|Only Stocks that Go Up in Corrections|
History is replete with examples. We were reminded of that this week with the start of the trial of former U.S. Presidential candidate John Edwards and the big mouth attached to that of political advisor/talking head Hilary Rosen.
Edwards is on trial for campaign finance charges related to his extracurricular activities with a woman not his wife and getting supporters to pony up hundreds of thousands of dollars to keep the broad quiet and happy. Rosen now famously commented that Presidential candidate Mitt Romney's wife, a stay-at-home mother of five, never worked a day in her life.
In both cases, these people felt that they were smarter and better equipped than you or I to say or do whatever they wished. In sports, the head football coach at the University of Arkansas was fired for hiring his mistress on the payroll. The CEO at Best Buy (NYSE—BBY) is also gone after reports of inappropriate behavior.
Although we can’t short people like we can stocks, when companies emulate these self-destructive behaviors, they usually go one way. Down.
In the past we slammed the IPO of Groupon (NASDAQ—GRPN) for its ridiculous accounting methods and after recent financial restatement news I am sure that we haven’t heard the last of this situation.
Now we have Google (NASDAQ—GOOG) that has announced that its co-founders, who took the company public with different classes of stock (full voting and fewer voting rights) have proposed that GOOG issue new shares without diluting their ownership stakes. It is crazy to read that the 2 co-founders and the Chairman own 2/3 of the voting power and new shares that will be issued will have zero voting power.
That is the antithesis of corporate governance. It is taking a ***p on shareholders, frankly. We have the right to own it but no say in anything. If you’re cool with that, great, but many institutions are not.
This proposed measure will surely pass muster but it may cause some big holders to reduce their positions in the stock. Separately, the stock got crushed after some of the metrics and growth statistics were below forecasts and could portend that growth has hit a near term high. These metrics, such as the cost per click (sold) dropped with the product/service mix. We note that YTD GOOG is down over 3%.
The Only Stocks That Go Up in Corrections
Unfortunately, small stocks have taken the brunt of the hit these past two weeks. The Russell 2000 Index has dropped 6.1% during this time. We still struggle with low volumes as investors are either risk-averse or unwilling to commit new money in this space, which is needed to jump-start a sustained rally in our view. So, here is a tip worth its weight in gold.
GSCR Select Research: Name Change to Protect the Innocent
Name changes can be a sleight of hand. Companies that have blown up or are on the verge of breaking down may engage in a cursory transaction to give the appearance of real change at the business level and then introduce a new name to re-position the stock and attract new investors that would not be jaded by the new name. It is akin to the saying: You can put perfume on a pig, but it is still a pig.
However, since its name does not accurately reflect its operations and standing as one of the leading social networking firms in the world, it is changing its name to MeetMe and its symbol to MEET, this summer. Interestingly, QPSA is the #1 social network in the U.S. to meet new people and has nearly 3 billion page views per month. Plus, it has 78 million registered users worldwide and is the #1 social app on the Android mobile platform.
The unification of the businesses under one brand helps draw a line in the sand in an effort to become the leading platform to meet new people versus sharing info and communicating with friends and family, such as Facebook. The name MeetMe certainly is more likely to succeed than via the current names which bifurcates the identity of the firm as a whole.
For 2011, the Company generated nearly $37 million in revenue, which in our view is a fraction of what it could be given the reach and web traffic. Clearly, management hopes to be able to better monetize its platform via the re-branding.
Until next week…
Analyst: Robert Goldman
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