Stock Gumshoe

This teaser and the solution come in from our old friend Streetsifter, who has written up a few solutions in this space in the past — t0 the great appreciation of your Gumshoe. His solution has been confirmed by a few other readers who I know do a good job sniffing out solutions, so he’s probably right, but I’m actually quite short on time today so I’m posting his words with very little editing, and I personally haven’t looked into the stock much yet.

What follows is from Streetsifter, in his version on the oddball Gumshoe writing style …

For $2,600 – “almost half off” of the normal $5,000 annual fee – you can subscribe to Rob Fannon’s Phase I Investor newsletter and receive the name of the “tiny California firm” that has developed the “Gen-dX” test that predicts whether patients will get cancer. Or you can simply keep reading, and let the Gumshoe provide the solution.

The teaser includes clues to the identity of the biotech firm that developed the test, providing such details as:

• 39,000 patients have taken the test in the past two years
• the company’s share price has nearly doubled in the same two years
• three members of the management team previously “held senior positions in another well-known and highly profitable biotech company”
• the company’s revenue for last year grew by 461%
• “A clinical test trial sponsored in part by the National Cancer Institute is already underway for its colon cancer test.”

Stock Gumshoe Forum participant “Womanwithportfolio” shared her suspected solution on the forum, and Streetsifter, a paid-up Gumshoe Irregular who has provided us with correct solutions in the past has sent in his confirming data … which all leads to …

Genomic Health (Nasdaq: GHDX)

The Redwood City, California firm markets the FDA approved cancer test under the trade name Oncotype DX at a cost of over $3,000 per test. They have three senior management staff who migrated from Genentech, Inc.

Genomic Health’s 2006 Schedule K showed total 2006 revenue of $ 29.174 Million vs. $5,202 million in 2005, exactly matching the touted 461% increase. The current share price is around $23.30, vs. a high of $11.75 in the third quarter of 2005, confirming the double.

And their website confirms that 39,000 patients have taken the test in the past two years.

However, like most young biotech firms, the company has yet to show a profit. Potential investors should heed the firm’s 2006 Schedule 10 warning:

“Since our inception in August 2000, we have incurred significant losses and, as of December 31, 2006, we had an accumulated deficit of approximately $125.1 million. We have not yet achieved profitability and anticipate that we will continue to incur net losses for at least the next two years. We expect that our research and development, selling and marketing and general and administrative expenses will continue to grow and, as a result, we will need to generate significant product revenues to achieve profitability. We may never achieve profitability.”

Based on that statement, is it likely the Genomic Health can – as the Phase I Investor teaser ad suggests – mirror the 1,943% gains of biotech firm Illumina or the 604% gains of Immucor? That’s something that the Stock Gumshoe can’t say with certainty. What I can say with certainty is that you won’t need to shell out $2,600 for the solution to the teaser ad. Thanks to Womanwithportfolio, and especially to Streetsifter for his contribution to this posting.

OK, back to the Gumshoe’s words here — sorry I haven’t spent much time looking at this company myself, but I hope to in the days ahead, and I thought getting this out there would provide some more opportunity for the Gumshoe faithful to throw their two cents in.

My non-company-specific reaction, taken without any look at their filings or their prospects, is to note that, as always, they’re probably not as alone in this endeavor as the ad for the newsletter might indicate — genetic testing and diagnostics, and especially genetic screening for various diseases, particularly cancer, is certainly the flavor of the week on Wall Street.

There are a lot of companies in this broader business category (long-time Gumshoe readers might remember the “SNiP Technique” teaser of a while back, which was for a couple diagnostics companies — and also from Rob Fannon, though for his lower-brow Medical Investor publication), and though the Phase I Investor service aims to be one of the high end subscriptions that gets “a select few” into less-well-known names, if you just believe in the trend toward more genetic diagnostics and screening and are happy with good returns instead of lottery ticket potential, there’s no reason not to also look at the big diagnostics companies (Quest et al) while you’re at it. It’s certainly true that often the winners when new technology comes in, are the big companies who are best positioned to push it forward into the marketplace.

Sorry to not get into more detail on this one today, but many thanks to Streetsifter for making sure that the solution got out there to all of you despite my time crunch — let us know what you think, and if I come up with anything to add I’ll be sure to share.

The folks at Stansberry and Associates have come out with a new newsletter, perfectly designed to focus on exactly what everyone seems to want right now: Foreign Stocks. This one is called International Strategist, and they’ve got a teaser campaign designed to get you on board with a trial subscription.

