The pitch I got from Keith Kohl and Jeff Siegel for Green Chip Stocks is a great example of storytelling — Kohl catches your eye with that headline that says “Warren Buffett’s in, are YOU?”, and then links to a spiel from Siegel that talks about how “free electricity” ran some telegraph lines during a fluke event in 1859 and set the stage for your huge profits in 2015.
Well, I hate to give the story short shrift — it’s fascinating, after all — but here’s the two-minute version: Siegel tells the story of the Carrington Event, which was a major solar flare that caused a geomagnetic storm on Earth in 1859. It did indeed allow some telegraph operators to continue to send messages even with their batteries disconnected — though the storm, on balance, was not a “free energy” event but a massively damaging one for the telegraph system overall.
You can see the History Channel summary of the storm’s impact here, in a story that ran when we were bracing for another possible solar storm impact a few years ago (it missed us). If it happened today, a solar storm of anywhere near that magnitude would, of course, not be an energy boon of any kind — it would destroy much of our electrical grids and satellite communications and cause trillions of dollars in damage.
But the point really is not that these solar storms have any investment potential — Siegel uses them to draw your attention to the power of the sun, so that he could make an argument in favor of a tiny solar stock.
Sun powerful. Solar power cheaper and more widespread. You get rich from tiny stock. Over.
And yes, Warren Buffett does have investments in solar power, through Berkshire’s energy and utilities businesses — so although I suppose technically he’s “in” when it comes to solar power, and Berkshire is actively building solar (and wind) generation capability, please don’t take that to mean that he’s investing in solar power penny stocks like the one Jeff Siegel’s hinting about. Or even investing in solar technology on an equity basis — I don’t think any of the stocks in Berkshire’s portfolio are even close to being direct plays on solar power.
So, with that intro, what’s the stock? Well, let me give you a small taste of his ad first:
“Little did folks know back then that by 2015, this strange power surge would become critically important to the energy needs of future generations — and to shareholders of the company I mentioned earlier, which is actually tapping into this power source in a way that no one could’ve ever imagined.
“Forbes calls the company’s breakthrough ‘a massive opportunity’ and a ‘central driver for our future economy.’Are you getting our free Daily Update
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“I call it a once-in-a-lifetime opportunity — a ticket to a worry-free retirement and a massive fortune to boot!”
Not to give it away too soon, friends, but don’t try this trick in your next forensics tournament — this brings in two problems that are common to newsletter teaser ads: referencing a respected, recognizable or brand name media source as reporting on or effectively endorsing your stock, when really the source is an opinion commentary from a blog network or a press release (in this case it’s an opinion piece from Peter Diamandis, the guy behind the X-Prize — he’s an admirable evangelist for all kinds of abundance being brought by new technologies, but the words and thoughts are his, it’s not news reporting from Forbes); and taking an argument or quote that might apply to a broad sector or trend and implying that this trend or quote applies to a specific stock. “Massive opportunity” and “central driver” may well be true for solar power in general, over time… but they’re teasing a penny stock int his ad, this specific company is almost certainly not the driver for our future economy and is not mentioned in the most of the “solar will change the world” articles Siegel quotes, and certainly not mentioned by Diamindis.
If you can remind yourself to look for logical holes like that while you’re skimming the latest ad, and remind yourself that the ad copywriter is not obliged to follow the rules of journalism and can construct arguments that skip several steps and misquote almost at will by using clever implications instead of direct quotes, you’ll have a better chance of not getting sucked in to the inevitability of life-changing wealth (for Green Chip Stocks subscribers this time, though similar arguments are used by lots of promoters), and give yourself a little breathing space so you can think about the ideas they’re pitching a bit more dispassionately.
Sorry, got a bit off track there with my sermonizing… we do want to find out what company they’re touting, even if we know it will not be as awesome as the ad implies. We’re willing to invest in stocks whose merits are exaggerated by newsletter pitchmen… as long as there’s something there once we scrub away a bit of the hype. So let’s see how they hint at this secret stock…
“As you can see, solar energy is not a trend or a random event. It’s a full-fledged revolution.
