly 10X earnings for a profitable company with slow earnings growth.

There are debt issues, helped somewhat by the IPO and by a new loan facility that were used to refinance some debt and retire some preferred shares (lots of this is still not entirely clear in the filings, since the September quarter data they reported in November does not include the impact of the IPO or their new debt), and it’s still a new IPO that was private equity-backed so there could certainly be additional follow-on offerings or insider sales after the lockup period ends in a few months, and that could bring the price down again… but the price is no longer ridiculous or assuming huge earnings growth beyond this “national conversion” spike in demand for new cards.

But if you want the full story of the ad, which is mostly the same as it was back in August, I’ll share that with you — don’t want to rewrite the same teaser solution or make you sit through the whole thing, but it’s here if you want it… and we’ve left all the original comments as well so you can see the thoughts of other Gumshoe readers.

The following was originally published when the ad started running in mid-August — it has not been updated since we first published it on August 19, though there are many comments added at the end by myself and other readers.

—from 8/19/15—

These are the kinds of ads that made me start researching newsletter teasers almost ten years ago, and that spurred the creation of Stock Gumshoe — a mysterious and secret investment, a nondescript building that holds the future of your portfolio in its hidden recesses, a big and lucrative transition that no one else sees coming… man, it’s almost textbook.

Though I have to start with a small caveat — this ad from Small-Cap Rocket Alert didn’t lend itself to a clean “solution” like the ones I can usually provide with the help of the Thinkolator… but we will at least think it through with you, present some of the ideas, and share a few names.

My favorite part, of course, is the “secret” location stuff, even though that’s not particularly germane to the actual investing idea… let me start you out with that, since it’s what caught my eye. The “gold chips” stuff is the headline, with a few pages of blather to get you interested in the 575 million “gold chips” that will be sent out to US households by the end of this year…

“575 million Gold Chips will be issued in America by December 31, 2015…

“And one company has a near monopoly on their production….

“It operates in the middle of an industrial park inside this discreet 50,000 square-foot facility in Littleton, Colorado.

“And it will be responsible for producing the vast majority of all gold chips that will be circulated across the entire United States. This small company will control up to 70% of the total U.S. market.”

Those gold chips are, as you would have realized if you read through the ad, the new microchips that are gradually replacing the magnetic strips on your credit cards (it’s OK, we know that no one can tolerate reading through the whole ad or, worse, sitting through the “video presentation” … that’s why we do it for you. If that’s not love, what is?)

These are the chips that are probably in your credit card now, and they do look like a little square of gold foil — they’re the eventual replacement for those magnetic stripes, and they’re already used in most other countries but are finally getting a widespread rollout in the US. Instead of swiping the stripe on your card, you insert it in a little terminal and the microchip is accessed and creates a one-time coded transaction — in most countries, the signature has also been replaced by a PIN code for enhanced security, but that’s not necessarily happening immediately in the US. These aren’t quite the same thing as RFID chips, though they’re similar in many ways and it may be similar basic technology — from what I can tell they don’t transmit the data nearly as far, so they’re not necessarily intended in every case to be “contactless,” this is really for better security rather than more convenience, with the security largely coming from the fact that (unlike the stripe) the chip doesn’t store a lot of static data that could be stolen but generates a one-time transaction code for the retailer each time it’s used.

And there is a big move to convert to these chip-enabled cards, largely for security reasons — that’s because after similar technology has pretty dramatically reduced credit card fraud in Europe, the big card networks are essentially forcing the move, with a deadline this Fall: liability will shift to the participant that has