Jason Stutman’s latest ad for his Technology and Opportunity newsletter ($39/yr, which means they’re really not making money on this unless they get you to upgrade to something else in the future) is yet one more attempt to get us excited because of the rising trend of 5G investment that he thinks will bring “skyrocketing returns,” and it’s quite similar to an ad he was running about a year and a half ago… so let’s check in and see what the stocks are this time and whether they look interesting.
The spiel says 5G will bring the “Death of Broadband Cable,” which means the “clock is ticking” for Comcast particularly, which often leads the “most hated companies” list — so why is that the case, and who will be the beneficiaries? Let’s check out the ad….
“Let’s face it: Cable companies suck.
“Everyone hates them. And it’s been that way for years…
“In 2012, Cox was one of the 15 most hated companies in the U.S.
“In 2014, Comcast was voted the “Worst Company in America.”
“In 2015, Time Warner received the lowest American customer satisfaction index (ACSI) score in history.
“And it’s no secret why…
“… 90% of Americans only have one option when it comes to receiving standard internet speeds.
“But a massive technological shift is coming…
“One that’s about to sound the death knell for some of America’s most hated companies.
“And this shift, the one that will replace 4G with 5G, could hand you the easiest guaranteed payouts that you’ll ever receive.”
OK, so, yes this is a 5G story — one of many we’ve see in the past couple years, and we’ll keep seeing more as the next generation of wireless begins to get rolled out to cities across the US. How is it that Jason Stutman thinks we’ll be making money from this transition?
Here’s how he puts it:
“4G is what most of us use today.
“It has a theoretical download speed of 100 megabits per second (Mbps.), which is pretty fast.
“But it won’t be able to hold a candle to 5G.
“5G will be able to handle 10,000 Mbps., which is 100 times faster than 4G on its best day.
“It’s why many in the industry, including me, refer to it as the ‘ultranet.’
“And it’s coming this year.
“And that means, if you position yourself properly, you’ll be in line to earn an unending series of guaranteed payouts and potentially pull in gains of 300%, 500%, and even upward of 1,500%.”
He talks for a bit about the huge profits that might have been made if you had invested in critical stocks before past “generations” in mobile telephony — from the big moves by Motorola and AT&T in the late 1980s and early 90s with “1G” phones, to Sprint and Ericcson’s moves a few years later with 2G or Qualcomm and Broadcom with 3G starting almost ten years ago, or the 4G moves close behind that as those stocks and the tower companies started go benefit from ever more adoption, more antennae and towers, more chips and more data.
Though, of course, he doesn’t talk about the gradual process of building a new wireless network — that language is exactly the same as he sent out last year, and 5G did get released in 2018, sort of, in a few test markets, though it didn’t exactly make anyone rich yet and most of us have no access to 5G.
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“And today is no different, except that it’s much, much bigger than anything we’ve seen before.
“Because this time around, it won’t be just phones…
“Tens of billions of devices will rely on 5G to function.
“It’s 100% essential to the future of tech. And there are three major industries that will be driving 5G stocks to dizzying heights…”
As you might guess, those three “major industries” are the Internet of Things, which will depend on 5G to grow faster and allow massive amounts of processing of data from tiny and relatively “dumb” sensors and machines; Driverless cars, which will likely have to do much of their processing and communication with other cars in a 5G-enabled wireless “cloud”; and Virtual Reality/Augmented Reality, which relies even more heavily on fast speeds and massive data transfers than video (which, if you remember, used to be almost impossible to “stream” on a phone as recently as 3G or even early 4G).
So that’s the backdrop… what are the stocks? As we saw back in the Summer of 2018, there are three of them that Stutman is betting on, here are some hints:
“5G Stock No. 1: Guaranteed Profits From the ‘Death of Comcast’
“In late 2018, we saw 5G being deployed in California’s capital — Sacramento.
“It was the first city with widespread 5G support in what Maria MacGunigal, Sacramento’s chief information officer (CIO), called a ‘game-changer’ ….
“There are 10 other cities that have been chosen to quickly follow Sacramento as 5G pioneers.
“And the best part is, the first company that I’m sharing with you today is in charge of EVERY one of these installations.
“In fact, this company just dropped $1.05 billion to ‘reinvent’ its own network ahead of the 5G bonanza that will begin later this year.”
Thinkolator sez: This is another of the country’s most-hated companies (at least in customer service terms), Verizon (VZ), which is indeed rolling out 5G household broadband in Sacramento and a dozen or so other cities.
The $1.05 billion is a reference to their deal with Corning way back in 2017 to buy a lot more fiber-optic cable over the next couple years, which they need both for their FiOS network (though that’s largely been a bust and isn’t growing) and to provide a more robust physical network of backhaul data transmission to support 5G. The promise is that their 5G implementation will be able to deliver fiber-like speeds wirelessly, though I guess we’ll see how the real world application goes. So far, coverage for fixed wireless in Sacramento is very limited and that early work has been eclipsed in other cities.
And Verizon, of course, is huge… the market cap is about $250 billion (with another $130 billion in debt), so it’s not a particularly secret or unknown company — which is probably good, because the rollout of 5G will be extraordinarily expensive as Verizon and AT&T and everyone else tries to be early and take market share for next generation wireless services as the national standards get finalized.
