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MAY 2015
Make the Politicians Pay YOU:
The Spectacularly Timely Opportunity I Found While “Moonlighting”
This month, I’ve got something a
little different for you.
It’s not exactly the kind of pick
you’d expect to find in Building
Wealth.
The company is smaller than the
others you’ll find in our portfolio. Its
market cap is barely $500 million and
its gross revenue in 2014 wasn’t even
$250 million.
By comparison, the market cap
of my February Building Wealth
recommendation,
Methanex
(NASDAQ:MEOH), is $4.3 billion.
Its gross revenue in 2014 was $3.2
billion.
But if history is any guide, this
investment has a shot at generating a
200% gain within the next 24 months.
That’s not the sort of potential
gain you’ll find me touting very
often in Building Wealth. When I
recommended shares of Jack Henry
& Associates (NASDAQ:JKHY) last
May, I predicted a 25% gain within 6
to 12 months. (The banking software
company’s shares came close to
hitting the target at the beginning of
April. They have recently pulled back
off of the recent high, but I expect
them to resume their climb.)
The picks I make here in Building
Wealth are on the safe, conservative
side. Playing it this way is the best
way I know to reliably build lasting
wealth in the stock market. “Safe”
and “conservative” don’t typically go
hand-in-hand with small companies
and big, quick gain potential. That’s
almost always highly speculative.
Of course, there are almost always
exceptions to rules. Such is the case
with the opportunity I have for you
here. It’s the product of some research
I did while I’ve been “moonlighting,”
and it’s got a great shot at helping
you build lasting wealth years and
years down the road. Not to mention
a good chance for a big gain in the
short term.
For the past several months, I’ve
been researching and writing about
new opportunities for our Bonner &
Partners Platinum service.
In the service, I’ve been discussing
options strategies and covering
smaller
companies,
sometimes
extremely small. Last month, I
recommended a stock that trades for
less than $1.
You might say there’s a little more
risk involved with some of the picks
in Bonner & Partners Platinum. They
don’t exactly follow our bedrock
principles for building wealth.
However, while moonlighting,
1
I was recently surprised to find
an investment opportunity that
also happens to be suitable for
these pages. It’s a little-known
specialized media company with a
successful and established business
as well as cash flows capable of
both paying shareholders a dividend
and repurchasing stock while still
investing in future growth and
keeping debt to a minimum. But
there’s more…
Because of the particular niche
this company has carved out for
itself, it’s very likely to earn some
extraordinary profits over the next
18 to 24 months… profits that could
very well lead shares to surge 200%
higher. It’s a spectacularly timely
opportunity I’m eager to share with
you before another month passes.
If you are also a Bonner & Partners
Platinum subscriber, you may have
already read your April issue, in which
I covered this idea. If that is the case,
please rest assured that covering an
opportunity like this across Bonner
& Partners publications is extremely
unusual.
We’ve made this exception
because I am presently the editor for
both publications, and the particular
company I’ve found happens to
Braden Copeland’s Building Wealth
have the characteristics of a Building
Wealth company.
But the best part about this
particular opportunity is that it
has an absolutely fascinating story
driving it right now.
It’s a story we’ll all be following;
in fact, it’s one leaders around the
world will be following closely in the
year ahead. Count on it. I’m already
encountering regular mentions of it
in every media outlet I know.
In this unique case, then, I
thought it would be unfortunate not
to include my Building Wealth readers
in such a chance to invest in such a
uniquely positioned company. And
my colleagues here agreed.
Now, let’s get to it. Our story takes
us back to 2008…
Fundraising and
Spending
Like the World Has
Never Seen
In 2008, Barack Obama changed
the presidential campaign game
forever.
To win the White House, he knew
he’d need “money to get out the
message.” A lot of it. So he set out to
raise as much, and spend as much, as
possible.
The only thing standing in his
way was, of all things, a federal aid
program.
So Barack Obama exercised his
freedom of choice. He declined
public financing for his campaign,
which freed him from the spending
limits that came with it. He was the
first major-party candidate, since the
public campaign financing system
was first established in 1971, to
decide to go this route.
