Citron introduces Great Northern Iron. (NYSE:GNI).
You absolutely won’t believe this: A stock that is going to die, for certain. 100% guaranteed — a veritable ghost ship of a stock. No fraud, no deception, no fad. Simply a huge oversight by the market.
Why is this stock different from every other stock? One simple fact: In exactly 4 years and 3 months, it goes away. Period.
GNI is an iron ore mining trust set up by a railroad baron primarily to provide a legacy for generations of heirs. Twenty years following the death of the last living heir (they are all explicitly named) in the trust, the cash is divvied up, and the property reverts, in this case to Conoco Phillips, that has acquired the holding. That’s it. End of story. No mystery. Its all right in the 10-K, where it’s been printed every year for decades.
The devil is in the details.
The terms of the Great Northern Iron Ore Properties Trust Agreement, created December 7, 1906, state that the Trust shall continue for twenty years after the death of the last survivor of eighteen persons named in the Trust Agreement. The last survivor of these eighteen persons died on April 6, 1995. Accordingly, the Trust terminates twenty years from April 6, 1995, that being April 6, 2015.
At the end of the Trust on April 6, 2015, the certificates of beneficial interest (shares) in the Trust will cease to trade on the New York Stock Exchange and thereafter will represent only the right to receive certain distributions payable to the certificate holders of record at the time of the termination of the Trust. Upon termination, the Trust is obligated to distribute ratably to these certificate holders the net monies remaining in the hands of the Trustees (after paying and providing for all expenses and obligations of the Trust), plus the balance in the Principal Charges account (this account is explained in the Trust’s Annual Report sent to all certificate holders every year). All other Trust property (most notably the Trust’s mineral properties and the active leases) must be conveyed and transferred to the reversioner (currently Glacier Park Company, a wholly owned subsidiary of ConocoPhillips) under the terms of the Trust Agreement.
How do you value a company that is going away, and surrendering its productive assets as it goes into the sunset ? Runoff calculations take the present value of future payment streams: 17 quarterly distributions plus about 8.53 in cash per share when the trust is liquidated in April 2015.
So what does it earn? The last 3 calendar years, it has earned 7.63 to 11.75 per share. The most profitable quarter in its history was the September 2010 quarter, in which it earned 3.50 per share.
So calculating the net present value of 18 quarters of earnings from $3.00 to $5.00 per quarter, against a discount rate of 2%, 4% or 6%, with a liquidating payment thrown in, we see a range of present values from $54.00, to at most (if the most favorable discount rate is thrown at a quarterly earning 50% higher than the company has ever earned in its history) of ….. drum roll……$94.00. Realistically, with execution and commodity pricing risk rolled in, any value above $75.00 requires a huge leap of faith.
|TTM by quarters||5,243||4,444||2,321|
|Net EPS per qtr||3.50||2.96||1.55|
So what is this stock doing north of $150 a share? How Can This Be Possible ?
In a world where single-stock picking is rapidly becoming extinct, drowned by the massive waves of quant funds and computer generated trading, the above detail – that this company is soon to become extinct – has been entirely forgotten.
Don’t take our word for it: look how many times GNI has been mentioned in these articles titled “Best Yielding Stocks”, “Top Net Cash Flow Stocks”….etc., where it is compared to other stocks that …… well ….. won’t cease to exist on April 2015. So the computers go about their merry way,
Crazy Premise: 8% yield : (7/22/2009)
Crazy Premise: 10.6% yield : (12/3/2010)
“Great Northern Iron Ore Properties (NYSE:GNI) has the 7th highest dividend yield in this segment of the market. Its current dividend yield is 10.57%. Its dividend payout ratio was 111.30% for the last 12 months.”
Crazy Premise: Enterprise value ratio mumbo jumbo (12/2/2010)
Crazy Premise: Top ten cash flow: (12/2/2010)
Great Northern Iron Ore (GNI) has a price to free cash flow ratio of 6.6x based on a current price of $138.62 and a free cash flow per share of $20.85.
