Slick promotion fuels this tiny oil stock
Commentary: United American Petroleum is a dry well
BOSTON (MarketWatch) — Richard is a 60-something investor from Sarasota, Fla., who subscribes to a few investment newsletters and acknowledges that he is “always on the lookout for what to buy next.”
The surprise in his mail last week wasn’t in the recommendations he was getting from the newsletter editors he trusts, but the pick of someone he acknowledges he had never heard of before.
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It was a slick 16-page report from the “Carpenter Global Stock Advisory” suggesting that United American Petroleum Co. — the “#1 oil and gas stock” of newsletter editor Andy Carpenter, is about to make investors rich.
“United American Petroleum (OBB:UAPC) could turn $7,500 into $136,875,” Carpenter opines in big red type. “I’m predicting that $1.00 a share UAPC could hit $18.25 per share.”
Sure, that’s possible but, given the general success of stocks involved in these hype-fests — and Carpenter’s record with them — it’s far more likely that UAPC turns $1 into something far less. Not surprisingly, United American Petroleum is the Stupid Investment of the Week.
Stupid Investment of the Week highlights the concerns and characteristics that make a security less than ideal for average investors, and is written in the hope that showcasing the dangers in one case will make it easier to avoid trouble elsewhere.
It’s important to note that United American Petroleum disavows Carpenter’s flyer; Barry Gross, who handles investor relations for UAPC, said the company has notified the Securities and Exchange Commission and other regulatory agencies of what has been a months-long campaign.
“We would not want anyone to invest on the basis of that [flyer],” Gross said. “But you would be amazed at how many people have received it — or seen something written about us — called us, been told that what they’re looking at is fraudulent and not a good or fair representation of the company, and then they say ‘But where can I buy shares.?’”
That’s pretty much where Richard was headed.
He understood that the “newsletter” he was looking at was hype and even figured — correctly as it turns out — that by the time he was looking at the pamphlet, the stock had already popped and the buzz might be wearing off.
That said, he felt that if he could buy the company back in the $1 range talked about in the pamphlet, he would benefit when the buzz is gone and the intrinsic value of the company is left for the market to see.
“United American really does seem to have locations on the biggest oil deposit in the United States,” Richard wrote, “and the stock is cheap, so what is the harm in taking a flyer? If they hit on one of the properties, wouldn’t the stock do just what [the letter] says?”
Sucker’s bet
That’s the reaction the stock promoters are hoping for. By asking the question, Richard has identified himself as a willing sucker ready to make this play.
That’s a horrible idea for many reasons:
First, this is a pump-and-dump operation, and the promoters say as much. The fine print on page 15 of the Carpenter pamphlet says that the company is featured as advertising “paid by Tonnex Ltd. To enhance public awareness of UAPC. A total sum of $1.4 million has been paid to Mondo Marketing Inc. from a shareholder(s) of UAPC , who may or will sell shares of the feature company at or about the time of this mailing.”
In English, that means the whole thing is an effort to find guys like Richard willing to buy what the shareholder is selling. I could not get sufficient information on Tonnex or Mondo to reach anyone affiliated with this sales effort. Carpenter did not respond to requests for an interview.
Second, look at Carpenter’s record. You won’t find him measured on a service such as Hulbert Financial Digest (a service of MarketWatch) — which tracks the performance of reputable newsletter services — so try to find a past instance where there was a circular like this one.
That’s easy; if Richard is on the radar of these scammers — and he is, because I am on that mailing list too — he might recall the flyer he got for Brazil Gold (OTN:BRZG) , which Carpenter said in early 2011 was likely to go from 33 cents per share to $5.92. See my column on Brazil Gold.
Today, that stock trades at about six cents a share.
Sure, a guy can’t have a bad stock pick — even the best managers whiff — but this is not the first time Carpenter has sold out his credibility.
Third, Richard wasn’t let in on some special insight; the people behind this plan have been hyping UAPC throughout newsletter-land and penny-stock world for months, often with Carpenter’s name attached, sometimes not. There’s always talk of some “lost drilling secret” from a big-name company, and a promised price of $18.25 and more.
Various newsletters have whipped UAPC for months: In February it was Wall Street Stallions; in March, Wyatt Investment Research, in April and May, Trade of the Week. UAPC’s Gross said the company became aware of this targeting last fall; he noted that management does not know the shareholder(s) purported in the disclaimer to be selling.
And look at United American Petroleum itself. What you don’t see in Carpenter’s 16 pages of hype is any mention of the company’s revenues and profits, or its free-cash-flow or any other metric that most investors use to size up a stock.
That’s because there are none. Virtually nothing is coming in; there’s a small operating loss and negative cash from operations, according to the most recent annual report.
Without fundamentals to rely on, you’re basically placing a bet that this firm will strike oil, which is more like buying a lottery ticket at this point than a stock.
One other thing to note: In discussing its properties and prospects on its own website, United American Petroleum includes information about properties adjacent to the lands it owns. But it has no right to explore or develop those lands.
Read the fine print on the company website — which Gross said the firm’s securities lawyers required — and you’ll see that management acknowledges SEC guidelines prohibit such speculative, not-tied-to-the-company information in document filings.
A website isn’t an SEC document, however, which allows UAPC to discuss oil and gas reserves from adjacent properties even though they are “not indicative of prospective, possible or actual oil and gas reserves on our properties.”
Sadly, that means it is hard to distinguish the stock-promoter hype from the reality of the company. For an investor, this is a complete shot in the dark.
“We get these things in the mail all the time, the glossy fold-outs that look like a regular newsletter and promise the next big thing,” said Sam Dedio, manager of the Artio U.S.MicroCap Fund (MFD:JMCAX) , “and we have seen real micro-cap oil companies springing up to have real revenues because they find something and, all of a sudden, and it changes everything. But once you see that there is too much hype ... it’s a slam dunk. Just throw the thing away and move on.”
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