Spotting the pumps easier than going long

This blog is not even three months old, and already I have managed to identify some stocks that, in my opinion, were inflated and due to come down.  Taking the PPS from my first write up on the following companies, here is how my bearish calls have performed as of this past Friday's close.

• May 8th  RYU.V   Down -18.9%
• May 5th  ZIOP     Down -27.2%
• May 17th KTOV   Down -54.9%
• June 12th ABRW  Up    +04.0%

My scorecard on bearish calls isn't perfect, but if ABRW does what I expect in the coming weeks and months, then I'll have to give myself an A+.  

As much as I'd like to pat myself on the back for my genius skills at sniffing out inflated stocks, it really wasn't that hard.  The way I see it this was all "low hanging fruit" so to speak.  Three out of those four companies, ZIOP, KTOV and ABRW were all hyped and promoted by an email blasting promotional outfit called StockReversals.  

I followed StockReversals long before I started this blog, and I've seen them pump a number of stocks that have all tanked.  In no particular order I've witnessed them pounding the proverbial table to drum up buyers for SBOT, MOBI, CLDN, LEJU and WBAI over the past 3+ years, touting long term value potential.  

If you want to check the charts on those stocks be my guest.  Those buying in expecting price appreciation over the long haul got creamed.  

RYU.V on the other hand was a stock I saw getting spammed all over a site popular for Canadian listed stocks, stockhouse.ca.  They'd just announced that Gwenyth Paltrow was going to promote their clothing line. I've seen so many celebrity endorsements for penny stock companies over the years, and have yet to see one deliver long term value to shareholders.

So why is identifying inflated stocks so much easier than finding companies with low share prices poised to make gains?

That's pretty easy to explain in my opinion.  Inflated stocks that are poised to drop big, they are SCREAMING for attention.  Why?  Simple....the smart money holders who want to sell need dumb money suckers to come in and pay the inflated price.  

Companies that are trading at or near their lows on the other hand, the good ones in my experience aren't experiencing heavy volume and don't have much in the way of news.  So it can be hit and miss trying to discern which ones might be good candidates.  

I have put out some bullish opinions on a couple that have born fruit though.  I wrote up EGT.V when it was 14 to 15 cents and it got up around 40 and is still trading in and around 28 to 30 cents.  And HMPR was at $1.81 when I expressed my reasons for being bullish and it just closed up over $1.90.

Hampton Road Bankshares is actually a company that I truly believe has the potential to deliver long term shareholder value.  That's not to say it is without risk, but to my eyes the fact that they are turning  a profit gives them a lower risk profile as compared to companies using their shares as capital to stay afloat.

Ultimately I think its every bit as important to know what to avoid as it is to know what to look for. Who wants to pay $6+ for a stock like KTOV only to have half your money wiped out in a matter of weeks.  

I've also mentioned some stocks that have come down, RVX.TO is one that I wrote about when it was trading at $1.34 and this past Friday it closed at $1.23 for a drop of 8.2%.   With RVX though I haven't seen any suspect pumping and table pounding all over social media....if that happens my opinion will change in all likelihood.  And if that does happen it might be reasonable to expect to see the PPS climbing well above even $1.34....only time will tell.  Ideally I'd like to see them succeed with the Phase III clinical trial.  

News Hype and Promotion boys and girls.  In my opinion that is the Unholy Trinity of the stock market that should be avoided.  Beware when something looks too tempting, things are not always as they appear.

Ziopharm - No short squeeze and no buyout

I have been accused of being obsessed with Ziopharm, and there is certainly some merit to that opinion.  I have a passion for the stock market in general, and right now Ziopharm is an ongoing fixation that's lasted a little over a year.  

Before ZIOP those who follow me on stocktwits' (where I post as growacet) will remember that it was MOBI that occupied my bearish attention, being a stock I viewed as a hyped up pump job.  

Both MOBI and Ziopharm came onto my radar the same way, from an email blasting chop shop. This outfit has hyped a number of stocks, LEJU, SBOT and CLDN spring immediately to mind on top of the aforementioned MOBI and ZIOP.  

Touted as investments, citing forward looking promise....but you can check the charts to see how well they did as long term holds.  CLDN was pumped by this shop in early 2015, but don't look for it now, it doesn't exist.  After a 1:15 reverse split it merged with a company called Eiger Biopharmaceuticals.  

Puke, frankly this type of promotion turns my stomach.  

I had a friend named Dave.  I use the past tense because Dave (not his real name) isn't around anymore, not for his wife, not for his two daughters.  I'll never know the precise reasons Dave decided to take his leave, but I'm pretty sure I know why.  He played the market, and was just the type of guy that email blasting chop shops rope in.  He had a good job with a good salary, but dreamed of winning the market game and getting rich beyond his wildest dreams.

People can and do get hurt playing the stock market, gambling with money they can't afford to lose. And these promotional outfits couldn't give a rat's rosy rear end.  To quote Gordon Gekko:  ''Greed is good''.  So long as these slime make money, they don't care.  

I want to make one point very clear here, the shop I'm referring to is one of the best in my experience, and that's what makes them dangerous for newbie and unseasoned investors and/or traders.  What do I mean by good?  

What I mean is the stocks they tout often make very quick and sizable gains after they start pumping them.  Here's the chart for LEJU which stockreversals (hell I might as well include their name) started pumping shortly after it started trading.  In August of 2014, they recommended it at $12 to their email sucke...errr, subscribers.

That's pretty typical for the stocks this outfit hypes.  After touting it at $12 it quickly climbed up around $18.  Then over the ensuing months it crashed hard, falling all the way as low as $3 and change, today its worth somewhere around $5.

