This year has seen more than its share of wildly successful investments, largely playing off of the pandemic — led by biotechnology stocks trying to treat, fight or prevent COVID-19 infections, and the (mostly technology) stocks that rode the accelerating adoption of remote work and play in the wake of “stay at home” and “social distance” orders from health officials.  You know the names… Fastly (FSLY), Zoom Video (ZM), Avalara (AVLR), The Trade Desk (TTD), Roku (ROKU), Novavax (NVAX), Moderna (MRNA), Inovio Pharmaceuticals (INO), and so many more.   Newsletter editors will be crowing about their success with these investments for years to come, so there’s little risk that we’ll forget the wild runs that many stocks had in 2020.

But that’s not what brings us here to give thanks this week… this week we’re here for the turkeys.  It’s time for our 13th annual Turkey of the Year unveiling, in which we identify the teaser pitch that provided us with the worst-performing, most-overhyped or otherwise just the goofiest gobbler of the past twelve months.  We try to avoid those that were just bad luck or bad timing, like maybe a hotel or travel stock that might have been recommended in February, but, like creating a great Thanksgiving dinner, it’s not exactly science.

This honor is not bestowed lightly — to be named Turkey of the Year in Gumshoedom, you must have been a truly awful stock idea, chosen within the last twelve months, and, preferably, you should stand for all that is entertaining (and misleading) in stock newsletter teaser ads.

Most years, we’ve got plenty of candidates… over-promised technology names, failed biotech trials and over-hyped mining stocks tend to fill out the bottom of the Teaser Tracking spreadsheets here at Stock Gumshoe in any given year, with the occasional smattering of fraud and bankruptcy, so who are the most promising nominees for our annual prize?

The time frame we work on is “about a year”… but it wouldn’t be fair to call out a Turkey just a month or two after it is teased, so we actually usually go from September to September to see what pick to highlight.  And that means there are a few marijuana teaser picks from last year that could get into the running, like Flower One or Halo Labs from a Matt McCall “Marijuana Moonshots” teaser pitch in the Fall of 2019, but most of the candidates were teased in 2020 (and, to be fair to Matt, his four picks teased in that pitch included two 80-90% losses and two near-100% gains, from Innovative Industrial Properties and Planet 13 Holdings, so the “moonshots” come out close to even at this point).

But this year is different. It has been maybe the worst year for real life that most of us can remember… but it has also been among the best years for many investors, so the worst performers are not quite as bad as is typically the case.  Teased stocks tend to be story stocks and interesting names, not the boring “old economy” stocks that are harder for copywriters to “sell” (and had a harder time for parts of 2020), so the performance of the teaser stocks we track has actually been quite phenomenal this year. The big challenge for most of the stocks near the bottom of the tracking spreadsheet for 2020 (so far) has not been that they showed a huge nominal loss, few are even close to 50% losers, the challenge has mostly been that the relative performance is bad for some.

This is, frankly, a shock to the system for your friendly neighborhood Gumshoe — I can’t think of another year when there weren’t at least a few real train-wreck 80-90% losses on the spreadsheet by this time in November, or when we’ve ended the year with the average teaser pick beating the S&P 500 (that’s where we are today, about 55% of the stocks teased have beaten the market average — usually, that number is closer to 35% at the end of the year… and we also have an unusual number of 200-300% gains in these teased stocks).

So in this lucky 13th year of the prize, our Turkey won’t be a full-on disaster… just a relative one. For much of the year, just picking an S&P 500 index fund would have given you great returns, so picking something that’s even mediocre, let alone actually a poor investment, was enough to show a relative loss of 60, 70% or more even if the stock only really lost 20-30%.

Gilead (GILD) is one example of that — the stock was teased by Ray Blanco at Agora back in early April because of its Remdisivir drug that was an early COVID-fighting candidate, and the stock at the time was bid up because of that enthusiasm, priced around $77 a share.  It’s still in decent shape, down about 22% in the $60 neighborhood, but because you would have gotten a 40%+ return just from buying the (then beaten-down) broader market at that time, that’s a huge opportunity cost loss — compared to buying the S&P 500 on that same day, your Gilead purchase choice led to a ~65% loss.  (Blanco’s other COVID picks at that time were identified here as Regeneron (REGN) and Inovio (INO), both of which also disappointed from that inflated starting point… but not quite as much.)

