I don’t usually write about stock promoters, because it’s usually baldly obvious that no one would say the wildly positive things they say about microcap companies unless they were being paid to say those things… and because most of the companies that are promoted in this way are really just “pump and dump” vehicles that outside shareholders use to drive up the stock so they can sell the shares they had previously bought on the cheap (promotions are usually not planned or paid for by the company itself, though sometimes companies do hire promoters to boost their shares — particularly when they need to raise attention because they need to raise money).
But sometimes I make an exception and cover the email ads that these kinds of folks send out — partly because some readers might occasionally need a reminder that promoted stocks are usually junk, and partly because a particular ad catches my eye and drives a bunch of questions our way.
This time it’s the latter — an outfit called Future Money Trends, which I don’t think I’ve ever heard of before, is promoting the idea that “Commodity Collapse Presents a Major Buying Opportunity” in a particular tiny stock… and they don’t name the stock, so it’s kind of a teaser.
But, interestingly enough, the fact that they don’t name it also means they don’t have to include their usual “we were paid to promote this stock” disclaimer in the email — so I don’t specifically know if they are being paid to promote this particular stock today, or if they perhaps sometimes also try to provide “unbiased” recommendations to folks who pay them. I’m not particularly keen on companies that ride both sides of this rail — be either a stock promoter or a stock picker, it’s really hard to imagine that you can be good at both.
Though the company in this particular ad is trying to sell their $9.99 per month 10-Bagger Letter, edited by Kenneth Ameduri, that’s published by CrushTheStreet, the disclaimers all link back to Future Money Trends (which Ameduri also owns, it appears) — which has a very fair and clear disclaimer that explains the many ways in which they and their clients have a conflict of interest with you… here’s an excerpt:
“Our activities involve actual conflicts of interest, since we receive monetary or securities compensation in the very securities we are promoting and shortly after we receive the monetary compensation we promote the securities or after we receive the securities, we sell the securities during our promotional activities or thereafter. The non-affiliate third party shareholder from which we receive compensation also has an actual conflict of interest since he or she is paying us securities compensation for promotion services and such non-affiliate third party shareholder may sell other shares he or she holds while we are promoting the issuer that issues the stock that the third party shareholder holds.”
So are they selling you this research because they like the stock, or is this just another way to be paid to promote stocks (or promote stocks on behalf of your own portfolio) and get a nice little “kicker” from the folks who sign up for your promotions, because they’re paying ten bucks a month to be in a conflict of interest relationship with you. I don’t know (yes, I have my suspicions), but let’s walk into the stock with our eyes open.
Here’s how Ameduri describes his “major buying opportunity:”
“Once I saw oil break $70 and free fall down below $50, I knew the opportunity of the decade would present itself… and it sure has!
“Companies across the board are trading for discounts anywhere between 30-90%, and a tremendous amount of value is out there and can be purchased for rock-bottom prices.”
He calls this the “10-Bagger Letter’s Energy Play 2015” … and, as you’ll find out in a moment, it’s a stock that we covered a few times when it was seeing sunnier days…
“Underneath the FutureMoneyTrends.com umbrella is CrushTheStreet.com, which hosts its very own premium newsletter, The 10-Bagger Letter. It is in the 10-Bagger Letter where a brand new energy play has been released. We truly believe this company is 1 in a 1,000, and it has appropriately been deemed the 10-Bagger Letter’s Energy Play 2015.
“This Energy Play Cannot Be Passed Up
“Since oil has pulled back, this stock is down literally 90%. For our 2015 energy play, just going back to its high in 2014 will make it a 10-Bagger, and even just the slightest uptick in oil prices could cause this stock to double and triple from where it’s at right now!”
So again, not really clear whether “premium newsletter” might mean “we like this idea even though we weren’t paid to like it” or not, but we do then get the clues that allow us to definitively tell you the name of the stock:
“Energy Play 2015’s cash position is $18 million, and it has a market cap of only $17 million….
“… currently trading around $0.15. Currently, management owns 15 million shares of this company at an average price of $0.65….
“Energy Play 2015 is in the sweet spot of an area that is expected to outperform the Bakken. In fact, they have quietly assembled a 2-million-acre concession in a region whose geological conditions for the production of oil and gas are actually far more promising than those in the Bakken….
“In 2014, this company received a major endorsement by Doug Casey, as it recently completed an overbought private placement with some of the biggest names in the junior resource sector buying into it as well.”
Ah, so now does it sound familiar? Yes, the stock he’s pitching is PRD Energy (PRD.V in Canada, PREGF on the pink sheets), a stock that Doug Casey and Marin Katusa and their colleagues were investing in and touting in 2013 (and, yes, in 2014 as well). That was one of the more heavily teased ideas in the second half of 2013 starting in earnest in August when they were trying to get investors into the stock before their exciting September 2013 drilling results were expected.
