‘Hot’ Penny Stocks: A Look at Performance

'Hot' Penny Stocks: A Look at Performance

 

 

 

 

Via Tadas Viskanta of Abnormal ReturnsZestinvest.com approached me regarding and intriguing promoted stock, Implant Sciences Corporation (PINK:IMSC).  Read his article, he will say more about it than I will.

From my angle, this is another low revenue, negative net worth, negative earnings stock, which I think every sane investor should avoid.  But there are a few interesting aspects to the scam:

  • There is the outside possibility that their services will be bought by an arm of the US Government, in an effort against terrorism.
  • It is being touted by Gene Marcial at Forbes, and at other blogs of his.  Gene Marcial has a financial interest in CPreports.com, which gets paid to publish favorable research on companies.
  • It is being touted by Ray Dirks, which disappoints me.  I always thought better of him, given his early contest regarding insider trading  in the Equities Funding scandal, which he successfully contested to the Supreme Court.  (And as a kid of 13, I sent away for his research on low P/E stocks!  What a guy! Maybe.)

This is a company that is likely to be taken over by its lender in three months, leaving the equity with zero, or nearly that.  The company is so deep in debt that I suspect their lenders will not get paid in full either.

-==–=-==–=-=-=–=-=-=-=-=-==-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

Onto my second promoted penny stock, Luxeyard.  Wait, first the promoted penny stock scorecard:

Ticker

Date of Article

Price @ Article

Price @ 7/9/12

Decline

GTXO

5/27/2008

2.45

0.03

-98.78%

BONZ

10/22/2009

0.35

0.0171

-95.11%

BONU

10/22/2009

0.89

0.065

-92.70%

UTOG

3/30/2011

1.55

0.07

-95.48%

OBJE

4/29/2011

2.9

0.045

-98.45%

LSTG

10/5/2011

1.12

0.152

-86.43%

AERN

10/5/2011

0.077

0.0011

-98.57%

IRYS

3/15/2012

0.261

0.13

-50.19%

NVMN

3/22/2012

1.47

1.46

-0.68%

STVF

3/28/2012

3.24

0.435

-86.57%

CRCL

5/1/2012

2.22

0.67

-69.82%

ORYN

5/30/2012

0.93

0.6

-35.48%

BRFH

5/30/2012

1.16

0.57

-50.86%

LUXR

6/12/2012

1.59

0.35

-77.99%

Aside from very deep out-of-the-money options, I can’t think of anything that does so badly.  Back to Luxeyard ((AKA Top Gear, Inc. (PINK:LUXR))

.  How did it lose 78% in less then a month?  Go back to my original post:

NBT Equities Research and/or its publisher, ChangeWave, Inc., dba NBT Communications has received $35,000 and been pledged 75,000 shares of rule 144 common shares in LuxeYard to assist in the writing of this advertisement.

Next Media LLC paid $1,500,000 to marketing vendors to pay for all the costs of creating and distributing this report, including printing and postage, in an effort to build investor awareness.

Next Media LLC was paid by non-affiliate shareholders who fully intend to sell their shares into this advertising campaign.

Duuuuuhhhh.  They have plainly told you that they will fleece you.  Few are so bald in their designs.  Why didn’t you listen?  This offering more than doubles the float, on a company that is worthless anyway.  This is just a way for insiders to profit or minimize losses.

So it is no surprise that the stock has fallen so much, notable as it is to fall so quickly.  But this was eminently avoidable.  Remember the Indian saying: “Lie down with dogs; wake up with fleas.”

By David Merkel, CFA of Aleph Blog



About the Author

David Merkel
David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.