Today we’re looking at an ad from David Fessler, who’s pitching his Strategic Trends Investor ($49, renews at $79) with a spiel about a “major December 10 event” that will send a $5 tech stock soaring… and, of course, (eventually) make you 24X your money. What’s not to like, right?
Have no fear, we’ll dig in and see if we can ID what’s real about this story and give you a start on your research, then you can think for yourself and decide if you see 2,400% gains around the corner. It all hinges, per the ad, on a “strange device” that they keep showing images of — a white cylinder that you apparently set down in your home, and which is going to become a “linchpin” behind the next great technological shift.
Here’s a taste:
“Take a look at this strange device.
“It can fit in the palm of your hand… weighs less than a can of soup… and uses less energy than a night light.
“But this little device is the linchpin of a potential $12.4 trillion revolution that will reshape America forever.
“Experts call the technology behind this revolution ‘the holy grail’… ‘the lifeblood of the new economy’… and ‘the mother of invention’… with ‘an impact similar to the introduction of electricity or the automobile.'”
So that’s obviously all in reference to 5G, the incoming wireless standard that is expected to be 100X faster than 4G/LTE, with low latency and the ability to connect all machines in the world together in real time. As long as there are no walls in between them.
More from the ad:
“… small companies that own the linchpins behind major technological shifts ALWAYS go gangbusters.”Are you getting our free Daily Update
"reveal" emails? If not,
just click here...
Well, sure, in retrospect. Hard to ID those “linchpin” stocks in advance, though. Fessler uses examples like Skyworks, with its RF chips in the iPhone, Akamai and its position as an early content delivery network powering increases in traffic from video and social media, and Cree’s silicon carbide wafer for chips as the “linchpin” of the consumer electronics market. And those are all stocks that went up dramatically (though we should always be mindful of survivor bias — plenty of other chipmakers and content delivery networks did not generate fantastic returns for shareholders).
And, of course, the big returns for those stocks that he cites were over 10-15 years or more, and no newsletter wants to promise you a 20-year return… that’s not going to be enough to get you to turn over your credit card number…
“while each of these other stocks took a decade or more to hand investors once-in-a-lifetime returns…
“The $5 tech stock behind this mind-blowing device…
“Could hand you 24 times your money in FAR less time.”
So who is it, you ask? Let’s get into the clues:
“I call this company ‘the Next Tech Giant.’
“And no, this isn’t one of those Silicon Valley startups blowing millions on wild employee parties and stupid Super Bowl ads.
“Rather, the CEO is a 35-year veteran of the tech industry. He’s famous for helping to lead another company’s hypergrowth period and turning it into a $10 BILLION market leader.
“As the Next Tech Giant rolls out its new breakthrough device, it’s already signed three powerhouses of this sector to its client list.
“It works with big industry leaders like American Water Works, GE, Chevron, Cisco, IBM, Shell, Coca-Cola, Uber, Amazon, Barclays and Wells Fargo.
“It even counts the U.S. Army and the Department of Homeland Security as customers.”
“… this single device renders most current internet appliances obsolete.
“With your old internet connection, you have to sit around waiting for content to load…
“Fight with your family members when there are too many devices on at once…
“And watch your connection constantly go in and out.
“But when you connect with this device, this will be a thing of the past.
“It’s as big as the transition from Morse code to landlines… and from landlines to cellphones.”
That’s not device-specific, that’s just the general promise of 5G and faster wireless networking. But there’s more…
“And this single device with be at the forefront of the movement.
“The moment you install this device in your home…
“You can throw away your worthless router…
“And connect instantly to this device.
“As you browse the internet, you’ll be shocked by how the pages load not in seconds… but instantly.
“When you watch Netflix or Hulu, you’ll be blown away by the crisp 4K video quality of your favorite TV shows.”
And he makes some wild health predictions, too… some of which veer into feeling a little like “gimme your credit card” elder abuse…
“For one, you’ll NEVER have to worry about being placed in a retirement home.
“Imagine taking a bad fall and fracturing your hip.
“It happens all the time. Falls kill 9,500 seniors a year.
“But imagine this: In a 5G-connected world, smart sensors built into the walls could immediately notify your healthcare provider – and paramedics would pull up to your house in minutes.
“What’s more, you’ll be able to access the services of the world’s top medical professionals… even if they’re thousands of miles away!
“5G-powered telemedicine will enable surgeons to operate on patients in different time zones.”
That’s part of the “maybe this will all be possible” hope for 5G, sure, particularly if you want to be surveilled in your home, but it’s going to take a long time… and really, there isn’t much that 5G could do to alert the authorities if you fall down that your Alexa or a more safety-specific device using your WiFI or boring old 4G can’t do right now if you want.
