In terms of how long it has been promoted, how long the stock did not go down, and the likely profits of insiders who paid for the stock promotion, UAPC has been one of the more successful stock promotions of 2012. As with all stock promotions, however, the end result is that investors get killed, the insiders who paid for the stock promotions make easy money by selling their shares at inflated prices, and the company never achieves any of the things the stock promoters said it would.
UAPC was featured as Chuck Jaffe’s stupid investment of the week last week. The best part was the response from Barry Gross, who handles the company’s investor relations:
“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.?’”
This kind of mindset is why stock promotions work. People believe too easily in the beautiful lies told by the stock promoters.
Here is what one of the idiots who bought the stock had to say about UAPC (emphasis mine):
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?”
The problem is that the stock was not cheap. The stock price doesn’t matter. Stocks are like pies — what matters is not the price per slice (they can be arbitrarily large or small) but the price of the whole pie. With over 45 million shares outstanding as of May and a price around $1, UAPC had a market capitalization of over $45 million despite having almost no assets and no revenues. Even without the pump such a company (unless it was led by someone with tons of experience) wouldn’t be worth $1 million, let alone $45 million.
If you ever have the urge to invest in a penny stock that is touted by a stock promoter, please give me a call. I would be glad to write you a very, very cheap one-year European call option on the stock.