We all know how it turned out.
Barack Obama won the White
House in 2008. He had also raised
the money-raising bar for big U.S.
politics like never before. Consider
these numbers…
For the 2008 election, individuals
and corporations contributed more
than $650 million directly to Barack
Obama’s campaign. The amount
Obama raised outpaced opponent
John McCain’s fundraising efforts
by more than a factor of three.
The McCain campaign raised a paltry
$199 million from individuals and
corporations for the election plus the
additional $84 million handout from
the federal government for the race.
(This is the money Obama chose to
forgo when he elected to fund his
2008 campaign with 100% private
money.)
Four years later, during the 2012
race, Obama chose to decline public
campaign money again. Recognizing
the grave error McCain had made,
challenger Mitt Romney followed
Obama and also went the unlimited
route.
The Obama campaign raised $715
million from individual contributions
to win the 2012 race. The Romney
campaign raised $443 million to
lose it. The two campaigns had,
combined, raised $1.2 billion,
spending more than half of it,
nearly $770 million, on advertising
to get out their messages. This
was more than a 20% increase over
the combined $630 million the
campaigns had spent on media in
2008.
The amount of money presidential
campaigns have spent on media over
the last two election cycles is mindboggling. To put it in perspective,
Kraft Food Groups and H.J. Heinz
together spent $583 million on
advertising in 2014 (combined, they
would be the world’s fifth-largest
food and beverage company).
2
For the coming 2016 race, there
is zero question candidates will be
spending even more.
With no incumbent, the White
House is open and the fight for it will
be nasty and expensive. Campaign
fundraising and spending will
break, by far, every record there is.
We could see two candidates raise
more than $1 billion each, when
not even one candidate has ever
accomplished the feat.
The companies positioned in the
way of this astounding rush of money
will see huge profits as it flows their
way in the coming quarters.
By the time the winner is
announced in November 2016, I
expect presidential campaigns will
have spent far in excess of $1 billion
for advertising on TV and radio and
over the Internet. A 50% increase
over 2012 is not out of the question.
We are going to put ourselves
directly in the way of this coming flood
by investing in the highly specialized
small-cap media company I found
while researching companies for
Bonner & Partners Platinum. It’s time
to make the politicians pay YOU.
But, before we get to that, I need
to show what’s priming the pump to
send even more money our way than
the numbers I just gave you suggest…
The Hispanic Key to
Victory
In 1996, Democrat Bill Clinton
crushed Republican presidential
hopeful Bob Dole with 49% of the
vote to Dole’s 41%.
In particular, Clinton creamed
Dole in the Hispanic community,
garnering a record 72% of the vote
to Dole’s 21%. The 1996 showing
proved a major reversal from where
the party had been just three election
cycles earlier. Twelve years earlier, in
Braden Copeland’s Building Wealth
1984, Republican Ronald Reagan won
nearly 40% of the Hispanic vote.
Although the Hispanic share of
the national vote wasn’t even 5%
when Clinton defeated Dole, the
Republican Party knew losing more of
the Hispanic community would prove
disastrous in the long term. It was the
country’s fastest-growing minority
demographic. So, leading into the
2000 U.S. presidential election, the
Republicans set out to fix its Hispanic
community message and win back
some of the Hispanic vote.
Over the next two election cycles,
the party succeeded. Behind George
W. Bush in 2004, the Republicans
received 44% of the Hispanic vote,
even surpassing Reagan’s strong 40%
showing from 20 years earlier.
Then, as the Republicans backed
U.S. Senator John McCain of Arizona
in 2008, disaster in the Hispanic
community struck again. Hispanic
support for the presidential hopeful
plummeted to a dismal 31%.
Democratic winner Barack Obama
received a staggering 67% of the
Hispanic vote in the race.
The reason is simple: Obama
simply did better than McCain with
speaking to the Hispanic community
and convincing them he would be
their advocate in the White House.
Obama clearly understood how much
the Hispanic community mattered
when it came to winning.