But while it clearly got a little overpriced because of the COVID enthusiasm, just like the vaccine and other “COVID story” names did, I really can’t call a 20% loss in Gilead the “Turkey of the Year.”  We’ve got to have at least a little more dramatic weakness in the nominal returns… and on that front, we’ve got a few reasonable choices:

There’s Frank Curzio’s repeated pitch of Wrap Technologies (WRTC) in June, when it was near $10 a share… but, to be fair, he has also been pitching that one pretty consistently for more than a year.

And we’ve got Jeff Siegel’s pitch for Captiva Verde (PWR.CX, CPIVF) in his “Magic Molecule” spiel (now updated to be “Molecule 520”), though that’s obviously a teensy high-risk stock, and was a secondary penny stock pick in that ad, his first pick in that pitch has so far done very well (that’s MindMed (MMED.NEO MMEDF), the “magic mushrooms” idea, obviously highly speculative but currently one of the top performers for the year).

Some consideration was also given to George Gilder’s pitch for QuickLogic (QUIK) in his “15G Moonshots” pitch in April, but that one didn’t stand out as being particularly over-hyped, it was a little bit of a guess on my part, and it was a nanocap stock at the time (market cap was around $35 million, now $30 million), and, perhaps more importantly, it wasn’t really the main focus of that ad (Gilder pitched seven or eight stocks at the time, this wasn’t a headliner in the spiel).

But our winner, and the one that stands out just a little bit from the pack, is a stock that was pitched as perfectly poised for the technology trends that we all see, and should have finally become a splashy and exciting idea after so many years of disappointment… and yet, it didn’t (and it’s now back to below its 2010 IPO price again).  Our Turkey of the Year for 2020 is Limelight Networks (LLNW), teased by Andrew Snyder over the summer for his Manward Letter.

This is one that I feel a little bit bad about, to be clear, because it’s not an obviously disastrous idea… and  maybe one  of the others would have risen to the top spot if I were looking at this on a different day.  That’s the risk of the scientific analysis behind the Turkey of the Year call which, under the benevolent dictatorship that is Stock Gumshoe, is pretty much “whatever Travis decides.”   This is the first time I’ve picked a “Turkey of the Year,” in my memory, that I’d also say it’s a a stock I’d be willing to take seriously if I were analyzing it today.

I wouldn’t buy it, to be clear, but I’d take it seriously.

Here’s a bit of the beginning of Snyder’s spiel from back then:

“The ‘Must Buy’ $5 Tech Stock

“Amazon, Apple, Netflix and others have invested BILLIONS of dollars in this ‘Atlas Technology.’ And now – because of COVID-19 – an obscure leader in this explosive field is set to skyrocket.”

And here’s what I wrote in my Quick Take for the Irregulars when I posted that article, on July 1:

“Andy Snyder is pitching Limelight Networks as a huge winner from increasing web traffic and the boom in video streaming — What he refers to as “Atlas Technology” are content delivery networks (CDN) that distribute content closer to end users and balance web traffic to enhance speed, and LLNW has been a niche stock in that business for a dozen years, competing with Akamai (AKAM) and others. The reason for hope is that Limelight, though it has been hugely disappointing for ten years, is really optimized for video streaming and should be doing much better in this marketplace. They’re showing the first signs of that, with a bump up in revenue growth over the past couple quarters, and some news that Amazon, one of their big customers, might ramp up its video offerings, and that led to some analyst upgrades in the past week or two. I’ve seen these hopes rise for LLNW in the past, only to be dashed by more weakness, so I’m a little jaded on this one but it’s possible that they’re finally turning the corner, and they are, at least, trading at a very reasonable valuation compared to the higher-growth darlings I own in this space, like Fastly (FSL) and Cloudflare (NET). Personally, I’ve already got a lot of exposure to stocks with similar drivers in streaming video and CDNs (TTD, ROKU, NET, FSLY, etc.), so I’ll just wait and see what LLNW says about Q2 coronavirus streaming demand when they report on July 20.”

And here’s how I closed that article, in case you’re curious:

“In our old neighborhood in Washington, D.C., we used to run into a little dog named Cal Ripken, Jr. at the dog park… he seemed cute, he wagged his tail, he would always walk over and look friendly, but then whenever my wife would lean over to pet him, he’d try to bite her hand. That’s how I feel about Limelight Networks… it’s been teased many times by a variety of newsletter pundits as the small-cap heir to Akamai, and I’ve written about it a number of times over the years as it always seemed like it should be doing better given all the trends in their favor, particularly the explosion of streaming video, and yet every time investors have bought on some good news in the past nine years, it has come back to bite them on the hand. It does look genuinely more positive this time around, with a little bit of revenue growth under their belt and a relatively low-risk valuation, but it’s hard to lean down again when Cal Ripken, Jr. has tried to bite you five or six times.”

