Manny Backus has perked up some ears around Gumshoedom this week with his widely-emailed pitch for Triple Digit Returns (his $300 newsletter) that there’s “One stock you need to buy today” … followed up with an ad whose headline is “Buy, Buy, Buy.”
As usual, not a lot of subtlety or nuance here. But, well, when the world is crazy with worry why not counteract that with a bit of cockeyed enthusiasm… perhaps even a bit of greed as we dream of swimming in pools of gold coins.
Fear and greed both tend to sell pretty well for newsletter ad copywriters, but the stories of a global collapse and a currency crisis and a Fed that’s going to send the economy into a death spiral, well, they get old after awhile. No one likes to daydream about Bill Bonner’s “day the ATMs fail” or Porter Stansberry’s “End of America” or whatever the latest prophecy of doom might be… So let’s look into this little stock that Backus says can make us 1,483% gains, shall we?
The clues are, unfortunately, a bit thin… but there are so few reasonable candidates in this little niche that we can probably make a good stab at an answer. Here’s how Backus gets us started:
“Profit Like a Madman!
“How a 100-year-old experiment in the middle of Colorado changed the world… And why it could mean 1,483% gains for YOU
“Over 100 years ago, in the wilderness of Colorado Springs, a scientist created an electrical storm that would change the world.
“Lightning bolts peeled through the sky, showering the small town in light.
“People hid themselves… and for good reason….
“At the time there was incredible confusion.
“Today, we understand that it was the result of a year-long experiment conducted by none other than the ‘madman’ Nikola Tesla.
“We also understand that the principles he uncovered that night in Colorado Springs could now put 1,483% in the pockets of early investors.”
And yes, this all about wireless electricity — whenever anyone’s trying to get us revved up about wireless electricity or wireless charging, they pull out Nikola Tesla… whether it’s because he’s genuinely a pioneer and a character (which he was) or just because the car company that borrowed his name has been such a wildly profitable stock so far, I don’t know.
The dream, which was Tesla’s dream as well, is for a world where you can easily transmit electricity through the air — no wires or unsightly poles for long-distance transmission, which is more what Tesla was thinking of, and, perhaps more importantly for the modern era, no worries about your cell phone losing its charge and having to wrestle someone for an outlet at the airport.
You’ve all seen the first wave of “wireless chargers,” I’m sure — they’re built into some office furniture now, they’re sometimes available at Starbucks or airports, and they’re essentially a plate that you place your phone on, usually with a special case for your phone, and it receives a charge either from that direct connection or across a very short (centimeter or two) distance.
They’re a little persnickety sometimes, and things have to be lined up right for some systems… and it’s slowly gaining some adoption, but I don’t think you can reliably say that it has “taken off” or become mainstream. Samsung has one of these chargers available now for their last couple versions of their higher-end smartphones, but Apple does not — and Samsung hasn’t been able to leverage the existence of their wireless chargers into any real advantage, so while I’m sure Apple is working on wireless charging they’re undoubtedly not panicked. And, after all, placing your cell phone carefully on a pad and lining it up properly is indeed more convenient than plugging it in… but it’s not as nice as having it charge automatically without you thinking about it, or without you taking it out of your pocket.
Since it’s very early days for “wireless power” adoption by the electronics manufacturers, there’s also some debate about standards — if you’re going to count on finding a wireless charger at Starbucks, then you want all wireless chargers to work with all phones, right? Starbucks is not going to offer three different versions of a charger to their customers, and you can’t get all the phonemakers to agree to a single standard unless they’re pretty confident that charging sites will be widely available in that standard. That means the whole industry is very much up in the air on this one, and unless Apple commits to a wireless charging standard overnight (they probably won’t), it’s going to be a while before the “winner” is settled.
So who is Backus teasing? Well, I’ve let my own blatheration go on this long because he doesn’t really provide much in the way of clues — here’s a little more from the ad:
“… unlike in Tesla’s time, this is no longer some pie-in-the-sky wish.
