2013 Turkey of the Year: Dry Holes in the Ocean

Happy Thanksgiving from your friends at Stock Gumshoe! Plenty of turkey here for a week's worth of sandwiches.

By Travis Johnson, Stock Gumshoe, November 27, 2013

Fanfare, please! It’s time, once again, for the Turkey of the Year announcement!

Every year, as millions of American families place a golden-brown turkey ceremoniously on their Thanksgiving table, we here at Stock Gumshoe try to pick out the most overcooked, overyhyped, and overstuffed turkey from among the hundreds of stocks we’ve written about in the past year. And yes, we make sure to pick only the one that’s already been chewed down to a carcass.

I should start by telling you that we’re really not trying to be mean, or to claim that the person who suggested this turkey is necessarily a lousy stock picker — everyone makes lousy picks sometimes, and we don’t know the “real” record of many of the folks we write about, we know only about the huge, outsize promises they make in their hyperbolic advertisements. The ads are pretty much all over-the-top, which is why we love them, but it’s only fair to see if their picks ever match that promise.

Nor are the stocks that we single out as Turkeys each year necessarily terrible investments for the year to come — though they tend to be lousy in more than one way. Gasfrac (GFS.TO, GSFVF) made the cut last year as our Turkey of the Year and is actually up a little bit over the last twelve months since that selection, though the neck-and-neck second choice, Poseidon Concepts, ended up going bankrupt a few months after Thanksgiving. Before that it was Tengion (TNGN) earning the coveted Turkey spot, a stock that was a regenerative medicine darling for a brief while and fell about 80% after it was teased … and has fallen another 90% since, serving as a nice cautionary tale to all the “regenerating body parts” investment enthusiasts out there (I’m looking at you, Organovo, you scare me!) as well as all the folks who see a stock that has fallen 80 or 90% and say, “hey, it can’t fall much further!” Remember — a stock, at whatever price it might be on a given day, can always lose 100% of its value.

Previous winners include Raser Technologies, which went bankrupt, and SuperMedia, which ended up going through a “lets go bankrupt together” party with Dex One and then merging with them, to create a new “new Yellow pages” company, Dex Media (DXM) that for some reason continues to attract at least a few shareholders (if you’re counting, yes, that means three bankruptcy filings for the combined company in less than five years), but at this point the stock — for those persistent few who held on through the bankruptcy — is, I think, only down about 50% or so since that won the Turkey Prize in 2010.

It’s been an unusually good year in 2013 (and late 2012) for the teasermeisters — we’ve been tracking the stocks that are teased and promoted by investment newsletters since 2007, and rarely have we seen a spread of stocks like you’ll see today in the Stock Gumshoe tracking spreadsheets. There are not a lot of stocks that have doubled or put up spectacular returns of several hundred percent as we were led to believe they would by the over-hyped ad pitches, but there are more that have gone up than down, and by a wide margin. And the average pick is up — only 11%, but still up (this is all simple averages from the time the stock was teased to today — nothing annualized or relative to the S&P, so for many of them the luck of when they were picked is important … like the lousy timing of the Mortgage REITs that were picked as “spread trusts” just before the interest rate panic in the Spring, some of those were down almost enough to be Turkey candidates).

It shouldn’t be a big shock that the teased stocks have largely been halfway decent, I suppose — it’s been a nice bull market for most of the past twelve months, with the S&P 500 index up better than 25% and a rising tide lifting almost all boats (unless your boat was made of silver, gold, graphite or another mined commodity), so we should expect that some stock pickers did well. Personally, my portfolio return has trailed the S&P this year, mostly because of a heavy weighting in commodity-related stocks.

So even though the overall picture for teased stocks is better than in a typical year — partly because we haven’t seen any of the stocks picked this year go to zero yet or lose 99% of their value, which usually happens for at least one or two of ’em — we do like to take the chance every Thanksgiving to, well, give thanks for the reality check that a nice strong whiff of the hyperbolic teaser ads gives us, for the interesting ideas that they sometimes send our way.

