When you’ve covered investing and the markets for as long as I have, you get to know some of the larger-than-life personalities of the big investors and CEOs who make covering the markets exciting.
Legendary investor Jim Rogers, for instance: He’s a guy I respect greatly, who’s made repeated visionary calls. I’ve interviewed him on a few occasions.
He’s a humble, down-to-earth type… and one of the sharpest investors in history, who freely dispenses market wisdom in word and deed.
Today, I want to tell you about one of my favorite CEOs – and of course, I’ll recommend his company, too (it happens to be “on sale” right now).
He’s a guy who says “it’s easier to see 30 years ahead than three years ahead.”
And he’s an innovator and investor after my own heart who understands the immense value of what we call “the long view.”
Let me introduce you…
“Short Game” Isn’t In This Man’s Vocabulary
There’s a reason why I gravitate toward investors and CEOs who take that long view. It’s because taking the “short view” is one of the biggest, most expensive mistakes any investor can make, whether they’re working with $1,000 or $100 billion.
Maybe you’ve seen this happen before. Folks give their investments too little time to work, or obsess over every little wobble or hiccup in the price of the stock.
Tragically, these investors – who may very well have carefully researched their pick – forget about the “investment storyline” and cut and run at the first sign of trouble.
When you take the long view, all the little “events” that seem so scary when you look at them up close kind of disappear. You can ride them out – often to fantastic profits.
That’s why I’m such a big fan of SoftBank Group Corp. (OTCMKTS: SFTBF) CEO Masayoshi Son. He’s a farsighted visionary, and you can make that work for you.
Son, 61, is best-known to many investors as the man who invested $20 million into our “single-stock wealth machine” – Alibaba Group Holding Ltd. (NYSE: BABA) – back in 2000.
That $20 million turned into $70 billion when Alibaba had its then-record initial public offering (IPO) in 2014.
If you missed that one, don’t fret: Son is at it again.
In the parlance of Wall Street, SoftBank serves as an “investment vehicle” – a company that’s run as kind of a gigantic venture capital fund.
Here in the U.S. market, Berkshire Hathaway Inc. (NYSE: BRK.A) serves pretty much the same function: Warren Buffett uses Berkshire as a vehicle for investing in stocks and even buying entire companies. In fact, BRK.B shares are on my Private Briefing “short list” of stocks to buy and hold as real wealth-builders. (BRK.A shares have traded as high as $335,900 this year, which’ll buy you a house across large swaths of America!)
Where Buffett is a decidedly “low-key” type, Son operates with plenty of flair. He’s known for making bold, even outrageous, predictions about his company… and then making them come true.
For instance, at SoftBank’s shareholders’ meeting last month, the billionaire exec got everyone’s attention with a prediction I’d characterize as a real stunner.
Over the next two decades, Son said the value of SoftBank’s investment portfolio could grow 33-fold to reach ¥200 trillion ($1.85 trillion).
That’s a market-crushing compound annual growth rate of 19%.
And yet that seems like a conservative estimate when you consider that the $100 billion Vision Fund (SoftBank, Son, and the Vision Fund are viewed and talked about interchangeably) generated a 62% return in its first two years of existence.
It’s also worth remembering that Son tends to deliver on his predictions: Fifteen years ago, he raised some eyebrows when he said SoftBank would one day generate profits of as much as ¥2 trillion ($18.53 billion).
Now the company’s income has exceeded ¥1 trillion ($9.27 billion) for the past three years.
Softbank Is Staring Down Brand-New Opportunities
As a result of this turnaround, SoftBank is viewed as a disruptive force in the world of technology investing. And with $200 billion under management – half of it in the SoftBank Vision Fund – the company draws comparisons with Berkshire Hathaway, says data from consultant McKinsey & Co.
If there’s one difference between the two, it’s that Berkshire focuses more on blue chips and “conventional” businesses while SoftBank zeroes in on cutting-edge technology ventures. And that includes “unicorns” – private companies with market valuations of $1 billion or more.
“We started investing in May 2017 – and we have 75 unicorns,” says Rajeev Misra, the SoftBank executive vice president who oversees the Vision Fund. “It is the biggest platform of technology companies, and I believe in a year or two there will be roughly 150 technology companies under the umbrella.” And he expects many of the companies will be unicorns, with valuations over $1 billion.
Some of the company’s “areas of focus” are involved with the same trends or “investing storylines” that we’ve identified for you as big wealth plays in Private Briefing.
