One Stock, One Retirement Plan: Alex Green’s Top $4 Recommendation

Oxford Club is promoting a stock they describe as the “One-Stock Retirement Strategy” recommending it as an essential component for building your portfolio. They also refer to it as the “Key ChatGPT.” Curious about which stock this is? Let’s take a closer look…

Over the past five years, the advertisement has undergone some relatively minor adjustments, including changes to the “catalyst” event and experimenting with new headlines.

Alexander Green from the Oxford Club has released another advertisement for his “single-stock retirement plan,” generating many questions. The reason is apparent: he is marketing this stock as a potential source for a “multimillion-dollar retirement,” which naturally draws the interest of many searching for ways to secure a financial future they feel unprepared for.

The most recent email introducing this advertisement aims to capitalize on the AI trend, even though the content remains unchanged. Here’s what the email states:

In another email, it states:

We’ll delve into the limited connection to ChatGPT shortly, but first, let’s examine the advertisement. Over the years, the company has been referred to interchangeably as a “$5 stock” and a “$4 stock” to align with reality, but the current ad still claims it’s priced at $4.

Here’s a snippet of the advertisement:

He asserts that if one aims to retire on a single stock, akin to these affluent individuals (noting that they predominantly built businesses rather than passively investing), it must be “the perfect stock.”

Green even provides a checklist outlining the characteristics of this “perfect” stock for a one-stock retirement, which leads us to the clues about the stock he’s promoting:

He emphasizes that this “ideal” stock should possess catalysts—upcoming announcements likely to drive its share price—and highlights that it must be “undiscovered.” Furthermore, it should be trading at just a few dollars per share.

While the focus on share price may seem trivial, investors often fixate on the idea that a lower per-share price is a prerequisite for substantial future gains. Different countries and periods exhibit varying expectations for share pricing; for instance, some large Australian firms trade at what would be considered “penny stock” prices in the U.S. Historically, many large U.S. companies have actively managed their share prices through stock splits to maintain them in the $40-$100 range. Ultimately, the company’s market capitalization and valuation are far more critical than the price per share.

Now, back to the stock that Alexander Green is hinting at. What other clues can we gather from the advertisement?

Here are some specific details:

This is not a small company, despite the $3 share price…

I know I’m still withholding the name (but don’t worry, we’ll get to it soon), though it’s worth noting that while the dividend remains above average, it’s not as significantly so as it once was. The dividend was reduced in 2019 and has only recently been raised to approach its previous level. The current trailing revenue is just under $220 billion, reflecting an average revenue growth rate of about 5% over the last five years.

Why is this stock considered “unknown?” Green claims it “does not trade in a typical manner” and is not listed on a U.S. exchange… Intriguingly, it “literally trades under a secret name.”

This was the pitch back in 2018. By 2020, the narrative had evolved to include specifics about the company’s U.S. operations as they were constructing assembly plants (though they never fully realized the ambitious factory project they had proposed in Wisconsin to entice President Trump; that endeavor significantly diminished).

By last year, with a new ad dated January 2022, Alex Green had shifted focus to the Apple Car as the catalyst—here’s his perspective:

Are there any additional clues?

Initially, he focused on producing low-tech computer hardware—such as chassis for desktop computers—then aggressively expanded to manufacture and supply components for various tech products. Green cites several recent contract examples:

And numerous others, including Amazon, Nokia, Acer, Nintendo, and Apple components. Most of these clues remain consistent with only minor updates (for instance, the next Google Pixel phone is the Pixel 8, noting that some of the clues are now a bit outdated).

So, who is it?

As several readers have already deduced, this stock is from the Taiwanese company Foxconn, which Alex Green has promoted in similar advertisements for over six years. Foxconn plays a significant role in assembling Apple’s iPhones and is a major supplier for many of the world’s gadget makers. It is recognized as the largest contract manufacturer globally and stands as one of the largest private employers in China, if not the largest. On a revenue basis, it ranks among the largest tech companies in the world.

