Calgary Herald

FIVE STOCKS THAT LEFT ME SHAKING MY HEAD

Weird events have made the market more interestin­g, writes Peter Hodson.

- Financial Post Peter Hodson, CFA, is CEO of 5i Research Inc., an independen­t research network providing conflictfr­ee advice to individual investors.

From time to time, I try to engage my kids in discussion­s about investing and the stock market. For example, if we are at Tim Hortons, I explain to them how it was purchased by the American holding company, which also owns Burger King. During our recent roller-coaster trip to California, I explained that they could buy shares in a roller-coaster park company, Six Flags Entertainm­ent Corp. (SIX on NYSE) and earn a four per cent dividend while they save for university.

But, sometimes, the stock market is just too weird to explain. Even for me, with 40 years’ plus now of investing experience, I still shake my head at some of the goings-on with companies, investors and the market. Let’s take a look at five recent weird events.

WINS FINANCE HOLDINGS INC. ( WINS ON NASDAQ)

Wins is a Chinese company in the financial services business. It is now a $1.2-billion company, but in February was worth nearly $8 billion. That’s not the weird part. Its 52-week price range is $10.34 per share to $465 per share. That’s not it, either. Nope, the strange part is, accordingl­y to a flurry of recent lawsuits, Wins set up a U.S. head office address just to gain inclusion into U.S. indices (which it did). The index inclusion set off a wave of buy- ing from U.S. index players on an unknown Chinese company. Index committees have to be agnostic, and have to follow their rules. With its U.S. “head office,” Wins was granted inclusion into several indices. Now, though, with a plunging share price (down 67 per cent this year), the jig might be up. Even with its current $1 billion+ market cap, the company only had $20 million in net revenue last year.

HOME CAPITAL ( HCG ON THE TSX)

Home Capital went through the 2008-09 financial crisis just fine. In fact, during those years it increased its earnings per share and also increased its dividend. This week, though, none of that mattered, nor did its 10-year plus history of strong performanc­e, as it experience­d a good old fashioned run on its banking subsidiari­es, which resulted in it needing to find some very expensive funding to replace fleeing deposits. Sure, executives of the company made some serious judgment errors, and there is an OSC investigat­ion ongoing, but recent problems for the company all seem to have started with a short attack by Mark Cohodes — a chicken farmer. So HCG survives Lehman Brothers and a worldwide financial collapse, only to be humbled and hobbled by a single farmer.

MAG INDUSTRIES CORP. ( MAAFF ON THE OVERTHE- COUNTER MARKET IN THE U. S.)

Mag is a Canadian-based magnesium/potash company, formerly listed in Toronto (delisted in August 2015 for failing to meet listing requiremen­ts). With an $11-million market cap, it is largely ignored now. Except for one recent glorious day in the sun: On March 24, the stock price rose 32,043 per cent. That’s right. From a price of $0.0018 per share on March 22 Mag shares rose to $0.90 per share on March 24, on volume of 10 million shares. What caused this spike? Pretty much nothing from the company. Trading looks to be a perfect example of a “pump and dump” scheme on the over-the-counter market, known to be so bad for investors that U.S. regulators actually use a skull and crossbones logo on some companies so investors know what they are getting into. After its meteoric rise, it took Mag shares all of three days to go from $0.90 per share back to below 1-cent per share.

CRH MEDICAL ( CRH ON TSX)

Canadian health-care investors, rightly so, have been nervous following the giant collapses of two of the biggest companies in the sector, Valeant ( VRX on TSX) and Concordia (CXR on TSX).

So, last week when there was a rumoured short report on CRH, investors didn’t wait long to panic. CRH shares, which were $12.35 on April 20, and at all-time highs, plunged to $7.56 per share the very next day. The whole thesis of the short report, which most investors haven’t even seen, was that margins and CRH’s payor relationsh­ips need to be watched. Well, anyone investing in the health-care sector should know this already. Government­s are always trying to lower costs. While the report was fairly well-written (unlike many short “attacks”), there is nothing in the report that should be any news to any long investor in the company. The company reported solid earnings Thursday, and the stock is up 25 per cent this year, but it might still take CRH some time to recover from this incident.

LUMENPULSE ( LMP ON TSX)

Lumenpulse is a mid-cap LED company, which went public at $16 per share in 2014. After a couple of years of missing 50 per cent of its earnings forecasts, no one cared much about the stock, and it was down 38 per cent year to date as of Wednesday. Apparently, though, insiders still liked it, and on Thursday the founders announced plans to take it public at $21.25 per share, an 85 per cent premium. Nice for shareholde­rs, sure, but we have insiders taking the company public at $16, only to buy it all back almost exactly three years later at $21.25. Oh, and during those three years the company only made about $0.70 per share in earnings. Go figure.

Of course, the weird stuff makes the market much more interestin­g, and, occasional­ly, more profitable.

 ?? PATRICK T. FALLON/ BLOOMBERG ?? A trip to Six Flags Magic Mountain in Valencia, Calif., offered Peter Hodson a chance to teach his children about the stick market.
PATRICK T. FALLON/ BLOOMBERG A trip to Six Flags Magic Mountain in Valencia, Calif., offered Peter Hodson a chance to teach his children about the stick market.

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