Even after all these years, capitalism still fascinates me.
This is the long-awaited sequel to a post I did nearly five years ago that was among my most well-received at the time. But instead of junk faxes at my former place of employment – for all I know he may still be getting them – a number of hucksters have moved on to slick e-mail marketing campaigns, sent out with the imprimatur of reputable websites like Townhall, Human Events, or the Washington Times. Of the ten penny stocks I’ll feature today, seven were featured in a Human Events e-mail blast, six in missives from the Times, and five from Townhall. These were all sent out to me back in March; I gave the stocks six months to see how they’d perform on a longer term.
Back on the day I received the last e-mail I saved on behalf of each company, this is how they were doing:
- Allezoe Medical Holdings, Inc. (ALZM) – $1.78 per share
- 5BARz International, Inc. (BARZ) – $1.50 per share
- Davi Luxury Brand Group, Inc. (DAVI) – $1.00 per share
- First American Silver Corp. (FASV) – $1.12 per share
- Liberty Energy Corp. (LBYE) – $0.50 per share
- Vendum Batteries, Inc. (VNDB) – $0.23 per share
- China Botanic Pharmaceutical (CBP) – $1.76 per share
- Mercer Gold Corporation (MRGP) – $0.0975 per share
- Coyote Resources, Inc. (COYR) – $2.40 per share
- Uranerz Energy Corporation (URZ) – $4.57 per share
Would an investment strategy of placing a $10,000 order based on $1,000 for each investment have paid off? Well, here is how they closed yesterday, with the number in parentheses the new stock value. You be the judge.
- ALZM – $0.39 ($219.10)
- BARZ – $0.25 ($166.67)
- MDAV – $0.02 ($20.00)
- FASV – $0.20 ($178.57)
- LBYE – $0.08 ($160.00)
- VNDB – $0.09 ($391.30)
- CBP – $1.00 ($568.18)
- MRGP – $0.09 ($923.08)
- COYR – $0.51 ($212.50)
- URZ – $1.49 ((326.04)
Wow – and I thought the federal government ran up a deficit. That $10,000 stake melted down to $3165.44 – a stunning 68% loss in value! (There’s more after the jump.)
Yet consider what happened to some of these companies immediately after the ads ran. Let’s say I sold these stocks at a high point after I bought them; now you get some interesting results.
- ALZM peaked March 30 at $2.46 per share ($1382.02)
- BARZ peaked April 7 at $1.57 per share ($1046.67)
- MDAV peaked back in January at $2.60 per share, but reached a more recent peak of $1.00 on April 27 ($1,000.00)
- FASV peaked March 25 at $1.35 per share ($1205.36)
- LBYE peaked back on January 5 at 60 cents per share, with a more recent peak at 49 cents a share on March 25 ($980.00)
- VNDB peaked on March 18 at 27 cents per share ($1173.91)
- CBP peaked January 6 at $2.38 per share, a more recent peak was $1.82 a share on March 30 ($1034.09)
- MRGP peaked May 24 at 40 cents a share – a miracle jump from 1.25 cents a share on May 11. Someone had to have timed that just right, with volume on that low day coming in at over 1.8 million shares (or around $20,000.) However, volume has rarely exceeded 100,000 shares a day since. ($4102.56)
- COYR peaked just before I got the e-mail, on March 4. It last hit $2.40 a share on March 24 ($1,000.00)
- URZ also peaked back in February at $5.77 a share, but has never recovered. The best I could have gotten here was $4.52 per share the day after the e-mail came on March 7. ($989.06)
Still, timing the dumpin’ right would ensure a solid return – instead of tanking, the mythical (and lucky) portfolio would be in the black by $3913.67 – a jump of over 39 percent, led by Mercer Gold’s fourfold increase.
But the real winners apparently are two companies which combined put out all ten of these appeals – five apiece.
One is Lake Group Media, which bills itself as “a leading media buying and media sales agency specializing in direct mail, email and online channels.” While the individual e-mails were under the auspices of entities like Michael Williams Market Movers, Eric Dany’s Stock Prospector, Emerging Capital Report, or Ahead of the Herd, they only received a small amount for putting together the fluff piece – their cut ran anywhere from $5,000 to $16,000. (That’s still nothing to sneeze at.) Generally these newsletters were in it to build a subscriber base, which ran around $100 per year.
But Lake Group Media was compensated in two ways. One was a direct payment described as being in a broad range between $1,000 and $100,000. The other? In all but the case of Mercer Gold, they had to admit they “may own” shares of the companies in question. (In Mercer’s case a company called Top Rank Marketing, listed as a “non-controlling stockholder” in Mercer, paid $400,000 for the marketing effort – presumably the bulk of it went to Lake Group Media.)
The other operator is a company called Capital Financial Media, based in Delray Beach, Florida. (I couldn’t locate a website for them.) It appears that many of the “newsletters” promoting these companies are in-house, with most operating under a umbrella company called Trinity Investment Research. (A more minor player not necessarily tied to Capital Financial is Sotto Publishing.)
Again, the newsletter editors who create the ads don’t make a lot; those under Trinity take in between $1,500 and $3,000 while the Sotto Publishing affiliate received $12,500. But companies paid Capital Financial Media some eye-popping numbers:
- On behalf of Allezoe Medical Holdings they received somewhere between $800,000 and $2.6 million – the disclosures are unclear on the exact number.
- 5BARz chipped in an additional $500,000.
- First American Silver gave a cool $850,000.
- Liberty Energy took the prize, though – somewhere between $3 million and $3.5 million.
- Coyote Resources was a relative piker with just $675,000.
Among one month’s e-mail, on the low end Capital Financial was paid about $5.8 million. Am I in the wrong business or what? Of course, maybe that was in stock options!
And one has to ask just what sort of cut Townhall, Human Events, and the Washington Times received for their cooperation (and vast e-mail lists.) Needless to say, they probably have just the demographics Lake Group Media and Capital Financial were looking for.
And just for fun, I went back and looked how my original seven from 2007 were doing. It wasn’t good:
- Allied Energy Group – was 40 cents, now 9 cents.
- Environmental Control Corporation – was $1.39, now 2 cents.
- Global Beverage Solutions – was 42 cents, is now worthless (0 cents.)
- Homeland Security International – was 4 cents, now delisted.
- Hybrid Technologies – was $3.52. The company is now Li-Ion Motors, and sells at 20 cents a share.
- Syngas International – was 33 cents, now a true penny stock.
- TAO Minerals – was 10 cents, is now worthless (0 cents.)
This portfolio has lost 95% of its value in just three years, and shows the dog-eat-dog nature of business. Certainly for each Microsoft there’s dozens of these companies.
And if you look at the volume of shares traded from each company it’s clear that these companies move most when the advertising campaign is in full swing, only to return to a level of just a few hundred or thousand shares traded daily in a few days. (Remember, even trading 10,000 shares is a modest transaction at these prices.)
Last time, I closed with a paragraph like this and I want to stress it again.
I don’t want to make this a vendetta against the companies who offered their shares on the OTC market. They can’t always help who’s bought their stock and the efforts to make a profit (or at least cut their losses) on those shares. These are apparently legitimate companies and who knows, it’s possible they may turn the corner and be successful. But its more likely the insiders and those who put out the advertisements, which are cleverly worded to avoid legal liability, who are the ones getting rich. Unfortunately, with these penny stocks sometimes the odds are better of hitting the lottery than getting rich off the stock.
Capitalism still fascinates me, but when you get one of those ads it’s definitely a case of caveat emptor.