We have a charming little tradition here at Stock Gumshoe of picking out the stinkiest stock to have been teased over the past year, and calling it our “Turkey of the Year” come Thanksgiving time.
It’s not particularly fair — certainly not to turkeys everywhere, and probably not to the newsletter folks who use breathless, hype-filled teasers to promise massive gains from stocks that turn out to be dreadful. After all, we’re basing our assessments on a moment in time when a newsletter editor unleashed his or her copywriters on a tempting story stock — perhaps that newsletter sold it soon after, or perhaps the ad was just a trick to get you in the door and it doesn’t really represent the picks of a particular advisor’s portfolio very well.
But we do it anyway — both because it’s fun, and because it serves as a good reminder to all of us of the fragility of the “stories” pitched by many of these newsletters. Investments can fail for lots of reasons, and rarely are those failures mentioned by the folks you pay for investing recommendations … so let’s take a moment to give thanks for the “sell” button as we name our Turkey of the Year for 2011.
The rules are simple: It has to be a pick that has performed right at the bottom of the pack since it was teased. And we’d prefer that it have been teased as the next best thing since sliced bread and iPods, or, in the best of all Turkey worlds, that it was pushed and pushed and pushed over and over by a newsletter without regard for what was happening to the company or stock.
And it has to have been teased in the past year, since our 2010 Turkey was unveiled — that last one, by the way, was SuperMedia (SPMD), a freakishly overleveraged business whose depleting worth eventually became reflected in its horrible stock performance in 2010. SPMD did actually rebound a bit last Winter after attaining Turkey status, but gravity and sanity returned and the stock again is far below where it was when it was “turkeyed.”
And even with those rules, we’ve got lots of attractive candidates this year …
There’s Christian DeHaemer’s Petro Matad (MATD in London, PRTDF on the pink sheets), which he re-touted a few times this year … but that was first recommended and teased by him back in early 2010, so although it’s Turkey-worthy that he pitched it again this year as being at a good price after a fall (after his first tout it went from about 20 pence to 200 pence in 2010, then back to 20 pence again in a spectacular 90% collapse this year, mostly on bad drilling results) it doesn’t really qualify as a 2011 pick. Still, honorable mention because this went from being one of the best performing teaser stocks I’d ever seen … to one of the worst, and in a pretty short period of time.
Likewise, there have been plenty of large, well known flameouts that have had eager newsletters all over ’em before they collapsed, like everyone’s current favorite punching bag Netflix (NFLX). That was an oft-touted pick of the Gardner brothers over at the Motley Fool since at least 2007 — but though they breathlessly took credit for its performance many times in ads this year, and it was also one of the best performing teaser picks ever for a while (it’s still not too bad if you forget about the 1,000% gain they had for a spell — it’s now up 300% or so over the last four years), they didn’t actively tease it as a hot pick much this year. So that’s not ready for trussing, either. Though the fact that David Gardner was still saying that you have “time to get in for the next leg higher” back in April when it was around $250 does perhaps deserve at least a turkey leg.
We can spread the Turkey pain around to many of the well-known newsletter publishers — Netflix may not really cut it as a Fool pick in this category, but Dave Gardner was touting Rosetta Stone (RST) as holding the key to China’s future earlier this year, and that’s been just about straight down since the IPO, losing 2/3 of its value and counting.
And over at Cabot Heritage, they promised quick doubles in both Sky-Mobi (MOBI) and LDK Solar (LDK) earlier this year, both of which are instead down by about 75% (and incidentally, both were touted as near-term doublers when they were very close to their highs for the year).
Kent Moors over at Money Map Press was even more aggressive for his Energy Advantage, telling us that his favorite equipment stock in the alternative energy biz, Satcon, should quadruple in 8-12 months … it’s been eight months, and it’s instead down about 80%. Really good gobbler candidate there.
And if we go back a full year, as we should to be fair, we can include Frank Curzio from Stansberry for his Phase 1 predictions of 3,000%+ gains for Groote Resources once they started “tapping” their deposit of manganese … since it doesn’t look like the permitting folks or the native population are all that eager to let them tap that deposit.
Or from Lombardi’s stable, we can note that Mitchell Clark’s touting of last December as the “last chance” to buy Wonder Auto under $10 is surely ready for a ladle of gravy — the stock never actually got up to $10 for even a moment after I wrote about that ad. Like so many other small Chinese companies that enjoyed boom years, Wonder hit accounting problems, was in a trading halt for several months, and got delisted this year … and now trades under one dollar on the pink sheets. Of course, I reluctantly admit that I’ve suggested stinkers that got trapped in the accounting/delisting Chinese stock hell and short-selling cycle, too, so I can’t take too much joy in folks who were overconfident about the compliance of Chinese accounting.
