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Chuck Jaffe
Chuck Jaffe
May 28, 2010, 12:10 p.m. EDT · Recommend (5) · Post:
Stupid Investment of the Week
Commentary: Don't gush over oil-spill stock plays
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By Chuck Jaffe, MarketWatch
BOSTON (MarketWatch) -- BP PLC said Thursday it has slowed the flow of oil gushing from a ruptured well in the Gulf of Mexico, but not even a warning from regulators has quelled the gusher of money flowing into stocks that purportedly are going to clean up, financially speaking, from the crisis.
These are not investors making bets on oil prices or betting on (or against) the big-name energy companies, or the investors who have fallen in love with companies like environmental services biggie Clean Harbors Inc. /quotes/comstock/13*!clh/quotes/nls/clh (CLH 63.39, +2.00, +3.26%) or water-treatment operators like Nalco Holding Co. /quotes/comstock/13*!nlc/quotes/nls/nlc (NLC 22.66, -0.52, -2.24%) , both of which have gotten plenty of ink and play since the oil spill started in late April.
The real problem is investors who are diving into micro-cap stocks as murky as the oil-infected water itself, companies like MOP Environmental Solutions /quotes/comstock/11i!mopn (MOPN 0.10, -0.02, -14.78%) , ACT Clean Technologies /quotes/comstock/11i!aclh (ACLH 0.04, 0.00, 0.00%) , Green Bridge Industries /quotes/comstock/11i!grbg (GRBG 0.00, 0.00, 0.00%) and others where today's news is allowing stock promoters to profit, but is fleecing the little guy who has bought the Stupid Investment of the Week.
Oil benchmarks battle for supremacy
The battle rages on between Nymex's WTI crude futures and its rival ICE Brent. Critics say WTI is vulnerable to supply issues at delivery point Cushing, Oklahoma, while Nymex says fundamentals are transparent, and traders will vote with their feet.
Stupid Investment of the Week highlights the concerns and conditions that make securities less than ideal for average investors and is written in the hope that showcasing the danger in one scenario will make it easier for readers to spot and avoid trouble. While not a purchase recommendation, the column is not intended as an automatic sell signal.
In the case of oil-spill stocks, there is no denying the long-term promise of some of the technologies, but there are a lot of questions about whether they can get products to market, generate real sales and ultimately become a big winner.
Meanwhile, the discussions in chat rooms and message boards and in the emails and faxes some promoters are sending out include outrageous claims, so bad that the U.S. Securities & Exchange Commission and FINRA issued an alert to investors warning about oil-spill clean-up scams. Read the warning on FINRA's website.
Just this week, regulators suspended trading in ACT Clean Technologies because of claims being made about the stock, which included purported interest from BP to use a product with ties to ACT to cleanup the Gulf of Mexico, as well as purported test results finding that the products would be effective in cleaning up the spill.
No such action was taken against MOP Environmental Solutions, which made similar claims about an endorsement from BP /quotes/comstock/13*!bp/quotes/nls/bp (BP 42.95, -2.43, -5.35%) and the U.S. Coast Guard. A report on the stock at the Microstockprofit.com site notes that "MOP is promoting itself diligently by saying that its patented product is the ultimate solution for protecting ecosystems along the coastline from hazardous oil spills."
Lots of companies promote all kinds of claims, and stock promoters -- with or without the knowledge of corporate executives -- can take public statements and twist them in a
