I always like to write about a bear case on a stock, or a put-buying or short-selling teaser, because they’re so rare — most people wouldn’t consider shorting stocks because of the different risk profile and the unfamiliar process, and many folks even think there’s something vaguely un-American about betting against a stock.
And, of course, betting against selected stocks can make you a fortune, just like betting on other stocks — the secret, as always, is choosing the right stock. And maybe being a little lucky in the bargain, and eventually getting the rest of the world to recognize that you’re right. I’ve written about only a few short bets over the years, including Porter Stansberry’s argument that the hard disk drive makers are going kaput (the stocks are down considerably since I wrote that idea up, and it’s a similar “technological obsolescence” argument to today’s pick) and Dan Amoss’ unprofitable bet against Bank of Montreal last year, but few brave the short waters in teaser-land very often, probably in part because it tends to attract controversy in a way that “long” bets do not.
This latest teaser from Louis Basenese aims to get you to sign up for a membership in the Oxford Club, which also means this stands out as a bit unusual. The Oxford Club’s Communique is really a jack-of-all-trades entry-level newsletter with a very large circulation — not the kind of letter that typically does a lot of short selling or options trading, since those are generally considered “more sophisticated.”
The vast Stock Gumshoe audience, however, is chock-a-block with sophistication … so let’s figure out what he’s talking about in predicting doom for this unnamed large cap stock, shall we? At the very least, we can name that secret stock and let you know how folks might bet against it if they were so inclined.
To begin, then … here’s what the tease tells us:
“On Monday November 1, a tiny group of investors stand to get very rich… while most will lose a fortune.
“On that day, the walls will come crashing down on one large-cap tech company. And almost no one sees it coming.
“… Not top-tier analysts from the likes of Barron’s or Wall Street’s most respected firms who say ‘…the company is growing.’ That it’s ‘The best in breed.’ And ‘Well positioned to outlast competitors.'”
And then he clarifies that when you make money off this bet, you won’t be shorting the stock (which leads me to think that he mus be recommending that investors buy put options — more on that in a minute):
“… by making one simple move, you could MAKE $9,000 or more off this crisis opportunity. You won’t even have to short the stock. And as things get worse for this company in the coming months, you could collect even more money…”
And he starts to toss out some clues about what he calls this “ticking time bomb:”
“Based on a recent study by research firm iSuppli, many analysts predict that very soon, there will be NO market for this firm’s main product.
“And once the mainstream discovers this ‘dirty little secret’ on November 1, expect $947 million to come flooding out of this company.”
So what is happening on November 1? He says that the company will make an important announcement (he describes it as a “confession”)…
“The CEO is set to reveal specific information about the company’s product line that will finally tip off the rest of the world to what I already know…
“This company’s primary product – its lifeline – is about to become obsolete.
“In fact, by January 1, just a couple of months from right now, as many as 108.9 MILLION people in the U.S. alone are predicted to have this same technology in their hands… but for free.”
So if that’s true, why isn’t everybody already betting against this stock? Well, the tease then goes on to note that it remains a “Wall Street darling,” and that “Investors Business Daily called it a ‘winner'” on September 28.
He compares the market for this company’s products to some well-known crashing consumer products — AOL and their demise when the internet and email become more easily accessible for everyone; the PDA when smart phones took over.
And the teaser tells us that …
“There’s no viable back-up technology – like the Palm Treo – to rescue the company from complete obsolescence.”
We’re also told that the company tried to come up with a new product line that would “rescue” them …
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“… this company released its long-awaited Smartphone two weeks before the newest iPhone came out.
“But despite the head start, it only sold 20,000 units compared to Apple’s 1.7 million in the same timeframe.
“It’s no wonder why…
“PC World said ‘it isn’t quite cutting-edge’ ‘…some operations felt sluggish,’ and ‘there are better choices for a general-purpose Smartphone.’
“Bottom line: This foray into the Smartphone arena was nothing but a multi-million dollar waste of money.
“By all accounts, it also means there is NO back-up technology to save this Ticking Time Bomb from disaster. The company must rely on a now unnecessary product to survive.
“But Wall Street still doesn’t see the writing on the wall. Just a couple of weeks ago, in fact Goldman Sachs upgraded its rating on the stock.”
Exciting, eh? You get to profit from the demise of a stock, but, even better, you get to bet against Goldman Sachs!
So who is this “ticking time machine” that Louis Basenese says will “crash and burn?”
Toss all that into the mighty, mighty Thinkolator, and we have to conclude that this is …
Not the kind of stock that lots of folks generally like to bet against — it has pretty high insider ownership (about 5%, almost all by one person), a fairly big dividend, plenty of cash and no debt, and it’s profitable. And yet, still, almost 14% of the free float on these shares is sold