So… more hints?
“The peculiar device I showed you at the start of this presentation…
“Is the linchpin of the 5G revolution.
“Without products like this, some of the extraordinary applications of 5G will NEVER come to be.”
That’s an exaggeration, but partly true… but note that he didn’t say “this product,” or even “this company” … he said “products like this.” Plenty of hopes and dreams have been dashed by believers in investment teaser ads who bought the big picture promise, in this case that 5G will be huge, and then skipped over a bunch of steps (with the help of some ad copywriters) to believe that the hugeness will naturally benefit just “one little company.”
More from Fessler:
“And incredibly, the company that manufactures these devices trades for just $5 a share.
“It’s at the very start of its growth phase on the Innovation Adoption Curve.
“And it’s on track to hand investors 24 times their money in the long run.”
Other hints and inducements?
“Bill Gates has staked $627 million in this wireless revolution.
“Jeff Bezos has invested $1.7 billion in companies that will benefit from 5G.
“And Warren Buffett has allocated an extraordinary $47.4 billion to a popular 5G play.
“Like me, these men built their fortunes on their ability to predict – and profit from – paradigm-shifting trends.
“I have no doubt that they sense the profits in the air – they KNOW that 5G will hand them enough money to last for CENTURIES…
“And they KNOW that if they fail to lock in a portion of the profits… they’ll regret it for the rest of their lives.
“It’s the same concern that faces you today.
“Do you take a chance on the $5 stock behind the device that will help power the 5G revolution?”
There’s some strong “fear of missing out” pitchwork, yeah? In case you’re curious, that $47.4 billion bet from Warren Buffett is, of course, Berkshire Hathaway’s massive investment in Apple shares… and of course, Jeff Bezos and Bill Gates are betting on wireless. Microsoft and Amazon depend on it, and it’s obviously still a huge growth area, 5G or no 5G. That doesn’t mean these three titans of industry have anything to do with the company being teased, that’s just some name-dropping to make you daydream about your own future billions.
“Vanguard, BlackRock, J.P. Morgan, Goldman Sachs, Citigroup and others have all taken stakes valued at $180 million.
“Company insiders are loading up on shares as well.
“Its CFO recently purchased thousands of shares… making his position worth nearly $200,000.
“The CEO followed suit – but went bigger. His position in the company is now more than $775,000.
“And a fellow on the board of directors trumps them all –making trades that bring his holdings to 6,401,995 shares – worth approximately $31 million.
“In the past year, insiders have accumulated shares now valued at more than $55 million in the company.”
“The Next Tech Giant is already seeing a big uptick in business as a result of the president’s punishment of China-based 5G companies.
“In a recently filed financial document, its CEO wrote that “that these restrictions caused an acceleration of global providers to direct business from such companies… and to [the Next Tech Giant.]”
And one final burst of hype for you:
“5G isn’t here yet, and that’s why the time to invest is now.
“And the stock to buy is not the telecom giant that’s been around since 1885… the chipmaker getting hammered by the trade war… or the patent holder entangled in multibillion-dollar lawsuits.
“The stock to buy is the $5 one set to reap the lion’s share of profits from 5G’s liftoff phase… and which could eventually turn every $1,000 stake into $24,000… every $5,000 into $120,000… and every $10,000 stake into $240,000.”
So who is it? This is, once again, Inseego (INSG). There are a few companies who are trying to build market share in this first phase of 5G rollout in the US, which includes “fixed wireless” broadband — meaning not 5G service for mobile phones (though there are pockets of that, and it will eventually be much larger), but 5G broadband to the home that does not use cable or fiber connections. That’s easier to build, because the technicians can visit your home and place the 5G antenna/router in a place where it gets the best signal, since 5G signals are far less robust than 4G and won’t penetrate walls or other obstacles easily, and they don’t have to worry about the fact that the challenges of genuinely mobile 5G service (wave forming, access through buildings, etc.) are still the subject of experiment. Step one is fixed wireless, and that’s Inseego’s business.
Why Inseego as the match? Well, the CEO details are a precise match — Dan Mondor is indeed a 35-year veteran of the tech industry, and he was working at Nortel Networks when that company became a $10 billion market share leader, per his company bio.
And they do make some routers that look much like the white cylinders teased by Fessler… though they have a variety of other products, and that one isn’t necessarily magical by itself. And that quote from the CEO about “restrictions” on China suppliers did indeed come from Dan Mordor, you can find it in their last annual report if you’re curious. The full text of that quote is:
“During 2018, the U.S. and other governments imposed import restrictions on products made by certain mainland China-based companies. These restrictions caused an acceleration of global service providers to direct business from such companies to Inseego. We are actively designing devices for use within such providers’ networks.”
