It’s a tradition to give thanks at this time of the year, and one of the things we are supremely grateful for is the never-ceasing parade of promises that the financial newsletter industry throws our way in their perpetual search for new subscribers. After all, without those overhyped promises in their teaser ads we’d have no use for the power of the Mighty, Mighty Thinkolator… think of the mischief that powerful machine would get into without a worthy challenger to keep it busy!
So every year, I look back on our tracking spreadsheets and see which of the terrible teased stock picks catch my eye — the “Turkey of the Year” is not always the absolute worst performing teased stock pick, but it’s among the worst and among the most aggressively hyped… and that’s saying something, since almost every teaser pitch focuses on the potential that a stock might double or triple (or better).
To give you some context, so far in 2014 75% of the teaser stocks we’ve revealed for your edutainment have done worse than the S&P 500. About a third of the stocks are in the green, but unlike past years there’s not a single stock in the teaser tracker that has doubled (or any that have gone down by more than 95% — usually we get at least one bankruptcy or complete washout).
I try not to bestow the title on stocks that we probably knew were total gambles that could evaporate instantly, like junior mining stocks or early stage biotechs, so we’re not calling out Alex Daley’s tease of Prana Biotechnology (PRAN) for Casey Extraordinary Technology, for example, and the wattle does not go to one of the tiny little nanocap stocks like Applied DNA (APDN, teased by Ray Blanco this year and Patrick Cox in past years) that’s probably just as deserving — but after browsing through the last twelve months of teaserdom one stock caught my eye, so this year the “Turkey of the Year” is one that failed not because of a FDA decision that went against them, or a mine that flooded, but because a big new project is starting even more slowly than thought, and, really, the business wasn’t nearly as good as management (or the newsletter) claimed.
And this was not a “flash in the pan” stock that was hinted at once by a small newsletter, it was aggressively teased multiple times by two different established newsletter publishers… and, as coincidence would have it, the stock has been going down for a long time but it really collapsed just in the last few weeks.
And really, probably the most egregious (or at least, poorly timed) pitch is Mengel’s for SZYM, since his spiel was based on the fact that you had to get in right away for a windfall from an upcoming announcement…
“Prepare yourself now for a $107,000 windfall…
“But only if you move BEFORE this company’s next big announcement””
That was on on October 1, and a couple weeks ago, on November 5, the announcement did indeed come — but contrary to the promise of a windfall, the announcement was that their revenue was failing to meet expectations, and that future sales would be even more disappointing because of problems ramping up their first huge, commercial plant in Brazil. The Motley Fool quite aggressively teased and touted Solazyme at an even higher price than The Crow’s Nest ($9.50 or so), but they did so much longer ago and didn’t as clearly promise a specific windfall within a short period of time.
Does this mean The Crow’s Nest or Motley Fool Hidden Gems are terrible? Not necessarily, we don’t know what they told their subscribers, or the dozens of other things they might have recommended to their followers beyond the heavily hyped pitches for Solazyme… and everyone, of course, makes mistakes. I make lots of them — I own one of the many other stocks that could have been a contender for “Turkey” this year, East West Petroleum, and have certainly owned or written favorably about many other stocks that have been clobbered over the years. The “Turkey” is Solazyme’s stock, not necessarily the folks who fell in love with it.
And does it mean Solazyme is a lousy stock to buy now? Again, not necessarily — it is a real company, despite the fact that its plant in Brazil is starting up in very disappointing fashion, and it might be that this washout will be enough to right the ship, reset expectations, and give them a chance going forward… they do have some financial flexibility, since they have enough cash on hand to cover their long-term debt, so they shouldn’t be on the verge of bankruptcy, but it is still a very challenging business, reliant on gaining new customers for their high-value-added oils and ramping up what is clearly a complex and challenging process to industrial scale.
There’s no way they can compete in commodity products (like transportation fuels), not with oil prices falling, but despite the past hype for Solazyme as a biofuel company they’ve seen that writing on the wall for a long time and have been focused on nutrition, cosmetics and specialty chemicals… areas with less price-sensitivity for differentiated products, but still extremely competitive markets. So there’s still the hope that the company can find customers… though they obviously have to fix the rampup of the Brazil plant first, and it’s clear that production ramp-up is going to be well below the projections for at least a couple of years.
What it really means, I hope, is that we can take this moment to be thankful for that big old lump of grey matter above our eyeballs — the frontal lobe of our brain that will help us to learn, once again, from the mistakes we make when we allow marketers and promoters to get inside our heads and plant dreams of wealth and windfalls. And when it comes time for our New Year’s resolutions we can resolve to be patient, to think things through, and, when gambling on wild stories and breakthrough dreams, to keep our bets small.
With that, I wish for you a wonderful Thanksgiving holiday… I hope you’re comfortably ensconced with friends, family, and happy memories, and that you can enjoy a nice long weekend of peace before we retu