And since that day, the stock has lost about 44% of its value… not so bad, particularly for a Turkey of the Year, and Snyder actually called this as a $5 stock so, if you bought back when it was at that price, your returns would have been much more middling (timing matters — if Fastly (FSLY) had been aggressively teased at $120 in October instead of at $20 in February, it would have been a Turkey contender as well).  

But going by the roughly $7.75 share price LLNW had at the time we covered the tease, that’s pretty much the worst nominal return of any stock pick teased this year… and since the S&P 500 has now provided a 16%+ return since early July, the relative loss is about 60%.  Still among the best-performing “Turkeys” of the past dozen years, but, well, it’s investing — everything is relative.    Maybe this one is getting the nudge because it happened to be near its 52-week high when we got the teaser pitch, but still, it was reliably near $6 or above for much of the summer… and this week it’s around $4, so clearly something’s going on.   What is it?

Well, Limelight did actually post a “beat and raise” quarter in late July, posting revenues that were a couple million dollars ahead of expectations, and three cents in earnings on the quarter when only one cent was expected… but then three months later, in their third quarter report in October, they disappointed in roughly equal measure, missing the earnings forecast and reducing their earnings guidance for the year (and failing to raise their revenue guidance).   All that sits in the “they’re doing OK” area, I’d say, but it’s admittedly somewhat shocking that a company who relies on video streaming and a video-focused content delivery network is having such a “failure to launch” moment here — they’re expected to grow their revenues by 15-20% in 2020, which sounds fairly impressive, and is a bit better than the muted expectations underpinning industry leader Akamai (AKAM), but is nowhere near enough to get anyone feeling lusty about Limelight when compared to the much younger and faster-growing darlings on the block, Fastly (FSLY) and Cloudflare (NET), who are growing more than twice as fast.

The third quarter report was really indicative of that, and of the challenge that technology companies face who are growing but maybe haven’t hit a critical tipping point for profits or explosive growth. Limelight posted third quarter revenue that was about 15% higher than a year ago, but they also had to raise capital using convertible debt, which is not necessarily evil and might help them with future investments, but is a small sign of weakness for a growth stock, and they say they’ve invested in extending and strengthening their infrastructure, continue to innovate in Edge computing and upgrading their live streaming capacity, and build new customer relationships around the world, and that they’re well-positioned for growth.

The third quarter is also tough to judge for these kinds of companies, because it tends to be the slowest quarter most years — but the comparison to peers is still unflattering. Relative dinosaur Akamai (AKAM) grew their revenue at 12% in the quarter, and their revenues are about 15X Limelight’s, so math would tell you that growth should be a little tougher for them. Akamai’s second and third quarters showed the best revenue growth numbers they’ve seen in five years, while Limelight peaked right before the pandemic… perhaps because Limelight’s business has been more reliant on those big, live streaming TV events (like livestreaming concerts or sports), it therefore hasn’t necessarily been a beneficiary of more video streaming in general.

And, of course, Cloudflare (NET) and Fastly (FSLY) posted much more dramatic and often accelerating revenue growth this year, including in the third quarter (NET grew revenues at 48% and 54% the past two quarters, FSLY at 62% and 42%). Whatever the reason, Limelight’s failure to have a blowout-great year as an established Content Delivery Network is clearly a surprise and disappointment for investors.

Then again, I must remind you, Cloudflare trades at almost 50X sales, and Fastly about 30X. Limelight changes hands right now at about 2X sales.  Limelight is a much less efficient operation than those much larger upstarts, their gross margin at 30% or so is half of Cloudflare’s, but none of them are profitable, and Limelight actually loses less money than the others at the moment… and is growing. And you’ll find plenty of folks who are excited about it at these prices, and think it’s poised for great things now — including some Motley Fool writers who call it “cheap” or a “screaming buy.”

Man, it almost makes you want to reach down and pat him on the head again, doesn’t it? Will he bite this time?

I don’t know what will happen with Limelight Networks, and it’s obviously a more rational investment than many of our past “Turkeys,” maybe it will even do better than those sexier CDN and edge computing stocks in the years to come.

One of the great and perpetual temptations of individual investors is to buy beaten-down companies because they’re “cheap” — so have any of our past Turkeys recovered?  Is this a signal that maybe it’s time to buy, because it can’t get any worse?