Four years later, the situation was
even worse for the Republicans. The
party’s show horse, Mitt Romney,
garnered only 27% of the Hispanic
vote. Barack Obama was elected
to a second term as U.S. president
with 71% of the Hispanic voting
population on his side (see Figure
1). Republicans looking at the
numbers knew continuing to lose
the Hispanic vote to the Democrats
like this threatened the party’s
very survival.
Presently, the overall Hispanic
population is growing at over eight
times the rate of the non-Hispanic
population. Experts expect it to grow
to 84 million, or nearly 22% of the
total U.S. population, by 2032. With
current trends, experts predict
almost half of the population
growth in the U.S. over the next 16
years will come from the Hispanic
community.
It is impossible to overstate the
significance of this. It means garnering
Hispanic votes is now, and will continue
for years to be, critical for anyone
trying to become U.S. president. It is
the Hispanic key to victory.
When discussing Romney’s weak
share of the Hispanic vote in 2012
and the losing candidate’s position
on immigration, former White House
spokesman, and Republican, Ari
Fleischer, told the Washington Post,
“It was such a clear two-by-four
to the head in the 2012 election…
Republicans could never win again if
that’s the status.”
In March 2013, the Republican
National Committee wrote:
“Among the steps Republicans
take in the Hispanic community
and beyond, we must embrace
and champion comprehensive
immigration reform. If we do not,
our Party’s appeal will continue to
shrink to its core constituencies only.
We also believe that comprehensive
immigration reform is consistent
with Republican economic policies
that promote job growth and
opportunity for all.”
In Section 2 of their report titled
“Hispanics” the GOP wrote:
“If Hispanic Americans hear
that the GOP doesn’t want them in
the United States, they won’t pay
attention to our next sentence. It
doesn’t matter what we say about
education, jobs or the economy; if
Hispanics think that we do not want
them here, they will close their ears
to our policies. In essence, Hispanic
voters tell us our Party’s position
on immigration has become a
litmus test, measuring whether we
are meeting them with a welcome
mat or a closed door.”
Figure 1: Numbers don’t add to 100 due to rounding and third-party votes.
3
Braden Copeland’s Building Wealth
Leading up to the 2012 election,
Democratic President Barack Obama
himself had this to say to the Des
Moines Register in an interview
that was originally off the record
(emphasis added):
And since this is off the record,
I will just be very blunt. Should I
win a second term, a big reason I
will win a second term is because
the Republican nominee and
the Republican Party have so
alienated the fastest-growing
demographic group in the
country, the Latino community.
Everyone paying attention on
both sides of the aisle knows the
Hispanic vote is critical to winning
the presidential campaign game.
In fact, it is undeniable that,
in 2012, the Hispanic population
skewing so heavily toward Barack
Obama helped him win the key
battleground states of Nevada (six
electoral votes), Colorado (nine
electoral votes), and Florida (29
electoral votes). Simply look at this
data point out of a study from the
New York Times:
In the key battleground of
Florida, Mr. Obama’s 60 percent
share of the Hispanic vote was
just above the 58 percent share
required for victory in that state.
The point: Had Mitt Romney
won just 3% more of the Hispanic
vote in Florida in 2012, he would
have carried the state. Winning a
campaign is a numbers game. And
campaign numbers don’t get closer.
Knowing all of this, though,
the Republicans have still done
little since 2012 to rebuild any
meaningful Hispanic voting base.
Here’s all the evidence you need
to see how strategically foolish they
have been on this score.
A recent Latino Decisions/
Presente.org survey found 89% of
Hispanic voters support something
known as “the executive action for
undocumented parents.” Under such
action, the president would issue
an order granting new, temporary
immigration protection for many
unauthorized parents of U.S. citizens.
More than 80% of the Hispanic voting
community is opposed to any efforts
to block it.
To curry favor with Hispanic
voters, then, you might think
Republicans would also support it.
They did not.
In December 2014, members of the
party in the House voted to block the
action. The following month they also
voted against any funding that might
be used for its purposes. Republican
Senator Ted Cruz, now running for
president on the Republican ticket,
threatened moving to shut down the
government if the action began to
gain support.
