A $6 Stock for 7 Cents … and a 12% yield to boot?

By Travis Johnson, Stock Gumshoe, August 6, 2010

I’ve been saving this one for the Friday File, since it’s one of several similar stocks I’ve been thinking about for my own account — though I haven’t invested in the company as of now (and won’t for at least three days, per my rules).

The teaser came from the same ad as the SVB Holdings hint parade by Braden Copeland for Stansberry’s Investment Advisory (remember, this was teased as “pre-IPO shares” a couple weeks back, and the same ad is now circulating with the headline “Take a Flyer on the Silicon Valley ‘Tech Stock Jackpot'”).

And I know some folks are intrigued by Silicon Valley Bank — I don’t have anything against the stock, but I did think that the second investment that Copeland teased in the ad sounded a bit more intriguing. So let’s dig into it, shall we?

Copeland’s ad teases this as “A $6 Stock… for 7 Cents” and tells us that we can buy a company that essentially does venture capital funding for the energy industry … and that also comes with a 12% yield. Sounds interesting, right? Let’s look at the clues and find out if the reality is as intriguing as the tease.

“…like the Silicon Valley operation, it collects warrants on different companies.

“But instead of tech firms, this company is focused on energy.

“Over 33% of the companies in their portfolio are tiny oil and gas firms — everything from explorers to producers to service and pipeline companies.

“As you know, worldwide oil demand is going nowhere but up. New technologies have re-opened wells long thought abandoned…

“Oil shale, oil sands, a booming China…

“All of it has created a whirlwind in the energy markets as oil firms big and small have exploded.”

So there’s an assumption in there that wouldn’t have been accepted as blindly 18 months ago — the premise that oil demand is going “nowhere but up.” In the long term, I happen to agree that this is true, at least for the next decade or so, but it’s worth remembering that if and when the global economy collapses, it necessarily crushes oil demand. At least, that’s what folks feared during the financial collapse, when oil fell so dramatically (going down roughly 75% from the Summer 2008 all-time high price in just about six months). Still, oil prices recovered quickly, energy demand seems still ...

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