The teaser campaign is generally going out with two different headlines, one is “Worried Americans Tap into British Gov’t-Issued ‘Commonwealth Shares’” and the other is the somewhat more colorful, “My British Uncle Albert’s Filthy Rich Retirement Secret…”

As with many of the finer teaser from the folks at S&A, this one has a couple levels of complexity to get our juices flowing and build up the eager greedies in our minds.

The first part of the teaser is that whole notion of “Commonwealth Shares,” which they do sort of explain eventually, though I wouldn’t blame you if you chose not to read that far. They say that these British commonwealth shares were created in 1979 by a Thatcher program, and that they were opened up to foreign investors a bit later on, in October of 1986, to the enrichment of many.

They give plenty of examples, as usual, of folks who got rich from this investment — including one Erin Herrara, who reportedly told the Chicago Tribune that “it was so easy” to turn $200 into $5,000 and change.

I’ll buy that, as long as by “easy” they mean “saving for years and years and being patient.”

So these Commonwealth Shares, it becomes clear, are simply shares in companies that were privatized by the British government during the Thatcher reforms of the early 1980s — and, thanks to monopoly positions, government support, and an eager nation of investors, they certainly did very well. These were the old national companies that ran things like the railways, the telephone system, etc., and were gradually sold off to the public to be run, as they generally have been for many more years in the US, as public corporations.

And the stocks of many of these companies did indeed certainly do remarkably well — they give a few examples from the privatization in the UK (45,000% gains from British Gas, 62,714% from British Airways, etc.), and they cite a few reputable sources, though with just snippets of quotes, that back up their claim to some degree … here are a few of those:

“Quick easy money” — The Guardian.

Americans will be “drooling at the prospect” — Forbes

and

The “potential payoff is so large that it … promises to produce some of the decade’s best investment opportunities” — Fortune

But essentially, the riches from privatization in Britain have already been made — and there are certainly some concerns about the UK economy, seeing as how it relies at the moment on a very familiar foundation for us Americans, easy business and consumer credit and a wildly booming housing market. So they’re not urging us to rush out and buy British Airways or any of the other privatized industries, monopoly or no, in the British Isles.

No, they take it to the next level — and, as we follow the logic, they expand it to the rest of the commonwealth, the greater universe of old British colonies and places that generally followed the British tradition. Places like Canada, Australia, the UAE, Hong Kong, etc. They give some examples of how well this works, too, with the privatization of Cameco and Potash, among others that went public a bit more recently in Canada (and I expect we all know how spectacularly those two companies have done in recent years, with Cameco enjoying the uranium resurgence and Potash riding the agriculture/fertilizer boom).

And they also sneak in a teaser for one of the other privatized Canadian companies that has been around since 1832 and consistenly paid and raised dividends — just to give you a quick freebie, that one has to be Scotiabank.

And then we get to the real tease, the new ideas that we’re being teased with … if we’ll just sign up for a subscription. The newsletter isn’t all that expensive, I think it’s $99, but really, if you just want to know the name of a teased company or two, well, the Gumshoe’s your guy … and I won’t demand your $99. Not right now, at least.

So what are we actually urged to invest in now, to follow the strategy of these “commonwealth shares?”

Well, again that’s a two-parter. First, what’s the country?

They’ve selected a country that they think is the best place to look for “commonwealth share” investments. How do they describe it?

“What makes this place the best? Well, its economy’s growing even faster than China’s… the World Bank ranks this place as the #1 country in the world to do business, even safer and more credible than Britain or Switzerland… and it’s a longtime ally of America…”

And they mention that 1,300 US companies are setting up shop in this country as well, due to its business-friendliness. They even mention one specific one, a biotech company called Codex.

So … I don’t know if they’re trying to be sneaky or just had a typo, but the company is actually called Codexis, they’re based out of California and have a research center that they just opened in ….

Singapore.

Singapore has actually been ranked as the best place in the world for business for two years running by the World Bank, and some people call it the “Switzerland of Asia”, so they’re on pretty good ground there.

OK, so they believe Singapore is the best place to look for these “Commonwealth Shares.” Personally, I’m kind of with them on this — there are a bunch of Singaporean companies I like quite a bit, and I’ve considered buying the Singapore ETF recently in addition to my holdings in Keppel Corp, a Singapore conglomerate in the shipbuilding, real estate, and oil refining (among other) businesses. Just FYI, Singapore is largely a financial center so the ETF is very heavily weighted in banking.