Regarding the “secret name,” Foxconn was adopted in the 1980s to bolster international sales. Most articles refer to it as Foxconn, especially when discussing its extensive operations in Shenzhen, known as “Foxconn City,” which houses over 200,000 workers. However, the company was initially founded in 1974 under the name Hon Hai Precision Industry, and it is still listed under that name in Taiwan. You can find the company’s self-description on its website.

So yes, while it might seem “secret” that Foxconn is actually Hon Hai—the contract manufacturer that many tech investors are aware of—it’s certainly common knowledge among the institutional investors who own most of this large-cap stock.

Regarding its stock price, it has indeed fluctuated between $3 and $4 for most of the time Alex Green has been advertising it. This requires currency translation, as it trades in Taiwan under ticker 2317. Until 2023, it was mostly trading around T$110 in New Taiwan Dollars (it was T$82.80 when we first analyzed the stock in 2018), equating to approximately $3.50 today (though the exchange rate has seen only minor fluctuations). In 2024, the price recently experienced a notable increase, mainly due to excitement around potential improvements in server sales related to the AI boom, bringing Foxconn’s current trading price to about T$180, or roughly $5.65.

Trading this stock in the U.S. is relatively easy. An American Depositary Receipt (ADR) represents the Taiwanese shares for U.S. investors. It trades over the counter (OTC) under the symbol HNHPF (it sometimes appears as HNHPD when trading ex-dividend), with each U.S. OTC share equivalent to two shares in Taiwan. Similar depository receipts are also available in London under HHPD, representing two Taiwanese shares each. While most trading volume occurs in Taiwan, the prices in London and New York generally remain close to the paramount market price.

If you’re looking to invest in the U.S., you’ll technically be paying around $11 for each ADR today (or about $6 back in 2018), but each ADR corresponds to two shares, which is why it can be considered a “secret” $5 stock (previously trading at $3 or $4 for most of the past six years).

However, all the mystery and intrigue surrounding this stock ultimately leads to one fundamental question: do you want to own a stake in this massive electronics manufacturing company? Here are some insights to consider:

Foxconn is a substantial company, with a market capitalization of just under $80 billion, meaning it’s unlikely to see a 1,000% increase in value over the next decade. While its share price might seem low compared to U.S. tech companies that often have per-share prices in the thousands, Hon Hai is the second largest stock in Taiwan, following the immense Taiwan Semiconductor (TSM).

Hon Hai/Foxconn has consistently traded at a significant discount compared to the broader market and has historically underperformed. Currently, the shares are priced at approximately 16 times trailing earnings and 1.5 times book value, with a price-to-sales ratio of only 0.4. The dividend yield is above average, at around 3% on a trailing basis. However, this payout has fluctuated considerably over the years; traditionally, it has been closer to 5% for much of the past decade, and dividends are only paid once a year in August.

Despite this relatively attractive dividend, it has yet to provide much support for the stock price, which has typically traded in the 8-12 times earnings range for the last decade. The significant jump in share price observed in 2024 represents the first meaningful increase in a long while. If you had invested near the market bottom in November 2008, your total gains would have been around 200% over the past 15 years, dividends included. This is notably underwhelming compared to the S&P 500’s return of over 700% during the same period, or even more starkly, Apple’s staggering increase of nearly 8,000% and Taiwan Semiconductor’s (TSM) impressive 2,500% gain.

For a clearer comparison, Hon Hai’s performance against the S&P 500, Hon Hai’s underperformance relative to its peers over the long term.

While Hon Hai has improved its performance in the short term, it still lags behind these high-performing tech giants, highlighting the ongoing challenges it faces in delivering solid returns to investors.

This leads to an interesting thought experiment regarding who truly benefits from successful products—whether it’s the designers, developers, or the companies that manufacture and assemble the gadgets. Many factors contribute to this, and while there are numerous growing and profitable component manufacturers, Foxconn has generally been profitable over the years. However, two key elements that significantly drive long-term growth in this sector appear to be sustainable brands and a degree of uniqueness.

