This teaser for one of Andy Obermueller’s newsletters has been making the rounds for a while, but it has so many aggressive predictions in it that the questions about it roll in to Stock Gumshoe HQ pretty regularly … so let’s see if we can pick out a few of his hot “investment opportunities,” shall we?
This newsletter is one of three that Obermueller edits for StreetAuthority, and like a few other newsletter folks lately he’s been moving backwards — he’s had expensive letters for a year or two now, including Government-Driven Investing (about $500) and Fast-Track Millionaire (about $1,000), but he didn’t have the nice little cheap newsletter to entice new subscribers (who he can then urge to “upgrade” to the fancier new model with the undercoating and the heated seats). That changed recently with the introduction of this Game-Changing Stocks (apparently hyphens are de rigueur at StreetAuthority), which fills in the “less than $50” slot in the lineup … and he’s introducing that newsletter to potential subscribers with this broad teaser predicting “10 financial surprises” that will be hot investments over the next year.
I can’t imagine that I’ll be able to get to all ten of them for you today, and some include only very scant clues so those probably can’t be specifically identified … but let me pull out a few that sounded at least fun, and, who knows, perhaps profitable as well.
With all the snake oil I take a dip in every day, I just had to look into the stock he’s teasing that apparently has a cobra venom painkiller … here’s how he pitches it:
“An astonishing new painkiller made from cobra venom will fly off the shelves in 2011… and push the stock of its maker up +568%…
“Cobra venom paralyzes nerves and stops the pain. It has been used in China for hundreds of years to kill pain. It’s all natural, non-narcotic and, because it’s topical, it works fast.
“You say you don’t have any spare venom handy? No problem. Now you can buy it as an over-the-counter painkiller in thousands of drugstores.
“The painkiller market is so huge that getting even a tiny slice of it can make you a fortune.
“Americans spend $25 billion a year on pain-management products. Pain is the reason for half of all doctor’s office visits. 25 million Americans suffer from acute pain and another 50 million experience chronic pain, such as from arthritis.”
Actually sounds kind of real, no? Pain is certainly a major market, though it’s also an extremely crowded one. How about some more about this company and that 568% gain potential?
“This new cobra-venom painkiller is used for “Stage Two” pain. That’s doctorspeak for pain that keeps you from sleeping or causes you to miss a day of work.
“You can buy a topical gel for joint pain or a one-ounce oral spray for lower back pain, migraines, shoulder pain and cramps. Each is sold as a one-month supply and costs about $20.
“The new medicine is already available at more than 30,000 outlets, including CVS, Walgreen’s and Winn-Dixie. A major marketing campaign has just been launched. If it captures just 1% of the market, that’s $250 million in sales. If that happens, this stock is at least a +500% gainer. Assuming a P/E of 15 and a modest 25% net profit margin (actually quite low for the drug industry) then the company would be worth $313 million, or +568% above today’s price”
Well, 1% can’t help but sound small and attainable … but it is, of course, neither, getting to that level of national acceptance and sales would take a big push and, unless the product really works spectacularly well and catches on, some luck.
But what you want to know is the name of the company, right? This is Nutra Pharma (NPHC, absolutely teensy and trades over the counter).
This stock has been around for quite a while and has a pipeline of clinical compounds that they’re trying to develop (ReceptoPharm is the division that does the actual science, apparently, the pipeline is here if you’re curious), but it really got interesting last year — in the Summer of 2009 they made some announcements about the patent filing, FDA registration, and marketing and distribution for one of their products, Cobroxin, and shortly thereafter some announcements about where the product was available for sale, and that sent the shares from about three cents to 75 cents, which was followed over the last year by a pretty quick fall back down to the mid-teens, the shares right now are about 16 cents.
And there is a marketing campaign behind Cobroxin, which is a homeopathic medicine that uses refined asian cobra venom (this is apparently an old treatment, cobra venom has been used for at least decades, but it seems it hasn’t been available (or at least, marketed) in a reliable and standardized formulation in the US. Their other product, a more powerful version of basically the same thing, is Nyloxin, which was also registered with the FDA later in 2009 and is also available for purchase now in both OTC and, apparently, also in a prescription dose and a veterinary version.
So will the stock really record a profit and hit Obermueller’s anticipated 500%+ gains? Well, I suppose anything is possible. I’ve never seen the products, but I see that they’re sold on the website and through a number of big national retailers, so I’ll take it for granted that the product exists and is available. If you look at their latest 10Q, you’ll notice that they had a big (for them) sales blip in the first quarter of this year of over $850,000, but that the sales dropped to $157K and change in the second quarter, which I’d guess is probably the result of their initial inventory building ans they sold these first big lots to retailers … so those numbers are probably skewed by an initial sell-through to their retail channels, but I imagine it will take a lot of marketing to break into this very big and crowded pain market.