Someone who bought 10,000 shares at $12 would have been in for $120,000 and now they'd be getting somewhere around $50,000....a $70,000 loss.  And don't think those kind of losses don't happen.  

Of course they've long since moved on from promoting LEJU, and ZIOP for that matter.  

Their latest ''hot stock'' is KTOV', another relatively new issue like LEJU was.  Does the climb look familiar?

Can I say with certainty that KTOV will follow the same pattern that LEJU, ZIOP, CLDN, SBOT and all the others did?  Nope, I can't.....but I would not bet against it either.  I have no doubt that those promoting KTOV will say, ''this one is different'', it always is.

Now, again....let me be clear.  I know that apologists for stockreversals and other promotional outfits of this ilk will say, and rightfully so, that these stocks all did make gains from the prices at which they were profiled.  

In so far as I am able to verify that information, it is a true claim.

But I also understand the mentality of retail investors, as do promoters.  Retail investors have a bad habit of actually becoming attached to their stocks, of reading every news item and opinion piece that comes out.  Its not long before the average retail investor believes the forward looking promises. Especially with speculative companies with a history of burning through cash and diluting.

The professionals and the chop shop boys know this, they know how retailers think, and they profit from it.  I used to work as a financial consultant, and I know all too well that average investors, investing in individual stocks, that they overload and don't have proper diversification.  

Retail investors end up being the fulcrum around which the professionals make bank, alternately pumping and dumping, and then shorting and distorting.  Joe Retail (my chosen sobriquet here) wants to find quality stocks that he can buy and hold, ones that will deliver long term value.  Some volatility is to be expected of course, but not the kind that leads to charts like the one above for LEJU and all the others if you want to check them out.

So what happens?  Whether its MOBI two years ago, or LEJU or ZIOP, retail investors are left holding the bag, unable or unwilling to take a loss.  They become convinced they've been scammed. Not by the jokers who sent out the emails, but by dark market forces determined to hold their stock down.  

That's what's happening with ZIOP right now in my opinion.  Many shareholders are unwilling to acknowledge even the remote possibility that they were roped in by promotional hype.  And if they go to social media, places like InvestorVillage for example, they find others telling them what a wise choice they made.  Even if their shares are now worth half of what they paid for them.

Everyone can read the filings.  Ziopharm has not misrepresented anything.  They have nothing in late stage development.  And they're projecting that they won't have enough cash to get them beyond 2017.  Ziopharm's 10Q and 10K filings are very clear in saying that they're going to be in need of raising yet more money.  And they allow that their current resources may not even last til the end of 2017, that expenses could increase meaning they would run out even sooner.  The risks are fully disclosed.  

The quarterly and annual filings use terms like expectation, and words like may and could.  But expectations are often not met, and what ''may be'' and what ''could be'' can also be expressed with equal accuracy by saying ''may not be'' and ''could not be''.

The hope that many ZIOP shareholders seem to be clinging to now is that of either a buyout or a short squeeze.  Or both.

Again, this is only opinion because we're talking about the future here....but to use the vernacular of my youth growing up in NYC and NJ, ''FUGHEDDABODIT''!!!.

Firstly on the buyout side.  Yes, RJ Kirk has orchestrated some blockbuster deals in this space.  He did an incredible job in selling both Scios and New River to big pharma companies .  But Scios and New River had drugs that were either approved or in late stage development.  Ziopharm by contrast is probably 5+ years away from even being close to anything, and as noted before they don't have enough Do Re Mi to last that long.

On top of that the buyers of Scios and New River....they definitely got the raw end of the deal in my opinion.. Johnson and Johnson has had to take write downs for Nacretor, the drug developed by Scios.  I could be wrong, but the old adage....''fool me once'' springs immediately to mind.  

Maybe RJ can convince someone to buy Ziopharm, but I can't see why they'd pay anything even close to the current MC of $900 odd million for a cash burning company with nothing in late stage development.  

Finally there's the case of short interest, which for Ziopharm sits at about 30% of the float as of the most recent update to April 29th 2016 according to WSJ.com.  This is nothing new for Ziopharm of course, the short interest has been high for a long time.  

Shorts didn't rush to cover the 35 odd million they were short in November 2015 when the price was pushing up near $15.  Why they'd all of a sudden be forced into covering at less than half that price now is beyond my ability to comprehend.  I think those touting a pending short squeeze, that they're either naive novice investors, or industry hacks trying to keep the retail monkeys holding their bags.

Full disclosure, I like to have some skin in the game about the stocks I write about...and with ZIOP I do own put contracts.  All the other stocks previously mentioned in this posting though, I have no position long or short in any of them and no futures contracts.  

I'm going to close this off, but I want to write about one last thing, my faith.  I am Christian, and as most people will be aware, a central tenet of the Christian faith is to 'do unto others....'.  I don't want to overstate this, I'm not one of those guys you are going to see standing on a street corner trying to get people to accept Jesus as their personal Lord and Savior, I'm not an evangelical nor a fundamentalist.  But I do have a strong faith in the teachings of Jesus of the Bible, in particular those which appear in more than just one Gospel.

Writing this blog is somewhat cathartic for me, and it helps me sort out my own thinking.  And one thing I know is that I might just have a log in my own eye while I rant about the sliver in the eyes of email blasting chop shops.  I've written about some companies that I believe have good prospects for price appreciation, but I have not fallen in love with them and if they make big gains I fully intend to dump them.

EGT.V certainly falls into that category.  And LAC.TO is another that I'm watching closely for irrational exuberance.  So far the only stock I've written about that I genuinely believe has excellent prospects as a buy, hold and prosper investment is HMPR for the reasons enumerated in my posting on that company.  I'll be writing about another soon, Extendicare a dividend paying retirement-nursing home.

Peace.