They’ve also been moving some of their manufacturing to non-China factories, though they do still use contract manufacturers and presumably that just means they’ve been moving assembly to Taiwan or Vietnam or something.
And remember all those “insider trades” notes? I’ll refresh your memory…
“And a fellow on the board of directors trumps them all –making trades that bring his holdings to 6,401,995 shares – worth approximately $31 million.”
That’s Brian Miller, who heads up North Sound Partners and went onto the Inseego board last year, when his fund invested heavily into Inseego’s turnaround (at a steep discount, I might add). He does still hold those 6.4 million shares as of the latest filing, but that’s after selling 3.9 million shares at $4.80 back in July (a nice profit in a year, he invested at $1.63 in 2018 and also got warrants, with a strike price of $2.52, which dramatically upped his exposure). So yes, he did make trades that bring his holdings to the current level… but the most recent trades were “sells.”
The other ones? Insider buying is always a positive signal, so it’s worth checking the details…
“Its CFO recently purchased thousands of shares… making his position worth nearly $200,000.
“The CEO followed suit – but went bigger. His position in the company is now more than $775,000….
“In the past year, insiders have accumulated shares now valued at more than $55 million in the company.”
Not really… Stephen Smith is the CFO, and he hasn’t ever bought shares on the open market — his last transaction was a grant of 19,160 shares in June, which was reduced by an accompanying sale to cover the payroll tax associated with that stock grant. Smith currently holds 22,647 shares, which would be worth about $110,000 at the moment.
OK, I take that back — he also has bought a few shares, but he bought them at a discount as part of the employee stock purchase program. That was 2,745 of the shares he holds, bought in May at what looks like it was probably about a 25% discount to the market price (I’m not sure how their ESPP works, but he paid $3.18 per share when the stock was well above $4.50).
CEO Dan Mondor, on the job for just over a year as part of the Inseego turnaround attempt, did for a second have about $775,000 worth of shares thanks to a stock award of 54,000 or so shares in July that increased his stake by about 50%, but he didn’t buy them… and his share count, like Smith’s, was reduced by selling some of those shares to cover the tax liability of that stock award, so he actually now holds 138,815 shares, worth a little less than $700,000 at the moment. He’s gotten more than two million stock options as part of his compensation over the past couple years on top of that $500,000 salary, so his holding is meaningful but not a big “bet” that he chose to make — it’s mostly just part of his compensation.
And yes, insiders have “accumulated” shares over the past year that were valued at over $55 million… though most of those were bought very cheap in that rescue financing that Miller participated in during the summer of 2018 or were granted to board members and executives (we’re stretching “the past year” a bit, but teasers rarely include perfectly timely research)… nobody affiliated with the company seems to have actually bought shares at market prices at any point in the past year, or even several years, and insiders have been net sellers.
That’s true of many companies, of course, and it doesn’t mean they’re doomed… but it does mean that there is no “positive signal” from insider buying, regardless of what Fessler would like you to think. Insiders do own some shares, and therefore have some “skin in the game,” but none of the executives are buying shares beyond what they’ve been given as compensation, and they are not at all reluctant to take profits along the way.
Now, the absence of insider buying is not a strong negative… nor is insider selling. That has never been as strong a signal on the negative side as insider buying is on the positive side — probably because insiders sell for lots of reasons (diversification, buying boats, putting kids through college, just love spending money), but they really only buy for one reason (they think the stock is going to to up).
(That’s not even true that insiders “buy for only one reason” anymore, actually, in this era of free and open access to information they also buy because they want people to notice that they’re buying, so that’s why you sometimes see token CEO purchases of stock of just a few shares here and there, they seem to be trying to get investors to see their “buy” signal without committing a lot of capital… but I won’t spend too much time down that rabbit hole.)
Does the Inseego router weigh less than a can of soup? Fit in the palm of your hand? I guess you could probably hold it in your palm, if you’re not a child, but the big white cylindrical one that they show images of weighs a bit over two pounds, so it would have to be a big can of soup. They do also have smaller 5G “MiFi” hotspots that are fairly small, similar in size to the 4G hotspots we’ve all seen or used over the past decade, though they’re still new products that are just rolling out in partnership with the big telecom companies.
And will it revolutionize 5G and rise 24X in value “soon?” For the first, I’d say no — there are other 5G routers available, and as the market grows there will be far more competition. Maybe they’ll win more than their competitors, maybe not, but selling this kind of equipment is not generally a high margin business so they’ll need remarkable volume to have huge profit surges. That’s possible, but far from guaranteed.