For
most
Hispanics,
the
Republican Party’s message right
now is completely opposed to what’s
important to them. The idea of
compromise doesn’t even seem to be
on the table. Yet the simple numbers
dictate this Hispanic demographic is
not one the Republicans can afford to
ignore. So this is set to change.
During 2015 and 2016, the
Republican Party will be doing a
great deal of “re-messaging” with
the Hispanic community if it hopes
to regain the White House.
That’s going to mean spending
tremendous amounts of money
on media… media particularly
focused on the U.S.-based Hispanic
community.
Wouldn’t it be swell, then, to
know about a company perfectly
4
positioned to benefit from such a
wave of spending targeted at the
Hispanic community?
And wouldn’t it be swell to own
shares of it before the wave comes
instead of reading about it later and
wondering, Why didn’t I know about
this earlier?
Of course it would.
And this time you will.
A Business You’d Like
to Own,
Even Without the
Political Kicker
Most people have never heard
of California-based Entravision
Communications (NYSE:EVC).
But advertising buyers wanting
to target the Hispanic community
have. That’s because EVC owns 58
TV stations and 49 radio stations
catering specifically to the Hispanic
community
and
broadcasting
almost entirely in Spanish. The
$550-million-market-cap company
generated $242 million in revenue in
2014.
EVC owns television stations
located primarily in California,
Colorado,
Connecticut,
Florida,
Kansas, Massachusetts, Nevada, New
Mexico, Texas, and Washington, D.C.,
with television stations in 20 of the
nation’s top 50 U.S. Hispanic markets.
EVC is the largest affiliate of both
Univision and its UniMás network,
which together command nearly 70%
of the Hispanic viewer base across
the U.S.
EVC’s radio stations consist of
38 FM and 11 AM stations located
in Arizona, California, Colorado,
Florida, Nevada, New Mexico, and
Texas.
But the company’s offering
doesn’t stop with radio and TV…
Braden Copeland’s Building Wealth
ENTRAVISION STATION LOCATIONS
(EVC radio & TV broadcasts reach 94% of the country’s Hispanic population.)
Boston, MA
Springfield, MA
Hartford, CT
Reno, NV
Aspen, CO
Las Vegas, NV
Albuquerque, CO
Phoenix, NV
El Paso, TX
California
Sacramento
Stockton
Monterey/Salinas
Modesto
Palm Springs
Denver, CO
Washington, DC
Colorado Springs, CO
Wichita, KS
Lubbock, TX
Odessa, TX
San Angelo, TX
Santa Barbara
Los Angeles
San Diego
Yuma/El Centro
Orlando, FL
Houston, TX
Corpus Christi, TX
Tampa, FL
McAllen, TX
Miami, FL
www.bonnerandpartners.com
In June of 2014, EVC acquired a
company called Pulpo, the leading
online advertising network for U.S.based Hispanic audiences, even
beating out Univision’s online
offering. EVC’s new Pulpo division
generates revenue by delivering
digital advertisements for clients
on digital media sites. The clients
typically purchase advertising from
Pulpo through campaigns that are
sold and managed by a direct sales
force.
Pulpo generated $12 million in
revenue in 2014, up from $7 million
in 2013 and $4 million in 2012, nearly
doubling sales each year. And it was
able to achieve this growth with just
six salespeople.
Adding its offering to the arsenal
of the nearly 200 additional sales
personnel EVC already has under its
tent is almost certain to push the
divisions revenue much, much higher
in coming years. EVC conservatively
projects Pulpo will account for 20%
of its gross revenue by 2020, up from
less than 5% in 2014.
Looking at the actual numbers for
the combination of EVC’s TV, radio,
and new Pulpo division, it’s clear
this is not a marginal operation. In
2014, EVC’s earnings before interest,
taxes, depreciation, and amortization
(EBITDA) was $74.3 million on $242
million in revenue. This was up
from $69.5 million on $224 million
in revenue in 2013. The company
originally went public in August of
2000.