This was also the first stock Stutman touted about a year and a half ago, and it has done well so far –the stock is near all-time highs around $60, though that’s probably at least as much because of the dividend and the “utility-like” nature of these big telecom stocks as it is because of 5G potential. Investors have been bidding up all dividend stocks as interest rates keep bumping further down and we all get antsy and want more income, and in that world Verizon’s 4% dividend looks pretty good.
Verizon is certainly likely to be one of the leaders of 5G, even if that means it will probably need to put even more debt on the balance sheet in the years to come… and even if no one is really sure whether 5G will be a real money-maker for the wireless companies (everyone already has 4G, which is really good… how much more are they willing to spend for speed that not many applications can actually use yet?)
I would expect the service providers, infrastructure builders and chipmakers and equipment companies to have more direct exposure to 5G over the next couple years, but Verizon is also probably a rational lower-volatility choice, particularly for income investors — and it’s much closer to being a “pure play” on wireless than its major US competitor, AT&T (T), which has a higher dividend yield (5.2%) but also a more-levered balance sheet, and also owns the faltering cable competitor DirecTV and the huge studio and content creation colossus Time Warner. So no change there.
What’s next? This one sounds a bit smaller…
“5G Stock No. 2: The $3 Company Redefining Wireless
“The second company that I’d like to share with you already has some of the biggest telecom companies in the world — like Verizon, Sprint, AT&T, and T-Mobile — clamoring for its wireless products.
“It’s even inked a deal with the U.S. Army.
“On top of that, it’s already secured $100 million worth of orders from first-tier Indian telecom operators.”
OK, color me intrigued… any other clues?
He says this is “the No. 1 5G wireless backhaul specialist.”
“It’s been in business for more than 20 years and has a long track record of being involved in huge technological advances.
“In all, the company has more than 2,000 customers already. And it’s deployed more than 1 million systems since it started operation in 1996.”
So… hoodat? Thinkolator sez: Ceragon Networks (CRNT)
So it looks like this ad has hardly been updated at all — Ceragon is the same stock he was pitching last year, and it is indeed small… though it’s also a lot smaller than it was even last week, because they just reported some lousy earnings. The share price is now around $1.80, with a market cap of $150 million… when Stutman pitched this one with these same words way back when, it had a market cap around $380 million and a $3.80 share price.
And they’re profitable, with a trailing PE that has now come down to about 11 (from 17 a year and a half ago), but there’s good reason for that — the earnings have been collapsing, so the lion’s share of those trailing earnings came in the fourth quarter of 2018 when they earned 15 cents per share. This quarter they earned less than a penny, meaning their earnings per share fell by more than 90%, and they’re expected to lose money next quarter.
So what’s going on?
This is how Ceragon describes itself:
“Ceragon Networks is the #1 wireless backhaul specialist. We help operators and other service providers worldwide increase operational efficiency and enhance end customers’ quality of experience with innovative wireless backhaul solutions.”
They do have an https://www.ceragon.com/wp-content/uploads/2018/05/Ceragon_IR_Presentation-May-2018_final.pdf“>investor presentation which you can see here, so that’s a good place to start for the shiny happy version of the company’s strategy and performance (though it’s neither as shiny nor as happy as the presentation they posted in early 2018). They do have an impressive roster of clients, many of the big telecom companies around the world, including that big chunk of business in India as well as pretty strong sales into Sprint and AT&T and others in the US, and they do claim to be well-positioned to support 5G rollouts.
The big problem for Ceragon recently seems to be that they were a big supplier to Indian telecoms who were spending heavily on expanding 4G networks and, with the launch of Jio, dramatically increasing mobile data coverage in general with new lower-cost phone plans… but the big expected orders this year were delayed, and it looks like the transition in India will take longer than anticipated. Like some other companies (I’m looking at you, Nokia), the transition from 4G to 5G is turning out to be more expensive, competitive, and slower than they might have thought a year ago.
5G will be big, Ceragon is a meaningful player in data backhaul in a lot of high-potential areas, and they’ve got some design wins and good relationships with companies who should be big customers… but, as you can see from the share price, that’s not a guarantee that you’ll make money in any given year. I don’t really have any insight into how Ceragon will do, I’m a bit more confident in the larger players (like the tower REITs), but those also certainly lack the possibly explosive potential of much smaller companies like Ceragon.
But yes, I am surprised that the ad has not been updated at all — they did update the Verizon bit at least a little, but they just included this Ceragon stuff with no real changes, even still making that big promise about Indian potential despite the fact that it looks like India is the largest single reason for the stock’s weakness at the moment. Hmmm.
But I also recall the third stock Stutman teased a year and a half ago, and there’s really no way he could legitimately tease this as an opportunity right now… right? After all, that stock has essentially been taken out of play. So we’ll check and see if he’s thrown something new in there.
“5G Stock No. 3: The Small Cell Kingpin Set to Go Parabolic….
“According to Wells Fargo Managing Director Jennifer Fritzsche: ‘While we saw some early carrier interest and activity building small cells… we believe 2018 to really be [the] year where small cells are pursued in earnest.’