“It’s already here.
“It won’t be long before you see it in residential homes, corporate offices, restaurants, coffee shops, and hospitals.
“In fact, inside of ten years we could very well be looking at homes and businesses without electrical outlets of any kind.Are you getting our free Daily Update
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“I mean, why go through the expense when the need to plug things in will be eliminated?
“No more batteries, no more cords, and most importantly, no more charging.”
That’s pretty far outside the realm of conventional expectations, just so you know — wireless charging, by whatever method, is also generally less efficient than wired charging and wired connections, and you don’t necessarily want to have a battery in every single electronic device. It’s the network effect — once everyone’s using it, you want to be using it too… before everyone’s using it, you’re not incentivized to start using it. Very powerful both as a reinforcement for a business that builds a captive consumer audience, and as a hurdle that any new standard has to cross before it can become viable.
Probably, I’m guessing, the first widespread use of any wireless charging/wireless power for anything other than mobile phones — and maybe before mobile phones — will be all the little sensors and gadgets that are part of the “Internet of Things” … those need power, too, and you don’t want to have to recharge a dozen little batteries every week or have to remember to change them twice a year like you do (you should do, at least) with your smoke detectors. But we’ll see.
So what’s that elusive clue provided by Backus? Here you go:
“Right now, the small company that’s currently behind this global transformation trades at around $6. Based on past discoveries, and past performance, I see it hitting $95 by this time next year.
“That’s a 1,483% gain in 12 months.”
I would take the “under” on that bet. Big time. But that 1,483% gain number is, of course, absurd — it doesn’t mean we have to ignore the company… maybe there’s a reasonable possibility that it could go up 50% or more? Let’s see who it is first.
Any other clues?
Um, no. Not really.
So what’s our stock? Well, in the world of wireless charging stocks there’s really only one near-$6 stock that’s a very good match here, so it’s very likely (can’t be 100% certain without more clues) that he’s touting Energous (WATT).
WATT has been pitched before, of course — I covered it back in February when it was being teased as a pick by the “Midas Supergroup”, and this is what I said to the Irregulars at the time:
“Great story, about a company developing wireless charging technology, and they’ve actually come pretty far in a short time at developing partnerships and demoing their technology… but no, MDB Capital, the folks who helped them raise money by going public, do not have the “Midas touch” to turn all stocks they IPO into gold, particularly long-term, so be nimble if you like this one.
“I don’t personally want to touch it without some notion of Apple or Samsung being on board — their $40 million will disappear fast into irrelevant deals for remote control toys if there’s no potential to get into the phone market, the only market that matters… but you never know, they could do great if they do get a meaningful deal with a phonemaker or get bought out for their technology. Extremely speculative venture capital investment that happens to be publicly traded.”
That’s the general spiel from MDB Capital, which was the company that helped WATT raise ~$25 million in an IPO about a year and a half ago — they’re essentially a microcap investment banking group whose niche is bringing venture capital companies into the public markets… and that’s what this is, Energous is a development-stage technology company that has designed a wireless charging system that works on a room scale — their equipment can create a network that transmits electricity sort of like a bluetooth or wifi connection transmits data. They got quite a bit of attention for it at the Consumer Electronics Show last Winter, and the prototypes have everyone excited, but it’s still a pretty substantial step from there to commercialization.
Has anything happened since February? Well, they continue to advance their talks with the tier-one partner they’ve made in the mobile space, but that seems to be moving pretty slowly. Probably as you’d expect.
Really, these MDB Capital companies are more like biotech companies when it comes to the public markets — they go public very early on, at the equivalent of a phase 1 clinical trial, and there’s a very good chance that they’ll fail. Just like there’s a very good chance that all tech startups will fail, it’s just that most tech startups are not publicly traded. That worries me a little bit, because the very fact that they’ve gone public gives small investors some idea that they’ve passed some milestone that their competitors have not passed — and that’s not necessarily true.