Um, not really.  Occasionally there’s a little recovery, but Turkeys don’t often bounce very well (frozen or fresh)… so with the caveat that yes, this year is a bit different, here’s a little history of the award for you…

Last year, marijuana pretender Crop Infrastructure (CROP.CX, CRXPF) won in a photo finish over biotech story stock resTORbio (TORC), both of which were teased by competing Angel Publishing pundits (Alex Koyfman edged out Jeff Siegel on that one)… and the Turkey of the Year award doesn’t appear to have been the bottom for Crop, which later restructured and renamed itself Vert Infrastructure (VVV on the CSX), is now suspended from the Canadian Securities Exchange (which, not to insult anyone in particular here, is kind of like being so stumble-down drunk that you get thrown out of the seediest bar in town and decide to sleep under the railroad bridge), and will presumably disappear completely at some point (it stopped trading on that exchange on August 10, though every once in a while a few thousand dollars worth of shares still trade OTC in the US).  They haven’t filed with Sedar since June.  Put a toothpick in that banana bread and it comes out pretty clean — I have not done any further research, but I expect they’re probably done.

The second-place finisher last year, as a point of curiosity, also saw the wisdom in changing its name and restructuring after that ignominy, but the stock has held up a bit better — resTORbio did a 7:1 share consolidation (sometimes called a “reverse split”) and finally completed its merger with Adicet a couple months ago, so it has bounced back a little from the lows of last November and has posted a return of close to 50% since our last Turkey of the Year announcement… though shares are still, we should note, down 75% or so from where it was teased earlier in 2019.

And the 2018 winner was Indivior (INDV.l, INVVY), teased by Chris Mayer… whose work I often like, and who shortly thereafter retired his newsletter, coincidentally.  That was down about 65% when we covered the “win,” and it fell another 80% or so over the following year — it did get a little surge in recovery this year, but it never got above the price it was when we bestowed the coveted Golden Gobbler on Mr. Mayer.

Before that, it was Cabot’s pitch of Aqua Metals (AQMS) that won the prize in 2017… a business model that sounded appealing but never quite worked as teased, and a stock that had fallen about 80% or so before it got the “Turkey” win.  And has fallen another 70% or so in the three years since then.

That is so often how it goes, sadly enough — we are tempted to bottom-fish, it’s just human nature to want to prove ourselves to be smart and contrarian and turn other peoples’ trash into treasure, but so often the collective wisdom of the marketplace tells us when we just aren’t getting it.   Those companies still exist, with the possible exception of Crop Infrastructure, and Indivior might even tempt folks a bit as it holds onto a billion-dollar valuation, but over the past dozen years that’s an exception.

How does a stock end up being a 99% loser?  Well, first you fall 90%.  Then you fall another 90% from there.  It is cruel math, but no matter how much a stock has fallen, there remains the real possibility, even the probability in some cases, that you can lose 100% of your investment if you buy it today.

So if you want to take a trip down memory lane, we’ve been doing this since 2008 and you can go a little bit further back to see how those Turkeys matured… visit with past Turkeys SunEdison in 2016, CT Partners in 2015, Solazyme in 2014, HRT Participa in 2013, Gasfrac in 2012 (even the company that bought Gasfrac’s assets out of bankruptcy several years later, STEP Energy, has lost more than 90% of its value since), Tengion in 2011, SuperMedia in 2010 (that one recovered briefly when merging with Dex One, but has now been through at least one more investor-destroying bankruptcy), Raser Technologies in 2009, and Potash North in 2008.  I may have missed something, but I’m pretty sure that’s nine years in a row of 100% value destruction for investors in those Turkey of the Year names — there’s a reason why I didn’t supply any tickers in that list, it’s because essentially all of these names stopped existing as investments.  Often when the Wall Street voting machine says you lost, you stay a loser.

That doesn’t mean Aqua Metals, Individor, or Crop Infrastructure will join them in hitting ~100% losses eventually… or that today’s winner, Limelight Networks (LLNW), will extend that list of dramatic failure… but I’d hesitate to bet on them.  Though I would, to be fair, buy Limelight Networks before I bought Aqua Metals, Indivior or Crop/Vert Infrastructure (and it wouldn’t be a close call between those four).