Inseego has been a tempting teaser target for the newsletter world, probably partly because it’s a recent “turnaround” story and is a small company, with a price right at that $5 sweet spot that investors seem to love, and it isn’t a brand name so it feels like a cool new idea… and partly because of real investment potential. It was teased as the $5 “next Cisco” by Jon Markman in June, and twice by Ian King, once as a play on “Spectrum” in July and, earlier, as a play on “Fluorescent Sand” starting back in May. The shares dropped during the China panic in August, probably partly because of some insider selling, but is now right back where it has been most of the year, within whispering distance of $5 a share.
My guess is that the likely upside potential is far less than “24X,” but that’s true of every stock… and occasionally a huge winner emerges. That depends in large part on whether this is a great company that can build a dominant position, which I’d say is a low-probability gamble at this point (that’s why it trades at $5, which is just 2X sales, if people thought it was a higher probability it would, naturally, be more expensive), and on what you mean by “soon.”
Analysts do have some hope for Inseego because of their 5G “MiFi” router and hotspot business, probably largely because of their sales pipeline through Verizon as that company’s fixed broadband service rolls out to more cities, but the expectation is still quite tepid compared to David Fessler’s forecasts — analysts see revenue growing about 20% next year, leading them to profitability (at $5, the stock trades at about 30X next year’s earnings), with another near-20% revenue burst after that (though 2020 has only five analysts providing forecasts… and 2021 only a single analyst, so take that with a huge grain of salt).
If that’s right, then there’s reason to think that $5 is a reasonable price to pay for the potential that Inseego’s 5G router business could have some strong growth for a couple years if they can grab a decent market share in an emerging business, like their predecessor Novatel Wireless did with 3G and 4G “hot spot” pucks using their MiFi brand 10-15 years ago. But I’d hesitate to assume any big picture 5G opportunity for Inseego beyond that point, there’s so much competition in 5G gear that will emerge, no one is sure what will be popular or successful, and I’d just be guessing at this point about who might “win.”
There are, of course, other companies that make this stuff — and it’s not just Huawei or other verboten Chinese suppliers (though most of these companies use contract electronics manufacturers like Foxconn, which does a lot of its assembling in China). The most direct competitor right now is probably the larger Netgear (NTGR), whose Nighthawk routers and hotspots are similar to Inseego’s MiFi products (so far Netgear has partnered up most closely with AT&T, Inseego with Verizon) — Netgear is expected to grow earnings at about 10% a year, but they’re already profitable (current year PE is about 14) and have a broader line of business… though the stock has also fallen in half over the past year or so, for reasons I haven’t looked into.
And does that December 10 date mean anything? Not as far as I can tell. Inseego does not have any scheduled events at that time, they should be releasing their next quarter in early November, and I don’t know of any major Verizon or other relevant industry announcements expected around then… though it is likely that the next iteration of some of the 5G wireless standards will be announced in December (standard-setting has been going on for years, and will be ongoing for many years as 5G rolls out and new specifications come out for particular applications, so maybe December will be big for that… but I’d be skeptical).
So you could almost certainly do worse, Inseego is a real company with a growing business, and I do have a small out-of-the-money call option position on the shaers, mostly because I thought there was a chance it could catch fire with investors during the early 5G rollouts (hasn’t worked yet)… but it doesn’t look like it’s exactly poised for miraculous breakthroughs, and as far as I can tell December 10 doesn’t appear to mean anything real (that’s no surprise, dates are often really just “invented” for newsletter teasers, since an ad needs a deadline or a sense of urgency to work well… and in this case, the December 10 date is teased in the headline but never actually discussed in the text of the ad).
I expect the downside risk for INSG is probably limited to 40-60% at this point, since they do have a nearly guaranteed level of business coming right now from the early Verizon rollouts, but their turnaround is still fairly new, management has been on board for only a year or so, and I personally don’t see a lot of potential for the stock to do much more than double from here in the next couple years, unless fixed 5G broadband becomes a lot more popular than I’m guessing in the next year and the demand for their routers is dramatic and surprising.
That’s just what I see in the tea leaves, though, and what I’m doing with my money — when it comes to your money, it’s your thinking that counts… so please do share that with us. See great things for Inseego? Other favorites for exposure to the 5G rollout? Do let us know with a comment below, and thanks for reading!
Disclosure: Among the stocks mentioned above I have equity and/or call option positions in Apple, Alphabet, Amazon, Berkshire Hathaway and Inseego. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.