Suppliers can thrive if their products or components outperform the competition, but maintaining that competitive edge is crucial. Alternatively, they might establish their component as a sought-after brand or a near-monopoly, much like Intel did 40 years ago with its “Intel Inside” campaigns and its strategic alliance with Microsoft.

When exploring Foxconn, it’s essential to consider how it might evolve beyond being just an anonymous assembler. What factors allow it to avoid competing solely on price? The current valuation of a P/E ratio 16 could suggest a potential buying opportunity, as this is significantly lower than many major tech stocks today. Nevertheless, this valuation has historically remained low and appears relatively high compared to Foxconn’s past performance. Shareholders have struggled to see meaningful benefits from sales growth, new ventures, or strong iPhone sales, regardless of external factors like trade wars, COVID-19, or advancements in AI.

This situation leads me to suspect underlying structural issues contribute to their ongoing underperformance. Would securing a contract to assemble an Apple Car or another trending product change this? Not necessarily. The closest public market equivalent for an automotive outsourcing manufacturer is Magna International (MGA), which trades at around 12X forward earnings. Thus, it’s not as if investors are eagerly seeking these opportunities. Additionally, Alexander Green still needs to update his claims since Apple abandoned its car project, which is unfavorable to his argument.

Foxconn is often categorized as the “iPhone maker,” causing its stock price to fluctuate with the iPhone sales cycle—rising on optimistic sales forecasts and falling during slower periods, as we’ve seen recently. While the company is much more than Apple’s primary manufacturing partner, it’s unclear whether this recognition will translate into a consistent growth trajectory for its stock.

Despite efforts to diversify by acquiring various brands and technologies, Foxconn’s foray into second-tier brands and low-margin sectors has yet to improve profitability. The ongoing pressure of low-margin contract manufacturing and the demands from companies like Apple for ever-lower costs hinder sustainable earnings growth. Suppose Alexander Green’s assertion about Foxconn being a “one stock retirement” opportunity is accurate. In that case, it may be due to Foxconn gaining greater leverage over the brands it manufactures for, thereby enhancing its profit margins, or it could finally move up the value chain—efforts that have been underway with its push into the automotive sector. However, there’s little evidence of significant progress over the past six years; gross margins remain around 6%, and net profit margins hover at about 2%, nearly unchanged since 2018.

As for the substantial investment in the U.S., the results have been different than expected. A vital component of this initiative was a significant display factory in Wisconsin that Foxconn committed to establishing during high-profile ceremonies with then-President Trump, promising 13,000 new jobs and a revival of U.S. high-tech manufacturing. However, this project has faced numerous challenges from the outset. While a Wisconsin project remains in progress, it has been significantly scaled down, with projections of only around 1,500 jobs. If you’re interested, there’s an intriguing story about how this situation deteriorated. The recent trend to “onshore” more tech manufacturing may lead to additional incentives for Foxconn to set up facilities in other parts of the U.S. Still, so far, it hasn’t substantially impacted Foxconn’s earnings. What was initially framed as a $10 billion investment has now been revised to a commitment of roughly $672 million as of 2021. As seen with Taiwan Semiconductor, adapting a manufacturing strategy from Taiwan or China to the U.S. poses challenges due to differences in workforce and operational traditions.

Recently, Foxconn has indicated a desire to enter the electric vehicle market, positioning itself against established auto industry outsourcing firms like Magna International (MGA). A prominent part of this strategy involved acquiring the former GM plant in Lordstown, Ohio, purchased by Lordstown Motors for its electric pickup truck project. This deal entails Foxconn taking over the factory to contract-manufacture trucks for Lordstown Motors and produce electric vehicles for other companies lacking manufacturing capabilities. This move stemmed from Lordstown’s struggles, but Foxconn possesses the resources to enhance the facility. They may successfully adapt their skills to this emerging industry, providing a new growth avenue. However, this has yet to materialize, primarily due to the bankruptcy of many EV startups they intended to collaborate with, such as Lordstown and Fisker. Additionally, Apple has openly acknowledged that its Apple Car initiative has stalled, reallocating those employees primarily to AI projects. Consequently, Foxconn’s Lordstown factory has remained relatively quiet; last reports indicated it was producing electric tractors for Monarch.