Indeed, one tech trend that Son is keenly interested in is artificial intelligence, or AI.
Son says he is investing to take advantage of what he calls the “greatest paradigm shift in human history.” He points to “the singularity” – the moment when artificial intelligence exceeds human intelligence – as “the biggest gold rush.”
His emphasis on AI was front and center in SoftBank’s $300 million bet on robotic process automation (RPA) unicorn Automation Anywhere. RPA is essentially the “operating system” (OS) of the digital workforce. As I told my subscribers in this recent report, it’s a huge new market.
By infusing AI into software to automate complex, high-volume or repetitive tasks, RPA essentially creates “digital workers.” Japan and South Korea are expected to be major RPA opportunities, since companies in those markets are dealing with shrinking labor pools and shifts away from notoriously long workdays.
Masayoshi Son vs. the Critics
Since Masayoshi Son launched the $100 billion Vision Fund, critics have been fixated on the outflow of money to unicorns like WeWork. These critics are unsure of the business models and valuations of many of the companies in which Son has invested.
In short, they’re succumbing to that same big investing miscue I talked about at the outset: They’re obsessing over the short term. They aren’t taking the time to see the “big picture,” which is to say, the unfathomably lucrative long-term opportunities being created by powerful new trends like AI.
But now the money is starting to flow the other way.
Armed with cash from the $23.5 billion listing of SoftBank’s mobile unit in Tokyo, and Japan’s largest-ever corporate bond sale ($4.5 billion) to retail investors – and with the recent IPO of Uber Technologies Inc. (NYSE: UBER) – Son is chipping away at Wall Street worries that his firm is risk-addicted and loaded with debt.
In fact, Son feels so flush that he launched a $5.5 billion share buyback in February.
Even so, he continues to grouse that investors don’t understand his company’s true value.
Indeed, back in February – ahead of the buyback announcement – Son said SoftBank’s $83 billion market cap undervalued the company by nearly 60%.
While virtually every company CEO worth his or her paycheck argues their company is worth more than its trading value, Son’s complaint seems to have merit.
His calculations put the company’s net debt at ¥3.6 trillion ($33 billion), while its treasure trove of equity stakes that included Alibaba, WeWork, and Uber (Son is the largest shareholder) came to ¥25 trillion ($230 billion) – implying a true shareholder value of ¥21 trillion ($190 billion).
Investors are slowly coming around. Even so, SoftBank’s current market value of $100 billion is still only half of what Son believes his company is really worth.
Hard to believe, but SoftBank’s share price had fallen to less than half its peak around the turn of the century – even as the value of its holdings in companies such as Alibaba and Yahoo Japan had risen nearly fourfold.
Expect SoftBank to cash in more of its “chips.” For example, Son said he plans to relist the Cambridge, United Kingdom-based chip designer Arm Holdings Plc. – acquired three years ago for $32 billion – sometime in the next five years.
Arm is probably the most important mobile chip designer: Semiconductors based on designs licensed from Arm power an incredible 90% of the world’s mobile devices – including the Apple iPhone. Apple Inc. (NASDAQ: AAPL), Qualcomm Corp. (NASDAQ: QCOM), Samsung Electronics, and Huawei Technologies all use chips that rely on Arm technology.
I suspect Son will take Arm public again sooner rather than later – you want to be in the shares before that happens.
The bottom line here is that you have a chance to grab a stock that’s essentially a tech version of Berkshire Hathaway – and at a bargain-basement price point.
The company’s public market value is probably half of its true worth. The company’s American Depositary Receipts (ADRs) are trading at $24.52 – 14% below their 52-week high of $28.04. The SoftBank ADRs are highly liquid, with an average daily trading volume of half a million shares. They just split two-for-one in late June.
This is a quintessential wealth-building opportunity – a company positioned to capitalize on powerful trends like AI, communications, microchips, e-commerce, and more. It’s trading at a big discount to its true, long-term worth. And because investors are short-sighted, impatient, and slow to comprehend complicated value propositions, you’re getting in on this at a point when there’s a hefty upside.
Masayoshi Son believes in taking the long view to create wealth.
I believe that, too.
This is your opportunity to get ahead of “the crowd” and to position your own cash in a way that will bring you a big payoff.
Even if it takes a while for that to happen.
In the meantime, grab some of these shares now – to establish a “foundational” position in the stock. Then look to add shares on pullbacks or as you get additional cash.
— William Patalon III
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Source: Money Morning