If memory serves they had some delays, and some disappointing drilling results, but the strong management team and the large potential kept investors interested, including Doug Casey et al who participated in private placements to fund more exploration in 2014 (before the price of oil crashed).
They have pretty large concessions spread around Germany, mostly in areas of historical oil production, where the hope is, at least in part, that modern drilling techniques can produce lots of previously unrecoverable oil. Marin Katusa was interviewed by the Energy Report back in August and had this to say about PRD (the stock was still around 90 cents then):
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“PRD Energy Inc. (PRD:TSX.V) is one that we follow. I own it personally, as does Doug Casey. It just recently completed an overbought private placement with some of the biggest names in the junior resource sector taking a lot of it. It has the largest land position in Germany and I’m very excited about it….
“It has drilled one well already and it plans to drill another three oil wells this fall on the Boerger site going after conventional production. The blue-sky potential on the company is its Posidonia Shale, but that will take at least three to five years to develop, and until then the company plans on going after conventional production.”
So… since then, the stock has lost more than 80 percent of its value and fallen to 15 cents, in concert with most of the energy juniors — anything happening other than the fact that oil has cratered and no one wants to buy little exploration-stage energy stocks anymore?
The company’s investor presentation is still using the far-sunnier numbers that were accurate in September — an 80 cent share price — but it otherwise sums up where they think they’re going, what they had planned for 2014 and 2015 drilling, and the long-term potential they see in the Posidonia shale (which would, presumably, require fracking — very much a touchy subject in Germany, and not part of PRD’s current conventional production plans). They do have $20 million in cash as of the September quarter, though the examples they provide in the presentation indicate to me that their drilling will cost $4-6 million/well, so unless I’m misunderstanding (always possible), that cash is likely spoken for if they’re continuing their drilling plans.
The only additional news that they’ve released since then is that they were, as of their “operational update” in November, in talks to try to accelerate the development of the Boerger pool where their one well has so far been drilled (and has produced some oil) — which might mean buying out their partner (or maybe even being paid to take the partner’s obligations, given current oil prices) or becoming the operator of the field, either of which might increase their costs as they try to drill at least two more wells in Boerger (at roughly $4 million each). They also said that their prospects were all viable at then-current lower oil prices, though they didn’t get very specific — and Brent Crude was at $78 in late November (it’s at $58 today).
So it may be that the prices have gotten a bit too low for PRD, if you think that oil will recover and that they’ll be able to get more approvals and accelerate their production drilling in Boerger and their exploratory drilling elsewhere (reading between the lines, it seems unlikely to me that they’re going to spend much beyond buying seismic data on the other fields without either much higher oil prices or a partner on board to share costs). But it’s clearly a speculation that the Boerger production will improve — and, probably, that oil prices rise — given their small size and remote location (remote compared to where oil industry assets are available, at least) it seems likely that they’re not going to be a low-cost producer even if they get their production volumes up considerably. The worst likely case is probably that their plan doesn’t work, and the stock continues declining slowly from here as they spend cash — but who knows, they haven’t reported anything of substance (no cash balance, no drilling news, no joint ventures, etc.) since they released their September data back in late November… and if they stay on the same schedule as last year, their 2014 final report may not be out until late April.
Anything can move a $100 million stock, like PRD used to be — so clearly it takes but a small exhale by Doug Casey to make a $20 million stock halve or double, and I have absolutely no idea where this stock is going to be valued in a month or two when they release results, or when they next drill a well. Think of all the people you know who invest or speculate in little energy stocks, and remind yourself that on a typical day PRD Energy trades only about $50,000 worth of stock — one decent-sized order can send the stock up or down by 10% or more with ease. I have no scoured their filings to make a guess about what the company’s value is, nor have I read through to see what they have to produce in order to generate positive cash flow, this one just doesn’t interest me in this environment… perhaps that means it’s so contrarian that it really will create fortunes, I dunno. If you do decide to dabble in something jumpy like this, please be careful — for stocks where the market cap is below a hundred million dollars and the future is extremely uncertain (at least to me), the only viable risk management strategy is position sizing (you really can lose your whole investment in the blink of an eye — so make it a small one).
But yes, the stock hits our radar again today because it’s being teased by a stock promoter for his premium service (and no, I don’t know Ameduri’s history at all — or whether his firm is usually successful in driving promoted stocks higher) … but I thought it was interesting that this old teased idea has resurfaced so I thought more of you might want to hear about it. And now, the company is worth substantially less than the $24 million they raised with their private placement last Summer that included participation from many resource investment pundits — so it’s a nice reminder that the most connected folks in the business certainly weren’t predicting $50 oil nine months ago.
With that, I’ll leave it to you to chew on the idea: Do you like PRD more or less now than when it was at 80 cents and Marin Katusa made everyone feel all tingly about it? Will there really be a European oil renaissance, thanks in part to Putin fears, that rejuvenates old wells and, perhaps, brings fracking to Germany? Let us know your thoughts with a comment below.