Rare for a small cap, and strong
confirmation management knows
its business, EVC doesn’t sit on the
money it earns and keep shareholders
guessing. Openly, the company’s
plan is to use a portion of its free cash
flow each year to buy back stock, fund
acquisitions, pay down debt, and pay
dividends.
During 2014, EVC spent $10
million to buy back stock, $15 million
to acquire Pulpo, $24 million to pay
down debt, and $9 million to pay
dividends (the company currently
yields 1.5%).
While
this
exceeded
the
5
company’s free cash flow of $45
million, there’s no cause for concern.
EVC’s current cash and accounts
receivable of $96 million far exceeds
its current liabilities of $36 million.
More importantly, digging into its
coffers to fund the Pulpo acquisition
will likely prove to be a profitable
long-term decision.
By itself, EVC is a fantastic
little well-managed, cash-flowing
Hispanic media machine. It’s a
unique business I’d like to own, even
without the political kicker. And, at
a current EV/EBITDA ratio of 12, its
valuation is not terribly expensive.
But it is at the high end of its recent
range. A year ago, the EV/EBITDA
ratio for EVC shares was 14. In early
2013, though, it was only 6.
With the addition of the Pulpo
digital business and what’s about
to happen thanks to political ad
spending, I don’t expect the valuation
to head back to 6. I expect it to head
to 14, and then some…
Your Super-Smart
Political Play
That No One Else Will
Believe
Let’s circle back to the political
piece of the setup for this investment.
It’s shockingly simple.
All you have to do is take a close
look at how political spending
has benefited EVC in the last two
presidential campaign cycles. Then
consider it in the context of the
critical and growing importance of
the Hispanic vote I’ve outlined. Once
you do, you’ll see exactly why now
is the time to prepare for the next
“presidential” leg higher.
This is a straightforward exercise,
too, because EVC specifically
identifies the excess revenue the
Braden Copeland’s Building Wealth
company generates due to political
spending during its quarterly
earnings calls and periodic investor
presentations.
For the 2008 presidential race, the
first year Barack Obama decided to
forgo public funding for his campaign
(but McCain didn’t), EVC generated
an extra $8 million in revenue thanks
to campaign spending. The amount
was 3% of the total revenue for the
company for the year. It didn’t have
a huge impact.
In 2012, the story was completely
different. During that campaign
season, EVC generated more than $17
million in extra revenue. It was more
than a 100% increase and 7.6% of the
company’s total revenue for the year.
This is a significant amount of
“found money” for a company. When
the market began to see it coming,
it reacted accordingly. At the end of
2012 and into 2013, as the company
began to discuss publicly the extent
of the campaign spending it was
receiving, shares began to explode.
You can see what happened in Figure 2.
In the first six months of 2013,
shares of EVC raced from under $2
to over $6, for a more than 200%
gain.
You’ll also notice in Figure 2 that
EVC’s stock price dropped between
the beginning of the year before
the last election and the end of
the election year. But if you look at
how EVC’s stock reacted in the year
after the election, it makes much
more sense to be early to this party.
We don’t want to miss out on this
rocket-ship ride.
As word gets out about this, EVC
stock could go nuts and see $20
before it’s all over. In the interim, the
political advertising kicker it will get
as candidates jockey for the Hispanic
vote is worth at least $5 per share.
Either way, I expect EVC shares to
Figure 2
see $10 before they see $4 again.
This campaign is already heating
up. Candidates are rushing to raise
vast sums for their coffers. I won’t
be surprised to see them start
spending some of their money in key
areas quickly… testing ads, testing
messages, building whatever base
they can. It’ll start as a trickle. But as
2015 draws to a close and the 2016
primary season starts, the spending
spigot will begin to open much wider.
Once this happens, the EVC secret
will almost certainly be out already.
And just like in Figure 2, once the
story is out, EVC shares will begin to
march higher very, very quickly.
For the 2016 U.S. presidential
race, the numbers on fund-raising
and campaign spending will be mindblowing. That means the revenue
numbers that hit EVC’s books are
going to be mind-blowing too.
Now is the time to get in and get
set to benefit.
Action to Take: Buy Entravision
Communications (NYSE:EVC) below
$6.75.