Crazy Premise: Impressive Operating Results: (10/25/2010)
Crazy Premise: Top 10 dividend yields: (10/22/2010)
Every single one of these articles ignores the fatal flaw in its investment premise — that this company has ongoing enterprise value, which it simply does not … it is going away — with date certainty in 2015 — for an estimated liquidation value of $8.53.
The art and science of stock picking — which begins by reading the filings — is apparently Not Dead Yet. If you’re concerned about a possible run-up in the price of iron ore negating the profit of this trade, we suggest hedging with Mesabi Trust (NYSE:MSB)
Cautious Investing to All!
Not only is this promotion a scam — it is not even a good scam
Just when you thought old school stock promotion was dead, along comes Horiyoshi Worldwide. An intensely promoted bulletin board shell hits the street, generating millions in volume as promoters roll a shell deal into a near-bankrupt Japanese clothing outfit with virtually no business record, yet it has a market cap of more than $190 million
Before we get into the promotion, we will just present the numbers from their most recent 8-K which are completely ludicrous that this would even be a public company.
“We had nominal revenues of $30,633 for the year ended December 31, 2009 and revenues of $153,087 for the six months ended June 30, 2010. As at June 30, 2010 we had incurred a cumulative net loss of $376,306, had cash of $233,462, and a working capital deficit of $3,690”
“As of June 30, 2010, our total assets were $624,650 and our total liabilities were $1,000,182 and we had a working capital deficit of $35,532. Our financial statements report a net loss of $135,242 for the six month period ended June 30, 2010.”
C’mon promoters, if you are going to sucker the public, at least make it a decent story. To show the extent of the promotion we look at this disclaimer.
“A third party has spent $2 million on this stock promotion.”
That is more than the company’s entire budget for next year.
As pulled from the 8-K:
Over the next 12 months we anticipate that we will incur the following operating expenses:
|Design and Production Expenses||
|Marketing and Sales Expenses||
|General and Administrative Expenses (includes administrative and professional fees)||
Most recently, the company has disclosed that they have “raised money” from a Milan investment firm named Zyndy Trade Corp. Yet, much like the promotion, which is being funded by unnamed third parties, a simple Google search shows us nothing on this investment firm and they do not disclose any names behind it.
So who is in charge here?
The CFO and Secretary of HHWW is Ray Catroppa. Who is he? The bio in the filings states he is a CFA and has a background with well-known wall IB firms on the street.
“Mr. Catroppa has an extensive background in capital markets and financial analysis that comes from the 25 years he spent with top Wall Street firms in New York City, including Credit Suisse First Boston (CSFB), First Manhattan Corporation and Neuberger Berman. For the past 6 years, Mr. Catroppa has worked as an independent consultant and advisor to numerous public companies listed on the NYSE and AMEX. In 2002, he received the designation of Chartered Financial Analyst (CFA) from the CFA Institute. He holds a B.A. in Economics from Stony Brook University and an M.B.A. from Fordham University in New York City.”
Why doesn’t it state that he is an investor relations guy with Cameron & Associates?
His main client, with over 20 PR’s in the last two years, is a 15c oil and gas deal traded on Canadian exchanges.
Promotion and spam everywhere
And what would you expect from a CFO who is an investor relations guy, except a MASSIVE stock promotion that has blitzed the internet? Here is just a sampling of the nonsense:
(Breakaway Stocks) Disclaimer: CFM has received and managed a total production budget of $2 million for this advertising effort….
Are these guys even aware this statement alone is Halt Material?
“Horiyoshi Worldwide (HHWW) shares could soar 4,538% or more before the New Year!
Of all the bizarre things the SEC tolerates, unfounded profit projections are at the bottom of the list. If this statement were true at current prices, this worthless company would have to have a market cap of over $8.7 billion! Hello?
Just when you thought old school stock promo was dead…here you go. The claims made in these promotional pieces are nothing short of fraudulent. Does this SEC get to this stock sooner or later?
For everyone who buys based on email spams, it is most important to use SEC filings, that is why they are there. Caveat Emptor!