But Keppel’s not the company they’re teasing here, nor are they pushing the ETF (though I think Robert Hsu has recently been teasing the Singapore ETF or a similar fund — the iShares ETF is EWS, and there’s a closed end Singapore Fund, too, that I’ve never looked at — ticker SGF). And God knows why you’d want to know which Singapore companies I like. No, they’ve got two other companies in mind, one in telecom and one in real estate.

The telecom one is teased thusly,

“a stranglehold on Telecomm throughout ALL of Asia, India, the Philippines, Singapore, Indonesia, and Australia – have been 3-times more profitable than Verizon over the past few years. According to company policy, they must pay out 40-50% of yearly earnings to shareholders as dividends, which they’ve done for 11 consecutive years. Not to mention, 4 enormous special dividends on top of that.”

That pretty nearly has to be Singapore Telecom (SGAPY for the 10:1 ADR on the pink sheets, which actually has pretty good volume), which is the big privatized wireline and wireless telecom company in Singapore — but, before you lose interest (Singapore isn’t itself growing quickly enough, or developing enough, to make their phone company a big grower), note that their international expansion is really the key for this company — they own big pieces of wireless companies in Australia, India, and all the other countries noted above. the Singapore market is growing at probably 1 or 2% a year for them, but the others are growing fast and furious and in some places they’re also taking market share. So that’s fairly appealing.

The dividend for this one is set, as with so many large foreign companies, as a healthy percentage of their income, so while it’s nice it’s not nearly as predictable as US dividends — if you say your dividend is just going to be 40% of earnings, that’s a different promise than the notion that you’ll have a steady dividend that goes up on an even path over time. Using the past 12 months as our guide, their current yield is something like 5 or 6%, but your mileage may vary. And the shares are down a bit from recent highs, so I’m actually a little tempted to dig deeper into this guy — I do like that they have strong pieces of the wireless business in India and Indonesia, two of the more populous developing Asian economies, and they seem to be a decent bet on my first glance. Maybe some more research ahead for me.

And how about the real estate one? Singapore embraced the REIT concept a bit later than the US did, but they did so with some real zeal, so there are quite a few strong REITs in the Singapore market, both domestic and regional operators.

The clues they give for this one are that it is focused on high end and residential real estate, and that it has paid a dividend consistently for 18 years, during which it has boosted the dividend 400%, and operates in some of the hottest countries in the region, including Singapore, China, Hong Kong, Thailand, Vietnam, Philippines, Malaysia, and Indonesia. They’ve also paid “special” dividends for 6 years in a row, generally pretty big ones.

I originally thought this might be Keppel Land, which is partly owned by Keppel Corp and does do luxury housing in all of those countries, but they haven’t paid dividends for quite 18 years or raised them to that extent, and they also operate in India and the Middle East, which would have been worthy of a mention. Nor does it seem to be CapitaLand, the biggest Singapore real estate company, or one of the listed REITs that they run.

And actually, I’ve run out of time so I need to cut it off there. I’ll keep checking up on which of the Singapore real estate companies this might be, or if someone else feels like chipping in on the research feel free to propose your solutions below.

Jim Jubak, who many folks like, has written about Singapore before, too, and generally has favored international investing — his favorite is DBS, a big bank, but he also mentions Singapore Telecom and some others in this recent article that makes a pretty decent case for investing in the country.

This is one place I’d love to visit — one of the smaller countries in the world, now that we’ve gotten a few centuries past the days of the mighty city states, and though it is technically a little island into itself, that’s really just by virtue of a river that separates them from the rest of the Malay Peninsula. So that’s our little geography lesson, Singapore is one of the world centers of shipbuilding and finance, and it has an enviable position on China’s doorstep that it has been profiting nicely from for years … and soon, they’ll have big casinos, too, what more could you want?

Oh, and just to note — the Singaporeans are not necessarily eager to lose control of everything. Companies I own shares in have been burned by the Singapore government on potential takeovers before, including Cemex’s thwarted attempt to buy Semen Gresik, their big cement company, and Seadrill’s possible plan to take over Apexindo, an oil services firm (both have since sold their holdings in those companies). I just realized that I’m a big giant idiot — I’ll leave this paragraph in here so you know what a bonehead I can be at times, but those are both Indonesian companies … they’re not based in Singapore, don’t know why I did that little brain freeze. Sorry.

To make up for that boneheaded paragraph, I’ll also let you know that Singapore is a hot exporter of one of the most talked-about things in the world these days: Sovereign wealth. Temasek is the name of the government’s sovereign wealth investment fund, and it owns chunks of many partially privatized Singaporean companies and is heavily invested in other large companies, particularly in Asia (with a strong recent focus on greater China) but also elsewhere in the world.

