Lou Basenese has a new service over at Agora called The Takeover Alert ($1,750), and he’s all but promising that he can identify takeover targets in advance… and give you the chance to make $29,000 profits from stocks that surge dramatically in just a day.
To which the first response from any reader should be, “good luck with that.” Buying stocks because of their potential for a takeover offer is a tough game, with long odds of success… and it takes a fair amount of hubris to say that your “system” for identifying these companies is going to work.
Which doesn’t mean it’s pointless — and who knows, maybe Basenese does have a system that works better than all the quants and hedge fund traders who are sniffing around for takeover targets, I have no idea. I just know that the reason it’s so profitable to identify takeover stocks before they’re the subject of a takeover bid at some lofty premium price is because it’s hard.
Thinking about possible takeovers is fun, though, so what is Basenese telling us? Is the system worth considering? Is the stock worth buying? Let’s see what the ad says:
“You must take action BEFORE August 1st
“But if my research is correct…
“And I’m extremely confident it is…
“On August 1st, the CEO of Apple will announce that he has ‘marked’ one very particular stock, sending it on a MASSIVE single-day tear.
“Combined with the 24-hour ‘vertical’ performances I’m expecting even sooner from my M.A.R.K.E.D. Money Signal’s two micro-cap stock recommendations…
“I believe you have the opportunity to capture a combined 3,300%+ return, from 3 ORDINARY stocks, in the weeks ahead.”
OK, so we’re getting to this one a bit late — August 1 is, in case you haven’t noticed, tomorrow. The ad is dated June, and I’ve been seeing it for about three weeks (there was a discussion among a few of our readers here)… and, as is increasingly becoming the case for these “higher end” newsletters, they are offering no refunds at all for this service. That’s a pretty big leap of faith for a small investor to make, betting $1,750 with no chance of a refund if the newsletter turns out to be terrible or not what they expected, so the ad has to promise up a big heaping pile of riches in order to convince you to sign up. Here’s a taste:
“… Wall Street Secretly “Marks” 1 Out of Every 2,000 Stocks…
“Assigning Each One a Unique Predetermined “Deadline”
“And Sends Shares Soaring (over 1,000%) in UNDER 24 Hours….
“According to my painstaking research, when Wall Street “marks” one of these stocks in the way I’ll show you below…
“100% of the time, the stock goes UP.
“It’s simply a rule of the system, like gravity for the stock market.”
And that’s true — if a company makes a takeover bid for another publicly traded company, the shares of that target company go up. I’ll even stipulate that it’s true 100% of the time, though there have may been examples when that wasn’t true at some point in the past.
Sometimes those gains are even remarkable — either because you predict the timing perfectly and use some kind of leverage (like options trading) to bet on a premium takeover bid coming at a particular time, or because the takeover bid is really crazy… though it’s important to inject a little bit of sanity here and note that the average takeover bid has been at more like 30% premium to where the target stock was trading before. 1,000% gains are not at all likely (again, unless you’re using options… and options speculation means you need to be pretty precise about the price and the timing and be willing to accept the likelihood — not just the possibility — of a 100% loss).
And, cleverly enough, they put a disclaimer right at the top… only instead of a real disclaimer it’s another opportunity to pitch you on the huge gains:
“DISCLAIMER: This is a BRAND-NEW investment strategy… Designed to make you MORE THAN 10X your money…With REGULAR Stocks…. in UNDER 24 hours. But please note: because it has never been made public before, all illustrative figures below are necessarily drawn from historical data.”
To which you might answer, “hmmm, I bet it’s a lot easier to identify past takeover targets than it is to identify future ones, no?” And that is, indeed, the crux of the problem. It doesn’t mean the stocks are junk — usually takeover targets emerge either because they are successful developers of some sort of niche business who just need financing or scale to be successful, or because they’re so cheap that other companies in search of customers or products (or whatever) can’t resist.
Oftentimes I’ll buy stocks where part of my thinking is that they could potentially be a good takeover target, and it’s nice to daydream about waking up some Monday morning to see a huge premium takeover bid for a stock you own… but if I’m being rational I try to make sure that they’re appealing in other ways, too, strong investments in their own right. I usually conclude that the identification of takeover targets is more of a parlor game than a reasonable long-term investing strategy.
So what is the actual strategy? Well, Basenese says he winnows down the stock market using a few screening techniques. Here’s more from the ad:
“… these MASSIVE 24-hour gains are coming from regular stocks…NOT options trades, futures contracts, or any other complicated ‘financial derivative.’
“Based off of my painstaking, multi-year examination of this powerful phenomenon…
“100% of the time one is ‘marked’ in the way I’ll reveal today, it goes UP.
“In fact, the best of them go up higher and faster than ANY other type of stock I’ve ever seen…
“And starting today, ANYONE using my powerful new M.A.R.K.E.D. detection tool can now officially screen for them in advance.”