And I hesitate to even include the occasional articles I write about the really shady side of the business — stock promoters, the folks who pump and dump microcap penny stocks and actually make money on the other side of the trade they talk you into making (or just get paid by other investors to inflate a stock price) — those stocks obviously almost always go to zero, since there isn’t really any “there” there for most of them, so that’s too predictable. But it’s worth remembering that yes, every Jammin’ Java and CleanPower goes down … but it was only greedy little dollar signs in our eyes, and our innate belief in human decency, that obscured our certain vision of that future in the first place.
No, for our Turkey of the Year we’ll stick with stocks that generally legitimate publishers (though some push the envelope on that front, too) really are selling as investment ideas that they really think are worthwhile, and publishers who make their money by getting newsletter subscribers and, hopefully, making those subscribers happy.
Of course, some newsletters sell those ideas with rather less than full disclosure and honesty much of the time, and it certainly seems that the battle between marketing and investment advice is always won by marketing (a good ad with a good story gets re-used, even if the stock’s performance or financials have changed dramatically). But at their heart these are, one hopes, real ideas from people who really are trying, at least most of the time, to suggest good investments to their readers. And really if they were forthright and honest about every pick in every ad there would be far fewer newsletter subscribers, and I’d have far less to write about … so I’ll give thanks for the hype machine, too!
In the end, though, none of those semi-finalists above made it to the top of the list — and that’s just a sampling, I hope I don’t hurt anyone’s feelings by leaving off the other big losers of the year (there are now at least 25 stocks that were actively teased in 2011 that have fallen by 50% or more, though that number of course changes every day — and as usual, far more stocks were halved than were doubled … though 2011 is shaping up as a worse year for teasers than most, at least so far, thanks in part to the late-summer market swoon and the preponderance of tiny, volatile stocks and commodity-related picks).
No, our Turkey of the Year goes to a promise of life-changing wealth from Steve Christ in repeated ads for his Wealth Advisory, for a stock that is apparently poised to revolutionize medicine but that is desperately close (again) to going out of business over the next year … Tengion (TNGN).
I have to give you the story on this one with a bit of a caveat — the tease ladled on the incredible visuals and big-science breakthrough stuff pretty heavy, but it didn’t get into the specific details of the company as well as I would like, so this teaser ID came with something like 95% certainty (we almost always are able to hit 100%, but not this time). So if Steve Christ contacts me and lets me know that no, in fact it wasn’t Tengion that he was teasing but a well-hidden super-secret cousin of theirs, well, I’ll let you know. And perhaps I’ll eat my hat.
Tengion is a story that almost tells itself, so you can see why the ad copywriters lapped it up — organ regeneration, a leading doctor active in the company, some real FDA human trials, and pictures from a 60 Minutes special that featured that same doctor and the ears and other body parts he was growing in a lab. Absolutely super cool, and exactly the kind of thing that biotech investors get drooly about — not just getting better dialysis to help your kidneys until a transplant comes, but building you a new kidney with your own cells, in the lab, curing diseases, and making all kinds of blockbuster drugs obsolete.
Of course, that part of the story is way, way in the speculative future — so far they’ve developed a couple niche products, one of which has largely been abandoned, and they’re trying to stay viable as a company. This is, unfortunately, a company that took the appeal of that story and managed to turn it into an IPO and raise a bunch of money (though not nearly enough, it turns out) to continue FDA trials and commercialize their first product … but then hit the delays and setbacks that pretty much all biotech stocks hit, had to switch over to a different “lead” product, came close to running out of money last Spring after a failed merger, finally got rescue funding, and just reorganized again this month to give them enough cash to squeak through for another year.
It’s probably not being fair to the company to say this, since I’m sure Tengion is probably, like most companies in their space, largely run by scientists who have sacrificed and put in long hours of research to get to where they are, and who believe they’re genuinely on track to change the world and cure disease, and who probably do have amazing medical breakthroughs at their fingertips … but in re-reading back through some of their press releases and my stories about Tengion over the past year, the image comes to mind of a gambler at the craps table who knows he has a system but keeps losing, then clears out his credit card limit to restart his evening, and loses again, and when that fails he goes up to his hotel room, looks for coins under the bed, and steals some extra towels to sell at a pawn shop to he can buy just one more little pile of chips.
That’s not to say the technology doesn’t work to build body parts — on some level, it clearly does work unless the 60 Minutes folks and other journalists were completely bamboozled (the technology? They basically build a little mold in the shape of the body part, spray stem cells on it, and let it turn into the body part and dissolve the scaffold/mold — or at least, that’s how yours truly, largely a scientific illiterate, understands the process). But this clearly shouldn’t be a public company that has to sell itself to shareholders each quarter, they’re just not ready.
