Investing in OTC stocks is a bit like playing roulette -- it presents the worst odds in the casino and yet offers the prospect of the biggest winnings. Any way you choose to look at it, buying penny stocks is a risky proposition. Fighting through the noise is the first problem, as there tends to be a lot of false hype and promotion going on in the OTC world.
Ironically, because of this environment of hype and promotion, OTC stocks with the best word of mouth and best positive chatter on unmoderated investment boards such as Investors Hub can often prove to be the worst investments. Whereas some of the most solid OTC stocks often experience the most unrelenting bashing on these same investor boards from those with short positions. Let's take a look at a few OTC stocks to illustrate this point.
TagLikeMe Corp. (OTCQB:TAGG), is a great example of an OTC stock which recently received a tremendous amount of hype and promotion from entities like Awesome Penny Stocks and on investor boards and turned out to be a woefully bad investment. A quick look at its chart for the past six months shows its sharp decline after being promoted.
TagLikeMe Corp. purportedly offered an opportunity to cash in on a new, shared social information network that would enable users to search, tag and share digital content using cloud based technology. TageLikeMe versions were scheduled for release on all mobile platforms in 2012, but nothing has been released to date. The stock plummeted from a high of .48 in November to its current price of .02. After its flurry of announcements and promotion in October and November not much has been heard since.
Another OTC stock which recently illustrates this "pump and dump" scenario is Swingplane Ventures, Inc. (OTCQB:SWVI). As well documented in this SA article by StockBaller and this SA article by Fraud Research Institute, Swingplane was heavily promoted by Awesome Penny Stocks in February and has already taken its dive from a high of .90 in late February to a price of .11 at the time of writing. Swingplane claims to be a going concern with substantial copper mines in Chile promising quick rewards. A quick look at the company's financials reveals quite a different story with no revenues, less than $50,000 in cash and the need to raise some $12,000,000 during the next year to move forward with its business plan.
On the flipside there are, of course, innovative, new companies being traded on the OTC markets that represent good value as they develop and grow their businesses. Quite often these companies can be victim of constant and persistent verbal attacks on unmoderated investment boards such as Investors Hub from those in a short position.
One such company I have been following is Mimvi, Inc. (MIMV.OB). Mimvi is a pure-play mobile technology company. Its website states its core technology is "based on personalization algorithms, proprietary mobile app search, and recommendations algorithms. Heady stuff. Simply put, no other search technology targets and delivers relevant mobile app, mobile content and mobile products in the same way." Mimvi signed a deal with Microsoft (MSFT) last September to develop a number of products and services to complement Microsoft's Windows Azure and Windows Mobile 8 platforms. The agreement also involved Microsoft making investments in Mimvi in the form of engineering services, software and cash.
Since that announcement Mimvi has continued to announce a number of new products and partnerships. In January, Mimvi filed a patent application for its mobile app discovery technology. Despite this, it has also continued to be subject to a relentless stream of negative comments on Investors Hub and in the comment section on Seeking Alpha articles such as "Microsoft And The Raiders Of The Lost App" article recently published by Maltzberger.
How to construe this sort of activity? Certainly it is entirely possible that this is a case of shorters doing what shorters do: Bashing a company in order to drive its price down. Or it could be a case of investors with legitimate concern warning other investors to steer clear. Being the cynical type, I tend to believe the former.
Pulse Beverage (OTCQB:PLSB) is another OTC stock that has received more than its share of bashing since its founding in 2010 by senior beverage industry veterans. Pulse has focused its products on hitting the movement towards healthier, non-carbonated beverages. Pulse manufactures and distributes Cabana 100% Natural Lemonade and PULSE brand of functional beverages in three health platforms: PULSE Heart Health Formula, PULSE Women's Health Formula and PULSE Men's Health Formula. The company concentrated its efforts in 2012 to expanding its distribution chain with significant results. Its products are now distributed in 43 US states, Canada, Panama, Bermuda and Mexico. As a result of these efforts to increase distribution, Pulse's sales numbers continue to rise rapidly, as discussed in detail in this recent SA article by Vineet Dutta, leading to a positive outlook for the company in 2013.
Investing in OTC stocks is a risky and tricky business. Relying on positive word from investment boards, promoters and "analysts" can often backfire. Ironically, some penny stocks that receive the most bad press can turn out to be the most solid of OTC investments. There are just no shortcuts. Nothing beats sound and comprehensive financial analysis when deciding on which OTC stock to invest in.