-------------------- Sometimes its easier to beg for forgiveness than ask for permission. Posts: 234 | From: pa USA | Registered: Nov 2004
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BOSTON (MarketWatch) -- Hurricanes Katrina and Rita are still dominating national newscasts, and Hurricane Wilma is bearing down on Florida. It's no wonder hurricane-related investments are swirling ferociously too, from talk radio to chat rooms and message boards.
Speculators in these situations always avoid two issues: That they are looking to build business on someone else's misery and that investing into these kind of situations can lead to new misery, namely for someone who falls victim to these pitches.
The microcap stocks touted for their ability to develop business in the wake of weather tragedies could represent their own miserable situation, which is why they deserve recognition as Stupid Investment of the Week.
Listing all stocks that qualify for the honor would be impossible, as pump-and-dump touts have been moving dozens of issues throughout this horrible storm season. That said, a representative sampling of stocks that have been prominent movers based on weather-related hype would include FloodSmart Inc. (FDSI: floodsmart inc com News, chart, profile Last: 1.13+0.12+11.88%
6:41pm 10/20/2005
Add to portfolio Analyst Create alertInsider Discuss FinancialsMore FDSIFDSI1.13, +0.12, +11.9%) , National Storm Management (NLST: national storm mgmt inc com News, chart, profile Last: 1.21+0.05+4.31%
12:20am 10/21/2005
Add to portfolio Analyst Create alertInsider Discuss FinancialsMore NLSTNLST1.21, +0.05, +4.3%) , Windswept Environmental Group (WEGI: windswept environmental system com News, chart, profile Last: 0.29-0.16-36.67%
Stupid Investment of the Week showcases the concerns and issues that make a security less-than-ideal for the average investor, in the hope that spotlighting trouble in one case will make it easier to find and avoid elsewhere. While obviously not a purchase recommendation, neither is the column meant to be an automatic sell signal, as there are times when unloading a problem issue simply makes things worse.
With microcap "weather plays," however, investors lucky enough to make a quick buck might decide not to worry about capital gains taxes and cash out as a winner.
"It's a cottage industry, every time there is some sort of disaster," says John Buckingham, editor of The Prudent Speculator newsletter. "It's as old as time, and it's a mean-spirited attempt to take advantage of the uninformed, but there is always some greater fool out there who buys these things, thinking they've found the next great investment idea right out of today's headlines."
It would be easy to say that tiny stocks are not an investment realm for the "average investor," but clearly they are the domain of the little guy with a dream.
Most of these stocks trade on the Pink Sheets -- a centralized quotation service for small firms -- or the OTC Bulletin Board, meaning they face lighter-than-normal regulatory requirements. Some firms traded in these ways file regulatory paperwork consistently, others don't.
Regulators know that these tiny issues become fodder for pump-and-dump schemes, sometimes pushed by company management but frequently by strangers who find something catchy and try to stir up a fast buck.
That scenario seems to apply to FloodSmart, about which the "Banff Marketing Group" circulated an early October e-mail suggesting a huge pop -- more than 400% to over five bucks a share -- is in the wind.
The Houston-based company makes and installs a system that uses hydraulic lifts to raise a house or building anywhere from 10 inches to 10 feet, a mighty clever idea for someone with property sitting in a flood plain somewhere.
But FloodSmart only became a public company through a reverse merger with a penny stock shell company in early September, a week after Katrina hit the Gulf Coast.
Brian Heckathorne, who handles investor relations for the Houston-based firm, said FloodSmart had not hired Banff (which claimed to have received five grand for floating the hype-mail).
But Heckathorne runs an investment-relations firm that thrives on microcap hype, through its BlitzTrader.com site, where he has certainly spread the word on FloodSmart and some of the others. He says that FloodSmart is his only weather-related client, but he has discussed the others on BlitzTrader to give investors a basis for comparison.
Investors need that comparison to overcome logic, because FloodSmart has no real numbers to fall back on. Without a balance sheet or some way to analyze revenues, debt, and much more, this is a shot in the dark. There is no way to tell if that $5-plus target is a fair value or a blind prayer.
With a stock like National Storm Management, by comparison, there are financials to review. The problem is that they are ugly.
Buckingham, who looked at the storm-restoration management firm recently, noted that whoever was pumping it as a hurricane play seemed to miss the fact that the company has few operations in the affected areas. They also simply ignored the hefty advances that the company made to employees, or the six figures spent on a Mercedes as a company car.
"Almost any stock can seem like a great idea," says Buckingham, "if all you hear is the story about its potential."
Windswept Environmental Group, which is in the disaster-restoration business, not only has fundamentals and filings, it even has been around long enough to earn stock grades from a firm like Morningstar Inc. The trouble is that the Chicago-based research firm classifies the stock as "distressed" and gives it grades of D or worse for financial health, profitability and growth.
What's more, those SEC filings tell the tale of a stock with just a few customers making up the bulk of its business, with lawsuits and other worries that seem very real, and with a list of risk factors so frightening that investors may be less likely to be wiped out riding out a hurricane than trying to ride this stock.
All of these stocks are subject to wild swings, epitomized by National Storm, which has a 52-week low of a penny, a high of $2.80 and which currently trades at less than half of that peak.
Even Heckathorne, who promotes tiny stocks, acknowledges that storm stocks might be hot, "but out of all the Pink Sheet and Bulletin Board stocks out there, I only know of about 10 I would put my own money into. ... Just because it has a good story based on something that is on everyone's mind right now doesn't mean it's a good stock."
-------------------- I may be wrong, but I don't think so.... Posts: 837 | From: Madison, WI | Registered: Sep 2005
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posted
Starting to make a move here..bid is building. This one should do well EOD and especially monday. 46mil OS chart looks good too..
Posts: 176 | Registered: Nov 2004
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