Still, “Turkey of the Year” is about the past, not the future, I wish Tengion all the best in the years to come even though I wouldn’t necessarily let them hold my wallet for me.
If I’m right about the two big ad campaigns teasing Tengion from Steve Christ for The Wealth Advisory, which otherwise pitches itself as a pretty sober publication, they were poorly timed indeed — the first one came in February and reportedly helped to boost the price so quickly (the stock gradually moved up to near $4 in the week or so before the teaser ads started rolling, then spiked over $5 for a couple days) that it gave Tengion’s pending merger partner an excuse to back out of the deal, which then drove the price down dramatically and led to the much more dilutive rescue financing deal from Medtronic.
And the second ad campaign, which I covered just a couple months ago in September, appeared to be built on such a foundation of old facts (like the notion that it was a “$3 Stock” after it had already fallen 75%) that I had to re-review the entire ad, do my research again, and reluctantly admit that they must still be pitching the same stock.
Tengion has dropped to about 50 cents per share now, for a market cap of about $13 million — in our tracking spreadsheets, we put it in at a buy price of $2.97 when Steve Christ was first touting the pick, so that’s roughly an 80% drop … if you prefer to use the September price coinciding with that second teaser campaign, it’s down about 18% from there. And yes, they do have close to $20 million in net cash on the books thanks to the rescue funding from Medtronic last Spring, so the stock is trading at a steep discount to tangible book value (~$20 million in net cash, $13 million market cap) — but of course, they’re going to spend all that money over the next year, so don’t get the notion that shareholders will get their fingers on it.
Tengion, for what it’s worth, recently announced that they’re restructuring again to stretch out their finances — they’ve fired more than half of their employees, centralized R&D in one lab, and are focused on getting their now lead product (the neo-urinary conduit) through the current Phase 1 trial (they’ve done three or four surgeries/implantations so far out of the expected ten) and on filing a pre-IND application with the FDA for their kidney program (the Neo-Kidney Augment) in the first half of 2012. They think these cost cuts and clarifications of priorities will let them get to November, 2012 using their current funds, so they’ve effectively given themselves another six months of life — they’ll need to either get a partner on board to fund R&D after that if these programs are going to advance, or they’ll have to sell the technology or sell the company or go out of business. And of course, given their precarious position they really need all of the news that comes out about the company to be excellent from here on out — good conversations with the FDA, good clinical results, no mishaps in the Phase 1 patients, etc.
As always, I wish them the best of luck. And I give thanks to all the fabulous newsletter touts who graced our pages with teaser picks over the past year — we appreciate the ideas, both the turkeys and the soaring eagles, for enriching our lives and getting our heartrates up … even if they don’t always enrich our portfolios.
And just in case we’re coming off as a bit too negative, we should note that the best teaser pick so far over the past year has been Motorola Mobility (MMI), a stock that was dramatically boosted by the Google takeover deal shortly after it was teased by … Hilary Kramer, whose SuperMedia pick (in a teaser for her GameChangers newsletter, the same source as the MMI teaser) won the Turkey of the Year title last year. So maybe it’s good luck to win the Turkey, let’s raise our wishbones and hope so.
If you’d like to check the tracking spreadsheets we use to monitor the performance of these picks (just a simple “buy and hold forever” price check), you can click here, the spreadsheets are usually a bit out of date so they may not have the last couple months of teaser picks on them …. but we’re catching up!
P.S. In further fairness, I’ll note that I’ve suggested stocks that have fallen more than 80% in the past for the Irregulars, too (three of them at last count — Hanfeng Evergreen and General Steel Holdings in 2008, and Torm in 2009), though of course I never promoted those ideas as guaranteed quadruples as some of these folks do. Over the past 12 months, the performance of the “Idea of the Month” picks for the Irregulars is extremely similar to the S&P, as of this moment we’re beating the S&P 500 by 1 percentage point with new picks made over that time, and there are certainly plenty of time periods when these ideas and older ones have done worse than the market, too (the “Ideas” I feature are not managed as a portfolio, just FYI, they’re tracked as “buy and hold forever” ideas since that’s also the way we track the teaser picks — they never leave the portfolio even if, as with the case of some of the picks like those mentioned above, I’ve changed my mind or most any sane investor would have sold them by now). For full disclosure, the “Turkey” in my new picks over the last 12 months is down about 34% (and naturally, given your Gumshoe’s good fortune, that’s one of the stocks I also own personally).
P.P.S. Happy Thanksgiving! Stock Gumshoe will be closed for the long holiday weekend, but we look forward to starting our search for future Turkeys next week (OK, OK, we’ll look for good ideas, too).