Ah, OK — so we’re not talking about options trades. That means get the 1,000% gains idea out of your head right now. I’m sure there have been occasional 1,000% gains in takeover offers, but not with normal stocks of any meaningful size, any example would have to be something from teensy tiny microcap land, and some sort of strange situation. Among even “normal” small caps, premiums of 100% or 200% are insanely high and unusual, premiums of 20-60% are more the norm, sometimes less for slower-growth industries or larger companies.
And Basenese says that he’s been working on this screening service, his “MARKED” detection tool, for six years… here’s what he claims about past performance:
“At peak performance, the average ‘buy’ alert the system gave went on to MORE THAN DOUBLE in value.”
Which doesn’t even mean anything. Tell me about peak performance, or tell me about averages, but what the heck does “average return at peak performance” mean? Does that mean you get to ignore the bad picks? Or just take the average of days when your commute was friendlier or you got enough sleep?
He says that his analysis screens stocks based on several different things — the “Phase 1 Analysis” looks at PE ratio, discounted cash flow analysis, earnings power value analysis, momentum, and free cash flow analysis, which pretty well accounts for most of the typical valuation tools most investors use.
Then, he says, he goes to “Phase 2 Analysis” and looks at management tenure, insider ownership, leveraged buyout analysis, media and analyst coverage, and “existing shareholder analysis,” whatever that means.
But it’s some secret “Phase 3” analysis that he ways “will consistently reveal the ‘marked’ stocks set to go vertical BEFORE they do… the holy grail of stock-market investing.”
He doesn’t talk much about what that “secret” might be, though the implication is that insider buying is part of it, as perhaps are “rumors” of takeovers.
And as we all know, the first thing the guy with the Holy Grail does is rent it out so everyone can take a sip from the cup, right?
So I can’t tell you exactly what his “MARKED” system looks for, other than using almost every kind of relatively common quality and momentum screen and also somehow trying to sniff out, by rumor or insider purchase or some mysterious indicator that he doesn’t elude to, which of those reasonably appealing stocks will be acquired.
The tools that he says make up the “MARKED” acronym are Market cap analysis (meaning it has to be small enough to be taken over), Asset differentiation (some unique asset that’s worth buying, like a brand or a technology or a piece of land), Reliable rumor activity (meaning, as far as I can tell, that the Wall Street press is already talking about potential takeover), Kinetic trading indicators (which sounds like “strange insider buying patterns” the way he describes it), Explicit market opportunity (meaning, it’s a good company in an attractive industry that’s not already dominated by someone else), and “Deal grease” (meaning there’s some reason the deal makes sense — personal connections, regulations, lots of extra cash at the possible acquiring companies, etc.). None of which are bad things, and most of which are subjective assessments.
And then, of course, we get to the stuff the Thinkolator actually can help you with — the dropped hints about a particular stock:
“If this stock doesn’t convince you that my M.A.R.K.E.D. Money Signal is the best investment tool you’ve ever benefited from, I’ll ‘pay’ for you to find a better one
“Right this moment, I’m staring at the name of what I consider the single BIGGEST ‘marked’ play of 2017.
“It’s triggered the M.A.R.K.E.D. Money Signal harder than ANY stock I’ve ever seen before…
“And on August 1st, I expect it to hand YOU a head-spinning single-day payout.”
So what is it?
Well, he does say he’ll give it to you for free…
“… before I send its name & ticker symbol directly to your doorstep…100% FREE…I’d like to a take a moment and explain precisely how I found it…”
But that’s not really true, you have to pay $1,750 for a subscription to Takeover Trader and then they’ll give you this special report “free.” And if you don’t like it, there are no refunds — they say they’ll “pay you to use a different service instead,” which just means that instead of a money-back guarantee, they’ll let you switch to a different Agora-published subscription at the same or lesser price.
So on the “free” front, let’s see what we can do that for you. More clues:
“On August 1st, 2017… With a few simple words… The CEO of Apple, Inc. is going to send This stock through the roof….
“… when they announce it on their quarterly earnings call this August 1st, ANYONE who saw it coming will make an absolute KILLING….
“… this IS a stock you know…
“In fact, I’m willing to bet you’ve used one of its products in the last 24 hours…
“Maybe even in the last hour.”
And he runs down the “MARKED” system… the Market cap is apparently in the billions, but there’s almost no such thing as a company too big for Apple to acquire (with its $200+ billion in cash)… the valuable Asset is that it has “nearly 100 million faithful users”. Basenese says that “That unique service—baked into Apple’s signature gadgets—would be the crown jewel of the tech behemoth’s empire…”
And, apparently, that there has been speculation about this possible deal in Barron’s, The Wall Street Journal, etc. And a lot of unusual trading going on in the options market which gives reason to suspect, in Basenese’s words, “that folks who know something BIG is coming down the pike are the ones doing it.”