A few caveats for this whole exercise, just to be clear:

1. As always, we don’t know what the specific advice was from any of these newsletters — maybe they doubled down on the stock when it dropped, maybe they stopped out or changed their minds the day after we covered the tease, we don’t subscribe so we don’t know… because all we know about a stock is when it was teased as a world-beater, we set our tracking to just assume that you bought the stock on the day the newsletter teased it and held it forever.
2. And as a corollary to that, this is not necessarily a reflection on the newsletter pundit who promoted the Turkey — yes, we should use this moment to remind ourselves that the marketing pablum skews our perception and has to be actively ignored, but sometimes the newsletter editors don’t even really have anything to do with the teaser pitches their publisher uses… and the overall performance of a newsletter’s portfolio is presumably often different from the performance of their most actively touted “teaser” stocks.
3. I am far from perfect, of course. I make dumb decisions and choose bad investments sometimes, too (though I at least don’t promise anyone they’ll get 5,000% gains by following my ideas), and this is not necessarily meant as a criticism of those particular newsletters — I think of the annual Turkey Award as being a bit more light-hearted than that, since we all do dumb things sometimes, but also as a reminder. Sometimes it’s important to remind ourselves that these promises of grandiose gains are marketing gibberish, and the best way to do that is by looking at a stock that seemed so enticing when it was promoted as a life-changing company a few months ago and now looks, without that glare of heated marketing hype, like the boring old also-ran that it probably was all along, if we had only had the patience to think it through back then.

And to close, as usual, I should share what I consider to be my biggest turkey on the year… which stock have I been most wrong on, or where did I make a particularly boneheaded call? From my Real Money Portfolio there are usually plenty of candidates, though, as with the broader newsletter world, this has been an awfully good year.  What have my worst investments been this year?

Well, the portion of my portfolio that I set aside for hedging, mostly by buying puts, has largely stunk… which is certainly fine by me (that means the market has done well)… and I’ve had plenty of errors of omission, being too skeptical of insanely successful investments (Zoom Media (ZM) comes to mind), and quite a few stocks that I sold too early and went on to soar afterward (Simulations Plus, II-VI and Disney, to provide a few “sold in the March collapse” decisions that turned out to be mistakes), to say nothing of the fact that some of my options speculations resulted in 100% losses (though that’s not a surprise, I always assume that the majority of my options speculations will lose 100%, and count on my occasional 1,000%+ gains to keep that portion of the portfolio going).

I’ve also had several stubbornly-held long positions that have certainly done worse than the market, like Fairfax India (which I don’t own any more) and Altius Minerals (which I d0), but when it comes to actual new investments that I made with real money over the last year, and lost money on, I guess the one that rises to the top of the pile is Gilat Networks (GILT). Irregulars who scope out the Real Money Portfolio will note that this only showed up as about a 25% loss, since I sold at a stop loss when it became clear that their merger deal was failing, but if you total the whole investment, including my options speculation on that merger going through, my “money at risk” probably ended up losing a third of its value in that name… and in a pretty short holding period, on a fairly large chunk of my portfolio, roughly a 2.5% position, so that was sharp enough to feel even if it didn’t really draw blood or leave a scar.  I was overly confident on that one, in retrospect, particularly given that it was really a merger speculation and not a deep fundamental dive into a stock I really liked and understood well. Here’s what I said at the time that I gave up:

This was never a long-term position, just intended as a play on the merger going through with a relatively high return potential given my assessment of the risks — the risks were never zero, and the suit by Comtech is the first indication that they’re dissatisfied with Gilat’s performance in the regulatory review process and/or want to negotiate a better deal, and that means I will take my loss, thankfully fairly small, and walk away with my tail between my legs on this one.

Gilat, incidentally, was also close to being in contention for the Turkey of the Year — at this point is it down about 35% from where E.B. Tucker started teasing it as a “5G Master Key” stock in January.

And that’s all I’ve got for you today, dear readers — if you’d like to clear your mind for the year ahead by sharing your personal Turkey of the Year with us, feel free to do so in the comments below. (I recommend it, rethinking your losers can be very cathartic — and writing down thoughts about your investments, good or bad, usually inspires deeper thought and sometimes helps with future decisionmaking.)

So I’ll close by giving thanks to you for your time, and thanking the powers that be for the silly promises and ridiculous hype that allow us at Stock Gumshoe to stay busy, digging through clues, revealing “secrets” and helping individual investors think for themselves… and don’t worry, we won’t forget the winners, we’ll focus on the best picks of the year as Baby New Year prepares for the unveiling of 2021 in five weeks or so… and, of course, we’ll be back to de-tease, demystify and edutain you after the Thanksgiving holiday.  Stay safe, stay well, and stay tuned.

Disclosure: Of the stocks mentioned above, I currently own Altius Minerals, Amazon, Apple, Avalara, The Trade Desk, Roku, Cloudflare and Fastly. I will not trade in any covered stock for at least three days, per Stock Gumshoe’s trading rules.