The company continues to have several other products that are getting R&D attention, but the real focus is on Cobroxin and Nyloxin, so those will have to do very well for them to dig out of their hole — they’ve accumulated losses of a bit under $30 million, and even with their relatively significant sales boost in the first quarter they lost quite a bit of money
So maybe Obermueller will be right and this will be a breakthrough product that sells in the millions, or maybe not — and do note that the company has been nearly to $200 million in market cap in the past based largely on hype and promise, though it’s down around $40 million today. And they do have to raise a lot of money if they’re going to ramp up production and sales. Here’s an excerpt from the latest 10Q, just to give you the sober portion of your Nutra Pharma time today:
“The Company has experienced a net loss of $1,655,518 for the six months ended June 30, 2010, and has an accumulated deficit of $28,228,361 at June 30, 2010. In addition, the Company used $836,580 of cash for operations during the six months ended June 30, 2010 and had working capital and stockholders’ deficits at June 30, 2010 of $2,147,401 and $1,994,968, respectively.
“The Company currently does not have sufficient cash to sustain itself for the next quarter and will require additional financing in order to execute its operating plan and continue as a going concern. Management’s plan is to attempt to secure adequate funding to bridge the commercialization of its Cobroxin and Nyloxin products. Management cannot predict whether additional financing will be in the form of equity, debt, or another form and the Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In the event that these financing sources do not materialize, or that the Company is unsuccessful in increasing its revenues and profits, it may be unable to implement its current plans for expansion, repay its obligations as they become due or continue as a going concern, any of which circumstances would have a material adverse effect on its business prospects, financial condition and results of operations. Subsequent to June 30, 2010, the Company borrowed $190,300 from our President, Rik Deitsch.
“The items discussed above raise substantial doubt about the Company’s ability to continue as a going concern.”
So that’s one of Obermueller’s ideas, apparently — and as I noted it’s a teensy, teensy stock, so it may well be that if he gets a few thousand eager subscribers they could quickly become a big shareholding bloc that moves these shares substantially when he talks about the stock (less than $50,000 worth of shares changes hands on a typical day, so pretty much any news or touting can make the stock move).
Any of his other ideas sound as exciting as cobra venom? Let’s see.
He chats up lithium as the key component for electric car batteries, which we’ve seen before — here’s what he pitches:
“Lithium is the key component in next-generation electric car batteries, and it may prove as valuable as gold. The price of this rare metal has soared +233% since 2005. We believe further fortunes are in store for lithium miners and their shareholders.
“There is no direct play on lithium itself. So we’re buying the world’s #1 miner of the stuff. Because it is always sunny and dry in the Chilean desert, this company can operate year-round while its competitors must shut down their plants in bad weather.
“Even better, its ore is extremely concentrated. So it can produce lithium at a cost of $1.10 a kilogram. That’s -33% lower than one rival and -55% lower than another. That is undoubtedly part of the reason its stock is up +286% in the past three years.”
So that’s not a shocker of a recommendation, or anything brand new, but it is perhaps a reminder that when it comes to Lithium there’s really just one giant in the room: SQM (SQM), the Chilean fertilizer, iodine, and lithium colossus that dominates the market.
The shares have gone up nicely on the fertilizer recovery and on the resurgent interest in lithium ion batteries, so this is not a cheap stock — it trades for 28X next year’s expected earnings (that’s pretty steep for a stock that analysts are predicting will not grow much over the next five years, though obviously if lithium prices go ballistic they will probably grow earnings considerably). I’ve written about SQM a few times, and we’re also seeing quite a bit of touting for the second biggest publicly traded lithium producer (like SQM, not a pure play), Rockwood Holdings (ROC) — ROC is the ticker behind the teaser about the “battle for the third element” that I continue to see quite a bit of.
“Congress Will Pass a ‘Cap-and-Trade’ Carbon Tax in 2011. ‘Clean Coal’ Stocks Will Soar
“In 2011, Congress will finally create a market for carbon permits. Large emitters such as coal plants will be forced to buy these permits in order to operate.
“In effect, this is a huge tax on coal that we are all going to pay. Because coal isn’t going away. Cheap, plentiful and easy to transport, coal provides about half the power generated in the U.S.”
Well, I’d be delighted to see some kind of stable regulatory environment for pollution, whether it’s cap and trade or something else, though I doubt that we’ll see it next year unless a new catalyst emerges (political catalyst, not combustion catalyst). I agree that coal isn’t going away, though, and that we’ll probably continue to try to make it cleaner.