Do not pay more than $6.75 per
share for EVC stock.
PLEASE NOTE: THE MARKET FOR
6
THESE SHARES IS NOT AS DEEP
AS IT IS FOR MOST STOCKS I
RECOMMEND.
EVC shares do trade every day and
the total average daily dollar value
traded over the last 20 days has been
$1.1 million. And last Monday over
$1.6 million worth of EVC shares
changed hands. So you should have
no trouble getting in.
Nevertheless, if you wander into
the market announcing you want
to buy $10,000 worth of EVC shares
without using a limit order to set
your maximum price (in this case
$6.75), odds are you’re going to move
the market price of the shares on
yourself.
For example, if EVC shares are
trading at $6.73, you might actually
end up paying $6.81 each for your
$10,000 worth because that’s the
lowest price at which you can buy
that much stock at that instant. A
limit order tells the market it has to
come to you at $6.75 or you won’t
buy.
The first order of business,
then, is to use a limit order and set
your buy limit at $6.75. Be patient
building your position. The larger the
Braden Copeland’s Building Wealth
position you’re trying to build, the
more patient you will have to be.
Finally, to ensure you preserve
your capital in case of an
unexpected decline, use a 25%
trailing stop for the position once
you are in. You can learn how
much money to invest in any one
investment and how to use trailing
stops in my special report “Two
Simple Ways to Keep the Wealth
You Build.”
I’m Here for You…
Should you ever see anything
about my work that raises a question,
please drop me a line.
You can send me an email at
bwfeedback@bonnerandpartners.
com. You can also *like* my page on
Facebook at facebook.com/r.braden.
copeland, or follow me on Twitter
@BradenCopeland.
I read every note I receive and
respond to as many as I can in my
editorial. Just keep in mind that I
7
can’t provide you with any individual
investment advice.
Here’s to building wealth,
Braden Copeland
May 21, 2015
Braden Copeland’s Building Wealth
Braden Copeland’s Building Wealth
Current Portfolio
Recent Prices as of May 21, 2015
COMPANY
SYM
DESCRIPTION
RESEARCH
ENTRY
PRICE*
RECENT
PRICE
DIV.
RETURN**
ADVICE ^
Jack Henry &
Associates
JKHY
Banking’s “Hidden
Toll Collector”
5/15/14
$56.51
$65.37
$0.94
17.34%
Buy up to
$63
Southern
Copper
Corporation
SCCO
Getting Rich from
the Lost Guggenheim
Fortune
9/18/14
$32.37
$32.12
$0.34
0.28%
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$34
Randgold
Resources Ltd.
GOLD
One of the Best-Run
Gold Miners in the
Business
11/20/14
$64.68
$74.13
$0.60
15.54%
Buy up to
$65
Exxon Mobil
Corporation
XOM
The 3,000% Replay in
the Oil Patch
12/18/14
$91.16
$87.13
$1.42
-2.86%
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$95
ICICI Bank
Limited
IBN
The Building Wealth
Way to Play India
1/15/15
Not yet
$10.63
$0.00
-
Buy up to $8
MEOH
The World’s Leading
Maker of the Most
Important Chemicals
on Earth
2/19/15
$51.00
$56.79
$0.25
11.84%
Buy up to
$51
Pentair
PNR
How to Get in on a
Unique, CashGushing Manufacturer
on the Cheap
3/19/15
Not yet
$64.19
$0.00
-
Buy up to
$56
Entravision
EVC
Your Super-Smart
Political Play That No
One Else Will Believe
5/21/15
$6.69
$6.69
New
New
Buy up to
$6.75
Methanex
Corporation
Publisher
Will Bonner
Braden Copeland’s Building Wealth
is published by Bonner & Partners.
Editor
Braden Copeland
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completely separate from and
after an Internet publication and
a ﬁnancial publisher and does
outside the scope of services offered
72 hours after a print publication is
not provide personalized trading
by Bonner & Partners. Therefore, if
mailed prior to following an initial
or investment advice. No person
you decide to contact any one of our
recommendation on a security.
available, and should consult
investment counsel before
investing.
8