And more importantly, we like to emphasize the risks of buying a “story” or falling head-over-heels for a pitch by singling out one “Turkey of the Year” — one of the worst offenders in the world of hype and tease, and one of the worst few performers over the last twelve months. Pretty much every stock pitched by the newsletters and their copywriters in this way is a “guaranteed double” or a “possible 1,000% gain” or opportunity for “life-changing wealth” so we can’t narrow it down based on who makes the silliest promise … but we can find the promise that we think led to the most disastrous performance.

So who’s our “Turkey” this year? Well, even in a good year there were several decent candidates that lost more than half their value after we’d been “promised” that they were headed for the moon. We restrict the search to just the last twelve months, and base it on the overall return, not on any kind of annualized return or a “versus the S&P” relative return, we’re simple folk and we look just at the basic numbers for this purpose.

Top candidates included a few explorers and miners, like Eurasian Minerals (EMXX) teased by Karim Rahemtulla and Exeter Resource (XRA) teased by Chuck de Castro, both of which are down about 50% since they were pitched earlier this year … but really, that’s just too easy and none of them stand out from their peers much — most of the small gold stocks are down roughly as much or more.

And I was sorely tempted to give the win to North American Palladium (PAL) as teased by Peter Krauth, partly because he wasn’t teasing just the stock but also call options on that stock, which would have probably meant a 100% loss instead of the 70% loss we’ve recorded on the common stock on the spreadsheet.

We might even have to almost call it a tie, since PAL has collapsed in price even though the core metal they are mining, palladium, has only dropped about 15% since the teaser pitch came out in the Spring, holding up better than gold, silver, copper or most other commodities. So they can’t blame the metal for this one.

But no, we’ll stick with our guns and I’ll make the call for a single winner of the “Turkey of the Year” — and I’ll give this one the edge not only because it could have made it as the “Turkey of the Year” in 2012 as well (and arguably even in 2011), but because it was the single worst-performing teaser pick of this past year… and because I also owned it for a little while.

So yes, the Turkey of the Year for 2013 is HRT Participacoes (HRP in Canada, HRTPY on the pink sheets), the Brazilian oil explorer that has found gas in the Amazon, where no one seems to want it, and has found not much after drilling three expensive holes offshore Namibia, where hopes were high for the next big deepwater oil find to rival the nation-changing discoveries across the South Atlantic in Brazil.

Disagree? Feel free to share your favorite turkey candidate with a comment below.

HRT Participa is also a good example of the kinds of “story stocks” that can work out either very well or quite terribly — a company with a high-profile CEO and lots of cash to spend on a big exploration program … and these kinds of stocks have a tendency to catch the imagination of novice investors on the search for potential 1,000% gains on a big oil discovery … especially when, as with HRT, they’re relatively large and have a “name brand” and some media coverage — even after falling quite a bit for two years, HRT was still a That’s the sentiment that these kinds of newsletter pitchmen use to get new subscribers — in this case the pitch for HRT Participa was made by Byron King for his pricey Energy & Scarcity newsletter, and he stuck with it for a very long time (he may have been in and out of it over the years, I don’t know, but he first touted the predecessor in 2010).

The initial tease for this stock came before it was HRT Participa — back when it was little explorer UNX Energy in 2010 Byron King promised great things as they searched for oil in the “oil kitchen” offshore Namibia, a known gas area that geologists were convinced also hid a big oil field that was the “kitchen” feeding the large (and as yet untapped) offshore natural gas field in the same neighborhood. It was a convincing story, partly based on the fact that this part of offshore Namibia would have been right next door to the huge oil discoveries beneath the deep water offshore Brazil back in the days before the African and South American continents separated. It just made sense.

But little UNX, after being driven up by this potential and hope, ended up being acquired by HRT Participa early in 2011 — which would have worked o