“And one company has a stranglehold on the competition…
“This company already has a deal in place with an unnamed wireless operator to deploy over 500 small cell sites in two large metro areas.
“It’s all part of a multimillion-dollar deal that includes citing, placement, and installation.
“And that’s not the only project these guys are in on…
“Sprint Chief Technology Officer (CTO) John Saw noted that he’s ‘working aggressively’ with this company to upgrade Sprint’s network ahead of the massive 5G launches coming later this year.
“And Verizon is a top customer, as well.
“The company that I’m telling you about has several multiyear contracts with Verizon. And it’s on the brink of bringing in huge business from AT&T.”
For crying out loud, they didn’t even change this one! This is, indeed, another tease of Zayo (ZAYO), which is a much larger company than Ceragon and provides fiber optic infrastructure, including in support of the small cells that will be used by 5G (which requires lots more transmitters/antennae, each of which is smaller and closer together than conventional 4G/LTE wireless antennas).
Zayo provides a lot of dedicated networks for other companies, mostly based on its large fiber optic installed base and a network of data centers, and it was and is a pretty big company (market cap near $8 billion both when Stutman first touted it in June, 2018, and today), but it cratered at the end of 2018 and in early 2019 because of a weak earnings year as their revenue hit a plateau.
When Stutman first touted this one, the forward PE on 2019 estimates was a pretty steep 85, though those earnings were expected to keep growing — so you could argue that they were in a good spot longer-term, but the company then started falling apart… and that brought in takeover talk, which is why I thought Stutman couldn’t possibly be teasing Zayo again.
What do I mean? Well, I actually speculated on Zayo for a while this year because the stock had collapsed so much and seemed primed for a takeover thanks to the value of its fiber network assets, and the takeover did eventually happen as some strategic leveraged buyers came in with a $35 offer. A reasonable price for a patient buyer, though a disappointment for anyone who was excited about buying the shares at in the mid-$30s in the first half of 2018.
And the stock is now at $34.20, with very little risk that the deal won’t go through at some point in the next nine months… so what you’d be doing right now is taking that (admittedly very small) risk that the deal could fall apart (probably the biggest risk is that the buyers are doing a bond issue to pay for the merger, problems getting that money seem very unlikely for this well-connected LBO group but there is certainly at least a little risk), and in exchange for taking that risk you’re essentially guaranteed $35 in cash at some point in the first half of 2020. If we call that six months (the date of closing is uncertain), then that’s an 80 cent return on your $34, which some quick math tells us is a gain of 2.3%. Now, it’s true that a 2.3% return in six months is better than you can get from a no-risk investment (like a CD), but it’s also true that you’re essentially taking risk without getting any real return. That’s better left to the big arbitrage funds.
(In case you’re wondering, I sold my last ZAYO shares at about $33.20 in May… I figured $1.80 in extra return for risk that was greater at the time, since the deal was still newly announced, wasn’t worth it).
So yes, you could still buy Zayo if you want to, but it’s a cash deal and there’s no chance of another bidder at this point… you’ll get a return of a little over 2% between now and whenever the deal closes, but you won’t get any more than that. And if the deal collapses for some odd reason, which is unlikely but not impossible, then you might lose money. There is no way for you get any exposure to Zayo’s future business, and there hasn’t been for more than six months since the cash deal was finalized — the acquirer is private, the deal is for cash, not any share of the new company, and promoting Zayo as an investment that has some future 5G potential is irresponsible now.
I don’t imagine it was intentionally so on Stutman’s part, they’re just re-running a promo for a cheap newsletter and hoping to get some new subscribers, and the “special report” probably does have a date on it and I hope it has some updates on the state of things at Ceragon and Zayo (frankly, I’d be surprised if either of them is still in his recommended portfolio), but, well, this is a reminder that the publishing schedule for newsletter promos doesn’t necessarily have anything to do with the appeal of the companies being teased. (This isn’t the only newsletter that re-runs promos with very old info, to be fair, just the one I’m picking on today).
Will these stocks make you rich in the next year? No. They are real companies, which you can’t say about every “story” stock, but one of them is being bought out for cash, another is in the midst of a real slowdown in its business that has investors fleeing the shares recently, and the third is a telecom titan that you surely know pretty well already and is already trading at a pretty lofty valuation (Verizon might continue to do fine even if their 5G spending outpaces 5G profits for a long time, and a 4% dividend is nothing to sneeze at, but it’s surely not going to shoot out the lights).
Here’s how those stocks have done since the first time I wrote about this ad, in case you’re curious — that’s Verizon leading the pack in blue, with a small loss for Zayo (red) and a big one for Ceragon (orange), and I added the S&P 500 in green for comparison (to be fair and spit in my own face a little, I also added Nokia (purple), since that’s the lousiest stock I held until recently on 5G hopes):
So there you have it — yes, we’re seeing this ad a lot more again as it’s being promoted by someone and clearly catching the attention of our readers… but it’s the same old thing, recycled without any new info and with a couple stocks that you should look at a lot differently today than you would have a year ago.
Which means we’re left with no exciting thing to