The company says that they have a “first mover” advantage in wireless charging technology, but they’re far from the only company trying to develop and commercialize a technology that can charge all the devices in a room from some distance — all of these companies are far behind the inductive/charging mat/charge across three inches technology that’s now pretty well advanced and available in a slate of products, with improvements expected next year as Intel has become a larger player in the space, but once you get past inductive charging (where you have to be touching or within a few inches of the charging pad, though that’s gradually improving as well with advancements from folks like Witricity), the next phase of wireless charging is competitive… it just doesn’t happen to be that the other competitors are public yet.
In browsing around I ran across several names that are doing similar stuff to Energous — there’s Ossia, which has a similar-looking wifi-like technology for creating a charging network, or Wi-Charge, which uses infrared for charging. Both are venture funded, which is arguably what Energous should be, too, given the risk the company has of going to zero with the stroke of a regulator’s pen (or simple failure to commercialize), but Energous’ founder liked the idea of going public, and it also probably helped them to grow more quickly — it’s probably easier for a tiny company to hire good engineers if they know that the stock and options they’re receiving are liquid and sellable as soon as they’re vested, and being public might give them a reputational advantage when they’re looking for employees or partners.
It has also allowed them to raise quite a bit of money — though that’s not so hard in the private markets either, these days. They did a follow-on offering for another $20 million last Winter, and they’ve been spending it pretty rapidly on both R&D and overhead/selling costs — and have made no secret of the fact that they will have to keep raising money. At the current pace, they’ll need to do another offering in the next six months or so, so I’m sure they’d love to be able to release some exciting news before that to get the share price a bit more elevated.
A lot is resting on their partnership with the unidentified “Tier One Consumer Electronics Partner” who is working with them on their first high-profile products, and on their many smaller partnerships with companies that build small electronics, “Internet of Things” stuff, routers, etc… and, of course, there’s also the risk, which is pretty unquantifiable, that they think they’ll need FCC approval to sell their wireless charging equipment, and they might not get it.
The basic technology is sort of like wifi, you need a transmitter/router and you need a receiver chip, either built into the phone (or whatever) or in a case. The chip communicates with the router via bluetooth, they talk to each other, and the transmitter then sends a targeted wave of electricity directly to the immediate area surrounding the device, which is picked up by an array of tiny antennae on the device or chip, and provides what seems to amount to a “trickle charge” — it’s not going to recharge your phone from nothing just because you walk through the room, but will gradually top it up.
So you can sift through the tea leaves, try to figure out who their “Tier One” partner is and whether it will work out, and whether their third-generation chips will get designed into products and their transmitters will be approved by the FCC… if all that happens, the stock could be fantastic over many years. If none of it happens, the stock could be worthless. It doesn’t really matter whether the stock is at $4 or $6 or $10, there’s no reasonable way to value it that precisely and the odds are that it will either trickle down to zero or boom in value over the next five or ten years based purely on the regulatory and commercial acceptance of their particular charging technology… if you do commit to a stock like this, I’d urge you to think of it as a venture capital investment — commit to some small investment that you can afford to lose 100% of, and resolve yourself to the notion that you’re investing until there’s news about the first big commercial partner, or until they get or fail to get FCC approval, and don’t give yourself a migraine by watching it every day and worrying about whether it will drop by 30% the next time they have to raise money for more R&D… I’m not investing in this one personally, but if I were that’s hopefully the path I’d follow if I did. This is one where the only risk management will come from position sizing, since the business could always change overnight and it’s a tiny sub-$100 million company that’s all tied up in one product idea… don’t count on a watchful eye or a stop-loss order to offer much protection.
And with that, I’ll hand it over to you — go forth, researchify, and let us know what you think… is Energous worth a bet? Share your opinion with a comment below, maybe you’ll help us all to get just a little bit wiser.