So that’s getting to be about enough, and Basenese says that “on August 2nd alone, I expect you to more than TRIPLE your money.”
Which sounds awfully absurd to me, but I can tell you that the possible Apple takeover he’s hinting about here is, as you might already have guessed, Netflix (NFLX). Which is indeed a big company, with a dominant position in streaming video, but it’s also an $80 billion company trading within a whisker of its all time highs… it’s not impossible to imagine Apple offering to take them over, and such a merger has certainly been rumored several times over the years, but it would be a huge and complex deal and I would be surprised if it was at a premium anywhere near what Basenese notes (a 200% gain on the day after tomorrow).
Netflix has already reported its earnings, and it’s quite possible that Apple could say something about Netflix in its next earnings call — though that seems quite unlikely to me unless there really is a takeover deal in the offing. Personally, I will be surprised but not shocked if Apple tries to acquire Netflix at some point — but I will be shocked if they do it during an earnings call tomorrow (or, frankly, at any time before some kind of tax reform or foreign tax holiday is announced).
Anything Apple does with its cash will be accretive, since the cash doesn’t earn anything, and Netflix would obviously give them a nice position in video streaming and original content, an area where they obviously have ambitions, but beyond that it’s all guessing for me… I don’t know if Apple would rather go into original content slowly, as they have been, or just blow $100+ billion to buy a big library and, effectively, a TV studio. Would it sell more Apple products? Maybe, I don’t know, but Netflix is available on every computing device imaginable and it’s hard to see that changing to some “exclusive” deal where you have to have an iPhone to get Netflix.
Anyway, that’s the story… Apple announces a takeover of Netflix tomorrow, we all get freakishly rich the next day, yippee!
I’d be surprised to hear it, but I wouldn’t bet against either Apple or Netflix at this point (I do own Apple, I’ve never owned Netflix).
And Basenese does drop a few other hints about “micro target” stocks that he thinks will be takeover targets as well — I can’t be sure about those, but here are some guesses:
“Proven ‘upstart’ player in oil & gas exploration space, with nine wells ALREADY producing at faster-than-expected pace
“After two years of exploration, company has hit ‘the motherlode’ (est. resources discovered include 3 billion barrels of oil, 75 trillion cubic feet of rich gas.)”
There’s no real indication of the size of the company he’s talking about, but my best guess (and it is really a guess, almost a wild guess) is that this is perhaps Apache (APA) … those numbers pretty well approximate Apache’s big discovery from last year in the Permian Basin in Texas. Beats me if they’ll be taken over.
And no, this one is not a microcap at an $18 billion market cap, though I suppose you could argue that they’re “micro” compared to ExxonMobil (XOM), so do keep in mind that this is a wild guess.
And one more…
“The Biggest Untapped Gold Deposit in North America… Trading For LESS Than $5 a Share! …
“‘Hidden gem’ opportunity owns exclusive rights to largest unexploited gold reserve in North America… but still trades for UNDER $5/share.
“Unit economics highly favorable, with rapid margin expansion ‘levered’ to price of gold; analysis suggests 8% increase in gold price -> 33% net margin expansion.”
It’s hard to be particularly definitive with the margin analysis for this one, given the fact that it is revamping the mine design that they’re trying to get moved into environmental permitting, but the “biggest untapped gold deposit” and the fact that it’s “exclusive rights” (meaning there are no partners yet), indicates that this must be good ol’ Northern Dynasty Minerals (NAK, NDM.TO).
Which probably will do something big in the next year or so IF the permitting process seems likely to get underway and to be relatively friendly — their Pebble Deposit in Alaska is one of the largest undeveloped copper and gold deposits in the world, and they have had deep-pocketed mining partners before who backed out when the EPA shut them down a few years ago… now that the EPA has given them the go ahead to at least start the permitting application process, perhaps the big guys will get comfortable enough to come in again. I don’t know, but I do own some NAK warrants as a speculation that they’ll either get positive early permitting news or a big new partner in the next couple years (though to be fair, I also sold the vast majority of my holdings after the huge post-election run, and I don’t have any particular conviction about what the odds of success are… just that good news could drive the shares much higher if it comes.
So there you have it… some possible takeovers pitched by Lou Basenese, and a new takeover-focused newsletter. I don’t know how those three stocks will do, but there are reasons to own them other than possible takeovers… and, given the difficulty of predicting takeovers in advance, I’ll go out on a limb and bet that Basenese will change the name of this newsletter at some point in its first three years of publication (assuming it makes it that far, which many newsletters do not). We’ll see.
Any thoughts? Other takeover targets you like? Opinions on Netflix? Let us know with a comment below.
Disclosure: I own shares of Apple and warrants on Northern Dynasty Minerals. I do not own any of the other stocks mentioned above, and won’t trade in any stock for at least three days per Stock Gumshoe’s trading rules.