So … I left you hanging a little bit with the real estate one … sorry, will try to catch up to that one momentarily. But if you’re looking to investigate the “commonwealth shares” that S&A are teasing right now, Singapore, and especially Singapore Telecom is a place to start your research. Enjoy.

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This one came in as part of a teaser for a larger program, in an ad for the Alliance from Stansberry & Associates (that’s their package deal that gets you all their newsletters for one giant $5,000 upfront payment plus some kind of annual fee).

The teaser was very brief, but I thought it was interesting so I checked it out: The teaser is that this is like “owning the casino,” owning a piece of a firm that gets a little piece of every trade that they process on the floor of the New York Stock Exchange.

They say that the report on this company is worth $199 … but of course, your friendly neighborhood Gumshoe will take a quick look, gratis.

So, if you’re at all familiar with the New York Stock Exchange you know that this is going to be what they call a “specialist” firm — they’re the ones who actually run the floor trading and mediate the trades, the ones who are responsible for making sure that there’s a match between bid and ask so that a market can be made. And they do indeed make their profit from shaving a hair off of each side — getting a fraction of a cent on each share exchanged. They’re essentially like “market makers” on the nasdaq or for penny stocks, but a bit more official and entrenched.

So if it’s a “penny stock” and it’s a NYSE specialist firm, it’s pretty likely to be ….

LaBranche & Co (LAB)

All of the other firms, what’s left of them, are either private or divisions of larger banks and brokerages. I suppose it could be the ADR for Van der Moolen Holdings, which is slightly smaller and also priced right around $4 and change … but if so, you’re out of luck, as you’ll see in a paragraph or two.

I wouldn’t personally call it a penny stock, since it’s a $300 million firm, but I do know from past sleuthing that Stansberry’s folks are willing to call just about anything under $10 a “penny stock” — including some with market caps of over a billion dollars.

So … is there a point in being a specialist firm in this day of electronic and “hybrid” trading on the floor of the NYSE? Well, that’s certainly a matter for some debate. Taking the NYSE public was undoubtedly a great windfall for the specialists and other seatholders, since they were also the owners of the exchange, but I imagine it has made it much more difficult for the specialists to make consistent profits.

And that’s on top of the last major move before that, nearly forgotten now but probably quite significant in its impact, when the NYSE went to actual penny pricing instead of eights of a dollar — as you can imagine, there was a lot more room to squeeze a marginal profit out here or there when the spread was a bid of 43 and 1/8 and ask of 43 and 1/2, then today when you’ve got a much more efficient spread of a bid of 43.10 and ask of 43.12.

And indeed, their results have been declining … and their last 12 months was not profitable.

But the reason I wanted to note this one today is that of the seven specialist firms, two have decided to quit the business in just the past couple days — Van der Moolen Holdings and Susquehanna International Group have both decided that being a specialist firm on the NYSE is no longer worth their time or capital. And then there were five.

So what’s the problem? Well, the firms are under much more scrutiny now and can’t get away with much in the way of profits in their market-making business, and they also have to guarantee a market for the stocks so they have to take a beating in some markets. The specialists are losing market share to electronic trading and to other exchanges, and they have a very hard time, for the most part, making a profit.

I suppose that there may be some argument that LaBranche is a good investment because their stock list is likely to go up with the defections of other specialists, but in truth it’s very likely, in my mind, that their business is going to continue to deteriorate. It seems to me that the increasing move to electronic trading with little friction and few intermediaries is inexorable, and that betting against it is likely to give you a losing hand. But that’s just me.

Do note, however, how quiet the floor of the NYSE looks during the many CNBC shows that are set there — it’s no longer the constant bustle of specialists and traders, and really, it’s kind of sad. If it weren’t for all the flashing lights, we might really notice how few people are there. I would be more interested in owning any of the exchanges, including the NYSE, the CME, Nasdaq, or most of the others, than in owning a firm that relies on market making to register a profit.

If you’re interested in this one, one valuable thing to check out would be how much of the NYSE/Euronext LaBranche still owns — if any. In my largely uninformed opinion, that’s probably the most valuable thing on their balance sheet. And just to make clear that there is another side here, the NYSE is still trying to fine tune their trading rules to make the job of the specialist more appealing, and possibly attract some new firms to the business, so I may be too pessimistic. And analysts do think they’ll make a profit next year, though the forward PE is awfully high at 34.

Got any intersest in market makers, specialists or exchanges? Share your wisdom!