“We’re witnessing one of the greatest disruptions in power production ever recorded in human history. And now, it’s about to kick into overdrive thanks to one company that you can actually buy right now for less than a dollar a share…
“Dollar-a-share solar stock set to soar 1,092%
“Here’s the thing… the tiny company I’ve been telling you about isn’t a ‘solar’ company in the typical sense; it’s in the applied materials and licensing business.
“Basically, it owns and controls 23 patents that are critical to the development of modern solar technologies…”
OK. Still holding on to some skepticism, but intrigued now… little companies whose patents are really powerful can scale up more quickly than companies who actually have to build factories and make stuff, so that’s one tiny check mark in the “positive” column.
How about some more clues?
“ABC News reports: ‘They recently got a call from the White House pleading the CEO to join an advisory group to give advice to small businesses.'”
Oh, criminy. Now I know who this is.
In case you’re curious, that call from the White House came in 2010. And, as I sift through the rest of the ad, I see that the other things he cites are from several years ago too… like the LA Times article about this company’s breakthrough (which is really about a different research project entirely), and the crap about how this company was “purposely designed from the ground up” to mimic the most profitable companies in history (Apple, Green Mountain Coffee and Pfizer are the three nonsensical comparators he pulls up).
So the ad is updated a bit, the numbers are changed a little, and solar power has come a long way in the few years since they started pushing this “secret” stock, but the stock being teased is still the same: this is Natcore Technology (NXT on the venture exchange in Canada, NTCXF on the OTCQB in the US).
Natcore has a few technologies that they’ve been trying to develop since 2010 or so — and they’ve made a bit of progress, it seems, but the arguments about the stock are still very similar to what they were in 2012 when Nick Hodge (Jeff Siegel’s colleague at Angel Publishing) was touting the stock for his Alternative Energy Speculator (which, after alt energy investing lost favor a few years back, changed its name to Early Advantage). The ad is extremely similar as well, with long sections of it just cut-and-pasted from that 2012 pitch (including the misleading news quotes that aren’t all really about Natcore).
The stock has been quite volatile around news and promotional activity, which isn’t surprising because it’s so small, and it’s been mostly weakening over time, from a high of about $1.30 per share to the current 36 cents per share (those are for the US shares — the Canadian results look slightly better, but only because the Canadian dollar has been falling steadily against the US$ for a couple years). Price erosion is also no surprise, or at least it shouldn’t be, because the company’s only real source of funding is new equity — they burn through three or four million dollars in cash each year on their marketing efforts, overhead, and R&D, and they have to raise roughly that much every year through a series of mostly small private placements (typically ranging from a few hundred thousand to a million dollars or so). That should become less of an issue for the next couple years, assuming they continue at the same pace of cash burn, because they now have an agreement in place to get $10 million in new equity financing from a private equity partner over the next three years, essentially a “line of equity” that they can tap whenever they want to… presumably when the stock price is relatively high.
Will the company ever turn into anything? That’s an open question, but they really haven’t yet, this is still a research startup that should probably be in an incubator somewhere waiting until their process is developed enough for Applied Materials or someone else in the industry to buy them out — it is, frankly, kind of surprising that they’ve been able to survive this long as a publicly traded R&D lab with a marketing department. They continue to test their technology and come up with different iterations, they have a Chinese partner who has tested one of their technologies in their production process with reasonable results, but there’s not much evidence of an urgent breakthrough that will radically transform solar cell manufacturing in short order.
Their raison d’etre is liquid phase deposition (LPD), a technology that they think can compete with the widely used chemical vapor deposition (CVD) technology — it’s pretty much what it sounds like, they apply their chemical layers to silicon in a liquid form instead of a gas, which means the process is less toxic and should be less expensive, because they don’t need a sealed, pressurized chemical vapor chamber (I’m probably getting the terms wrong somewhere along here, but you get the idea). They also are developing a laser etching process for making connections on the solar cell that they think will save another expensive step in the cell manufacturing process, and it’s now this second bit (the lasers) that will be their first path to commercialization.
