OK, so leaving aside the fact that if you ever see a subject line like that in your email, you’re probably better off just deleting it, let’s take a little Gumshoe gander at the latest campaign from Toby Smith’s ChangeWave MicroCap newsletter.
For those who don’t know him — and how you could avoid his presence, I don’t know — Toby is a frenetic, glad-handing, bombastic, and very friendly guy (I mean all of this in the most loving way possible, he’s just larger than life compared to many of the quieter, bookish newsletter guys). He fronts a few newsletters and manages his “ChangeWave Alliance” research group that polls users to plumb their experiences for stock ideas in exchange for a free subscription to one of his newsletters. I’ve heard from a fair number of readers who like his relatively low cost ChangeWave newsletter, but no one yet who’s a great lover of the MicroCap version. He’s also one of the talking heads on Fox News’ Bull and Bear financial show, though I’ve never watched it.
As you can imagine, microcaps have been a tough place to be during the recent “flight to quality”, which I suppose is why he is offering such a strident guarantee of your success with the names he has in mind. Just to be clear, this is his exact wording:
“… these stocks are a 99% sure-thing to quickly double your money when the current mess is over and the market, as a whole, comes back. (Yes, I’m holding back 1% of doubt – you and I both know there’s no true sure thing in this world outside of death and taxes. But in investing this is as close as it gets.)”
He teases three different microcap stocks in this teaser ad, and notes that we could pick up 100 shares of each with our “risk capital” (as if any of it is not “risked”) for about $500. For all three, not for each one.
His basic argument is that these stocks used to be higher, their businesses and prospects haven’t changed, and if the market recovers they should go back to their old highs. Maybe a compelling argument for some, arguing not for a reversion to the mean but a reversion to a high, but it reads a little thin for me.
Let’s look at them one at a time.
The first one: “Completely changing the networking game (Was $2.30. Now on sale for 80 cents)”
I happen to know that one without any more clues, since we’ve done it before, but just to keep you in suspense …
“This company has perfected and commercialized a new ‘switch technology’ that blows away the competition, including Cisco Systems.”
“Its breakthrough technology delivers up to 1,000 times the speed for about one-fourth the price of older technologies.”
“[how?] By using a series of small high-performance switches, connected by fiber-optic links. They behave like a single, direct switch – even though they’re separated by distances up to 25 miles! … Goodbye, hub and spoke. Hello HUGE PROFITS!”
This one is probably the Toby Smith microcap I’ve looked at more closely than any other, because it was teased so heavily that I wanted to watch how his recommendations and his ads might be moving the stock price. That writeup from August is here if you want to check it out, but if you just want the name of the firm it’s Raptor Networks (RPTN over the counter), it’s right around .86 cents at the moment, and it did indeed hit $2.30 or so last Spring. I owned shares in this one for a little while, mostly out of curiosity and a genuine appreciation for their technology, but no longer do — and I’m hesitant to give anyone a chance at taking share from Cisco at the moment, though when starting at such a low level I suppose improvement is always possible (famous last words of the microcap investor).
“How my computer problems can make you rich (Was $1.10. Now on sale for 30 cents.)”
“I got a “hot ticket” from one of our Alliance members about a tiny company, which he claimed had the game-over solution in this space. A no-brainer, one-step solution to backing up personal and business computers on a schedule you set. Just set it and forget it – their system does everything else. OK – I had nothing to lose, so I tried it… and I loved it.”
So this is one of the many computer backup service companies out there. What makes them stand out? Toby believes that they’re better because their system is easy to use, and because they focus specifically on this and don’t treat it as an afterthought like many of the bigger service providers in this space.
“The first really big market blitz targets the U.K., where they have teamed up with a retailing powerhouse that controls nearly 1,500 stores across 27 countries”
“Here in the U.S., its crown jewel is a strategic partnership with a PC heavyweight, complemented by other key deals with mid-market players.”
So, he likes it for these reasons, and because this is a “sticky” service that tends to be keep customers, and because of some potential for add-on profits when they help big service providers leverage their customer lists.
What are we dealing with here?
I can’t be absolutely certain, but I’m fairly sure that this must be SpareBackup (SPBU — also trades over the counter). It’s at about .38 cents today, though it has been as low as .30 cents in the past week, and it did get over a dollar a share for a while back in April.
SpareBackup does have a deal to have its system installed in private label PCs from Dixons, which is a huge discount electronics retailer in the UK and the rest of Europe — their market numbers roughly match up with the numbers teased above. They do primarily offer an online automated backup service for personal computer data, charging between $5-7 a month for basic services, and presumably they offer small business and other deals as well. I’m not sure what this extra service is that they’re talking about, which helps leverage the lists of other companies, but perhaps it’s as simple as selling their service to the customers of these companies, or offering private label versions.
Not tempted, personally, but perhaps it strikes a chord with you. I know backup is a potentially significant business, but I also am less inclined than Smith to believe that any one company is going to stand out dramatically and I imagine most of this business will end up going to free online providers or, for more sophisiticated or small business users, to whoever they already buy services from. Just my feeling, of course.
And there’s one more — I hope you’re enjoying this Gumshoe “Threebie.”
Pause to flex fingers in the manner of a piano maestro.
“Killer germs = killer profits (Was $11.40. Now on sale for $3.40)”
Three bucks a share, huh? This is the expensive one in the bunch. And the only reason that a hundred shares of each of these companies would run you as much as $500.
This is a company that has a “super oxidized water” treatment to kill infections, with the latest tease backup being its ability to kill the dreaded MRSA (methycillin resistant staph aureus) that’s currently running through pretty much every school system in the country from what I can tell.
This one is Oculus Innovative Sciences (OCLS) — it actually trades on the regular ‘ol Nasdaq, and it’s even covered by a couple niche analysts (one buy and one market perform as of last year).
Their product is called Microcyn, and it is indeed a super oxidized formulation as teased, and the prices over the last year match up (again, they hit that $11+ a while ago, back in July).
I don’t know anything about the product, though it looks to me like they’re still pretty early on getting it approved and used — they have a phase II trial for some kind of diabetic foot infection treatment using the product, and no doubt they’re exploring other avenues as well, but from what I can tell you’re not going to run into Microcyn at your local hospital anytime real soon.
They’ve got close to a dollar a share in cash, though they’re certainly not profitable. I haven’t dug further on this one, but if you’ve taken a moment to run through the OCLS filings, or have any experience with the company, I’m sure we’d all be delighted to hear from you.
Until then, take those microcaps with a grain of salt and a spoonful of sugar, and happy investing to all!