There is some potential for improved margins in automotive assembly, as Magna typically enjoys a profit margin of 4-5%, compared to Foxconn’s 2-3%. However, I would expect Foxconn to wait to excel in this new sector or to transform it into a significant contributor to their income. When they revealed some prototype designs in 2021, they said, “Our biggest challenge is we don’t know how to make cars.”

While they can certainly learn, the combination of “we don’t know how to make cars” and “we don’t have any customers” doesn’t suggest a quick path to success.

The connection to “ChatGPT ” is rather tenuous. The premise is that the rise of AI will drive demand for servers and data center equipment, leading Foxconn to assemble many of these products, thus resulting in significant growth in that sector.

Perhaps. They are witnessing an increase in server demand, which is accurate; however, this is just one positive aspect in an otherwise lackluster business landscape. According to a Reuters report from about a year and a half ago, Foxconn Chairman Liu Young-way expressed caution about the company’s outlook due to tightening monetary policies, geopolitical tensions, and inflation uncertainty. However, he noted servers as a bright spot amid the surge in AI interest.

As noted in the recent Reuters update, Foxconn’s “cloud and network” segment, which encompasses its server assembly operations, constituted 22% of its revenue in the first quarter of 2023. This segment has emerged as a significant growth driver over the past year, with Foxconn suggesting that AI servers could become their “next trillion-dollar business.” The company actively engages in various innovative initiatives, such as investing in satellite development, exploring metaverse applications within their factories, and forming partnerships focused on automotive software and semiconductors. There are early signs of margin improvement as AI-related products and servers contribute to increased production volumes, particularly during the crucial holiday and iPhone launch periods. However, these signs are still preliminary, especially following a stretch where revenue had declined for six consecutive quarters.

Predicting substantial success for Foxconn remains challenging, especially considering its prolonged period of slow growth and low (often decreasing) margins. Nevertheless, there is potential for growth as it strives to diversify its business, particularly in electric vehicle assembly, and capitalize on the rising demand for AI servers, even if the new iPhone 16 has not met initial sales expectations.

While you might interpret my skepticism as overly cautious, it’s worth noting that balancing my concerns with the optimistic “one stock retirement” narrative from the Oxford Club could provide a more rounded perspective. It’s essential to approach your analysis with a fresh and unbiased mindset. Ultimately, I keep returning to the charts illustrating Foxconn’s total revenue growth and earnings per share growth since Alex Green’s advertising began in 2018. These charts highlight that this year’s stock price surge was not primarily driven by actual revenue or profit growth but rather by investor optimism regarding the potential of AI servers, iPhones, and other devices to fuel future growth.

Foxconn is a sizable and relatively low-cost company, trading at about 16 times its earnings. This aspect certainly plays in its favor. However, there’s no immediate urgency to invest, as the stock has consistently been on the cheaper side for nearly 15 years. A P/E ratio 16 isn’t beautiful for a low-growth company, considering it has typically traded within the 8-12 times earnings range. Therefore, you likely have ample time to evaluate your options.

Over the past two years, during the bull market, Foxconn’s P/E ratio has increased roughly double that of the broader market, with an approximate 80% rise compared to around 40% for the S&P 500 and slightly less than 100% for Taiwan Semiconductor. This indicates some improvements in investor sentiment, but it’s worth noting that we’ve only seen one-quarter of actual growth in sales or earnings so far.

Please conduct your own research and share your thoughts on Foxconn’s prospects for the coming decades. Feel free to use the comment box below to engage in the discussion. Thank you for reading!