It all sounds kind of interesting, and pretty cool, but, as with so many microcap companies that took some academic research, licensed it, and are trying to develop it, the problem is that the self-aggrandizing microcap company, which has to promote itself and get funding every quarter to keep the stock afloat, will always sound more impressive than the hundreds of labs inside of larger companies or academic research centers who are also working on improving solar cell efficiency and manufacturing. In order to maintain even a base level of healthy skepticism, I have to assume that the reality of the situation is less compelling than the promotional material.
Which isn’t to say Natcore isn’t doing anything, or mightn’t eventually get someone to adopt their technology — they do have more settled funding for at least a little while (though it will be new equity shares), and the big thing they’ve been focusing on of late is their Chinese partner that’s been testing the technology on their production line to see if the results are compelling enough to implement. While the teaser screams “breakthrough” with the “one hot solar stock for 1,092% gains,” the reality to me whispers, “iterative advances” with the promise, so far unfulfilled, that someone will wish to license this technology at a decent price to create a future royalty stream for Natcore.
If we compare this to a company trying to develop a new drug, it strikes me that the lab research they’ve mostly done is kind of like animal testing — provides some indication that it might be successful, refine the technology, but you get no real certainty. Then testing it on an in-line manufacturing process is like Phase 1 — they did that, and it resulted in usable silicon and the efficiency was similar to the panels made with the traditional process (not quite as good, but pretty close).
Now they have to get to the real proof and payoff — Phase II and III, in FDA clinical trial terms. Prove that the processes they’ve developed will work on a larger scale, and will really improve efficiency by at least several percent, or cut costs by several percent, to justify disruption of established production lines. Solar panels have already achieved dramatically lower cost through lots of iterative improvements over time and, more importantly, through much, much higher volume production, so the goalposts have been consistently moving further away over the last few years, too — I expect it’s harder to disrupt that industry than they expected. Particularly since the last three or four years have seen such dramatic price cuts for solar modules already, with manufacturing costs coming down by more than half since 2011/2012 without any help from Natcore.
Still, it’s impressive that Natcore survived the solar panel glut of 2013/2014, which drove some of the panel makers into bankruptcy. And they now say they’re “soliciting licensees” for their closest-to-commercialization technology, which is now their laser etching process, and it’s apparently in the patent application process.
It sounds impressive, but it’s also worth noting that this is a $20 million company run by promotional folks who are very aware of what investors like (the founders are Brien Lundin, better known for his gold newsletters and investment conferences, and Charles Provini, who was a Wall Street/asset management guy), and they’ve done everything they can to get the attention of big solar cell manufacturers over the past few years… if industry experts were also convinced that this technology is definitely worthwhile (any of their technologies, actually — they’ve focused on three different ones at different times as there’s been uncertainty about which might get to commercialization first), it would be small potatoes for one of the top ten Chinese manufacturers or one of the big publicly traded solar firms to buy the company outright. There are a large number of companies who generate enough EBITDA in one month to take over Natcore today at a 200% premium without breaking a sweat. I suspect they’re either not at all convinced of the merits, or they’re just waiting to let the science advance… kind of like Pfizer waits and watches the little biotech firms who are just collecting Phase 1 data — let the technology prove itself before buying the little guys out, because most of the time the technology will fail to deliver and the little upstart will just disappear.
That’s just my opining, though, I don’t have any connections in the solar business and I’m not at all an expert in how solar or semiconductor fabrication facilities are developed, maintained, and optimized as new technologies are developed — and who knows, I may just be too skeptical, probably because this same story sounded pretty much equally compelling in 2012. All I really know is that yes, Jeff Siegel is touting Natcore today, and he thinks it will bring you 1,092% gains. So go forth, researchify it as much as you please, and let us know if you think Natcore is a worthwhile speculation for your portfolio… just use the friendly little comment box below, we won’t bite.