An Interesting Speculation
I’m a conservative investor. I own mostly income-producing assets with cash and precious metals as a back-up. The stocks in my portfolio are industry-dominating billion-dollar businesses with consistent histories of giving dividends.
But I’m also a consultant to the financial advisory industry. And in that capacity, lots of interesting stock stories come into my inbox.
And every once in a while, I read one that is so persuasive that I break my rules and take a gamble. I do that when (1) the source is an analyst I respect, (2) the facts are compelling, and (3) the recommendation is for a stable, profitable business whose value is equal to or greater than the share price.
Here is one of them… SoftBank Group (OTC:SFTBY).
It’s an over-the-counter stock that was recommended by Alex Green. As the name suggests, it’s a holding company that buys shares of internet and software startups.
The head of the firm is Masayoshi Son – universally known as “Masa” – the second-richest man in Japan, with a net worth of more than $20 billion. Alex calls him one of the world’s savviest entrepreneurs. “Masa has busily launched, bought, and sold dozens of technology firms over the past 40 years,” Alex says. “His $20 million investment in Alibaba in 1999, for example, is worth more than $120 billion today.”
The company has three divisions. One that owns businesses outright (Boston Dynamics). Another that takes large stakes in public companies (48% of Yahoo Japan & 84% of Sprint). And its $100 billion Vision Fund, devoted to tech-oriented venture capital.
It’s this third division that Alex is most interested in. Vision Fund looks for companies with a market share of 50% to 80% – and then takes stakes of 20% to 30%, providing the capital that allows them to grow fast and go global. Dozens of its holdings are so-called “unicorns,” companies worth at least $1 billion in the private market.
But it’s not just the strategy that Alex likes. It’s the fact that SoftBank is not a passive investor.
“Masa and his team of managers identify trends, act quickly, and – while the fund may hold an investment for years or even decades – are not shy about getting out when the price is right. Vision Fund, in fact, has a long history of getting in early on the best technology startups, ones that even seasoned venture capitalists can’t access – and ordinary investors can only dream about.”
Recently, Alex says, SoftBank started Vision Fund 2. It quickly raised more than $100 billion as many of the world’s leading tech and finance companies – such as Apple, Microsoft, and Goldman Sachs – lined up to invest.
All that sounds interesting enough. But the thing that really hooked me was that, according to Alex, the share price of SoftBank has actually declined a bit since he recommended it to his readers a few weeks ago.
“This is due primarily to the company’s $11 billion investment in The We Company… and the sharp reduction in the previously planned $24 billion valuation of its IPO. Yet the effect on SoftBank is minimal. Were the company to go public with, say, a $10 billion valuation, it would lower the Vision Fund’s net asset value by just 2%.”
In his original recommendation, Alex estimated that SoftBank was worth twice the current share price. “That may have been far too conservative,” he now says. “Barron’s reports that ‘based on the sum-of-the-parts math, Vision Fund is being valued at negative $52 billion. That’s right, negative. Talk about undervaluation. And, remember, Vision Fund is just one component of this much larger holding company.”
On the negative side, you’ll have to overcome a few obstacles. For one thing, it’s not easy to study SoftBank because, other than Alex, no one seems to be following it. Plus, the company is based in Tokyo and its website is in Japanese. And if you are interested in placing a bet on SoftBank, you’ll have to use a broker that is comfortable working on the OTC market.
Meanwhile, keep in mind that there’s a positive side to these impediments. Thanks to the extra effort it requires to invest in SoftBank, the company is relatively obscure. Even so, it has pretty good liquidity. (The average volume, Alex says, is close to a million shares a day.)
As I said, this is not the sort of investment I typically make. I consider it a speculation and I don’t recommend speculating as a prudent way to build wealth. But SoftBank is a rule-breaker for me because of the exceptions I laid out above. The facts are compelling. It’s a recommendation by one of the most successful and trusted analysts I know. And it’s currently priced at less than its intrinsic value.