Obermueller speculates that if some kind of cost or tax goes in that it might be $12 for the emissions from one ton of coal, for example, which would mean that a company that could remove the emissions for, say, $10, would have a line out their door.
He doesn’t provide any more detailed clues than that, but I’ll throw out a wild guess about one of his stocks: he might include Fuel Tech (FTEK) in his clean coal group.
Again, I have no idea if this is true — I haven’t seen anything of his that specifically recommends FTEK, and he didn’t give enough clues to target one company. There are lots of micro cap stocks that are working on clean coal projects of one sort or another, but most of them seem to be little more than penny stock speculations without much in the way of business. FTEK, though I’ve avoided it in the past because they’re one of those stocks that always seems to have a promising forward PE and growth rate, but never actually gets a trailing PE (meaning analysts keep expecting them to turn a profit, but it doesn’t come through that way), is at least a real company with quite a few customers and some potential to grow.
They’ve fallen on hard times in recent years (the stock was around $40 back when they were breaking into China in 2007, for example), but the price has been pretty steady in the $4-6 range for the last six months. They essentially sell an injection system and the chemicals that are used in that system, all designed to help coal-fired burners (mostly for power plants) burn more cleanly and reduce slag and the buildup of nasty gunk, along with reducing the emissions of some dangerous chemicals. I mention FTEK as much because I keep coming back to check on the stock every few months to see if I can justify an investment as because it may be Obermueller’s pick here, but I haven’t become convinced yet of their competitive advantage — if you’ve got an opinion on FTEK, by all means, share with a comment below, maybe I’m too skeptical.
And I have to share just one more of his ten predictions and investment ideas, because, well, it’s an interesting story — he says we’re going to get a lot more oil spills, and he has a backdoor profit idea:
“Oil companies are drilling in deeper waters, as we saw with BP’s Deepwater Horizon spill. They are also extracting dirtier oil from places like the Alberta oil sands that have to be transported over long distances. That leads to problems such as the ruptured pipeline in July in Michigan.
“The $37 billion BP is spending to clean up the mess it made will end up well beyond the Gulf Coast. Across the country big clean-up companies have won hefty contracts to decontaminate the Gulf. In Washington “spillionaire” lobbyists are being paid huge sums to influence lawmakers on the cleanup.
“One obvious investment play is onshore oil drilling companies. Thanks to tougher offshore-drilling rules, companies that produce oil on land now have a big advantage.
“But a ‘sleeper’ play is a household name you might already have by your kitchen sink. It’s a common soap — and it’s the only product certified by the U.S. Fish and Wildlife Services to clean oil-drenched animals. The new demand to wash wildlife in future spills will no doubt boost this company’s profits. You’ll find this backdoor profit play in your free report.”
So this is probably a bit of a silly idea, but the only product certified for cleaning oil-soaked birds, and the product overwhelmingly used when you saw folks cleaning off pelicans after the BP spill, is Dawn. Which is made, as you may already know, by one of the largest companies in the world: Procter & Gamble (PG).
And no, no matter how many oil spills there are and how many bottles of Dawn it takes to clean off the birds, this is not going to be a significant driver of P&G’s business. Or even, probably, of Dawn sales, though Dawn donates thousands of bottles of the stuff to bird-cleaning groups and clearly enjoys some marketing halo from that effort (they even have a donation campaign, complete with pictures of cute baby penguins). PG seems reasonably priced with a mid-teens PE ratio, and continues to be one of the market’s dividend growth stalwarts, so I can’t say I feel strongly about either buying or not buying the shares, but don’t buy them because of the “backdoor” profits they might get from cleaning oily ducks. If you’re curious about the story, the Chicago Tribune ran a good article on the competition among cleaning products companies, particularly “green” product startups, to unseat Dawn … and on what an uphill battle it is. I particularly liked the quote, from a competitor that P&G has a “grand strategic plan to lock up the bird cleaning business in the U.S. and abroad.”
That may be true, I suppose, and it might help P&G’s image enough that they sell a few more bottles of Dawn, though that mega-brand already has more than a third of the market and it is still just a small portion of P&G’s huge stable of mega-brands (Tide, Duracell, Gillette, Pampers, Charmin, Cascade, Crest … you get the idea). And even on the flip side, I’d wager that if a few “natural” dish cleaning companies get their products into use on oil spills, Dawn’s sales numbers probably won’t change at all.
So that’s a handful of ideas about Obermueller’s predictions for next year … I’ll keep musing on the list, and will share some thoughts and tickers in the future if anything strikes me as interesting. I can’t say that my wallet is bouncing out of my pocket in my urgency to buy any of these stocks at the moment, but maybe I’m missing something terrifically exciting in these predictions … if so, please let me know with a comment below.