True Value Alert says "It’s as close to a sure bet as you can get"
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Alexander Green has a new “special report” out to lure subscribers to a letter I haven’t seen before called The True Value Alert — Green has been the head honcho at The Oxford Club for a long time and has put out a bunch of interesting ideas (and has some refreshingly stable and non-hypey stuff like the Gone Fishin’ portfolio), so I thought I would find out what this new bit is he’s touting.
The newsletter is expensive — like all of them are almost all the time, it’s “on sale” at a discount (normally $4,500, now $1,250), and it seems that he’s largely focused on finding stocks that have some sort of “trigger” but that are also value-priced. Or at least, that’s what they’re teasing for this first promo.
Here’s how they put it on the order page:
“✓ Urgent Special Report: “Ride the 2014 Golden Cross Surge”
“Right now, Alex is recommending a company that is severely undervalued, despite having a breakout year financially. Some of the biggest Wall Street firms have noticed and are starting to take very large positions in the company. When this stock hits its Golden Cross and surges up to its true value, a few people are going to make a lot of money.”
So … you can see why that catches investors’ attention.
What’s a “Golden Cross?” It’s one of the more well-worn technical indicators — the usual interpretation is that it’s when the 50 day moving average line crosses over the 200 day moving average line, which is a graphical representation of a stock that was down for a pretty substantial period but is gradually and pretty consistently moving up in the last few months — the stock has recently had an improving average price. (The “Death Cross”, by the way, is the opposite — the short term average crosses below the long term average).
There are lots of variations of these, many folks argue that different time periods are better or dispute the time frames used (there’s an interesting analysis of that by Barry Ritholz here, from back in early 2012 when the S&P 500 was about to have a golden cross, and a look at different kinds of moving averages from last year here), or that different kinds of moving averages are better (exponential versus simple, etc.).
Irregulars Quick Take Paid members get a quick summary of the stocks teased and our thoughts here. Join as a Stock Gumshoe Irregular today (already a member? log in at top right) And, frankly, there’s a lot of suspicion about it in many cases — it does seem to be a good general indicator for markets on average, meaning it’s better than a coin flip in determining the market direction for the next six months, but that doesn’t mean it is infallible or that it always works for broad markets or for individual stocks — there was a piece in the FT a couple years ago when their market (the FTSE 100) was hitting a golden cross as well, and the pundit said that “Golden crosses have a 100 per cent success rate during bull markets and a 100 per cent failure rate in bear markets.”
But what precisely is Alexander Green touting? Well, he’s tellng us not that a golden cross has hit which will make a stock likely to move up for the next six months — but that a cross might be about to be made by a stock he likes on or near August 29.
And they provide a dozen or so examples of stocks that made “golden crosses” in recent years and went on to huge returns — but you, of course, are wise enough to know that almost any idea can be cherry-picked… just find a few great stocks of the past few years and see which ones made a “golden cross” first, and show readers those charts. When you see a dozen charts, the thinking goes, you’re not thinking about the other dozen “golden crosses” they probably found where the cross “failed” and the stock went down and the copywriter wisely left them out of the ad. The implication of most of these ads is that THIS NEWSLETTER picked those stocks at the time (Conn’s in 2011, SunEdison in late 2012, Rite Aid in early 2013 are a few of the examples), but most of the time that’s not true — they don’t lie, but they don’t whack you over the head with the fact that these are not recommendations they made… they’re usually just examples of what might happen or what could have happened. (Though in this case they do say one of these was a pick of Alex’s — “Alex made a similar call last year that could have turned $10,000 into $46,000… in only two months.”)
So what do they think you should do?
“The steps you should take are clear…
“1) Find a stock that’s about to experience a Golden Cross.
“2) Get in before the event occurs.
“And 3) Collect a huge payday….
“Alex has spotted the potential for not one, not two, but THREE Golden Crosses… the first expected to hit within the next few weeks.”
I’ve never heard of someone trying to anticipate a “golden cross” several weeks before it might happen, but I guess there must be chart-searchers who do just that. This stock has likely already released earnings, so it’s probably not a big event like a quarterly release that’s going to move the shares at the end of August (not many companies report in late August), presumably they just think the trend of a stock’s generally increasing shares is going to continue.
Predicting a golden cross even further into the future than that, like the other two must be, seems awfully foolhardy, but if you like this indicator than perhaps finding stocks where it’s getting close and putting them on a watchlist is a reasonable thing to do — remember, though the Golden Cross is still pretty widely accepted to be predictive to at least some degree for the broader markets (whether it’s predictive for individual stocks is much messier), a stock almost but not quite having a golden cross probably has no predictive power at all… at least, not that anyone has tracked very carefully.
What, then, is that first Golden Cross that Alexander Green is pitching? Let’s check our clues:
“…when Alex showed me the effect of Golden Crosses in this niche market, I was amazed. Nothing I’d ever encountered gave such predictable profits.
“Our research shows that not only can Golden Crosses predict monumental rises in stock prices… but that one particular part of the market creates the most profitable opportunities…
“By far.
“In fact, study after study proves this could be the safest corner of the market.
“A report in Bloomberg determined that this combination niche has ‘produced consistently positive returns… for more than 80 years.’
“…when a Golden Cross hits a stock in this niche… it almost always signals a huge run-up. And Alex has spotted three Golden Crosses set to hit three stocks in this particular niche in the market starting around August 29.”
What’s the “niche?” Really cheap stocks based, apparently, on asset value. Here’s how they say True Value Alert works:
“It’s based around a group of stocks that are often in the unique position of trading below “true value.”
“In short, this happens when stocks are trading at less than the audited liquidation value of the companies’ assets.”
So it sounds like what Green is doing is trying to find value stocks that have just started an uptrend — one relatively common way that value-focused investors “hedge their bets” to try to avoid “value traps” (stocks that are dirt cheap but stay cheap for years for one reason or another). Not an unreasonable strategy. The Bloomberg article they quote is about blending value and momentum strategies, which is another way of describing it — you can see that here if you’re curious.
Or, as they put it:
“As Alex began targeting these companies selling below their true values, he also noticed that many of them would experience Golden Cross events at the exact moment the stock took off.”
The one that they do take credit for recognizing in real time is Alcoa, which they say they was Alex’s first recommendation for The True Value Alert last Fall, and which had a “golden cross” last November 1 and ran up 360% after that. So that’s what they’re looking for, cheap stocks that are just beginning an uptrend as denoted by the “Golden Cross.” What specifically is that first one that might “cross” by August 29?
Here are the specific clues:
“Alex has personally selected what he believes will be the next big hit….
“It’s a publicly traded hedge fund that Alex has marked an official “Buy.”
“As he puts it…
‘Earnings should rise 45% in the next year, yet it trades at a P/E of eight and yields a tax-deferred 6.7%. This company has huge operating margins, a big return on equity and insiders own 27% of the stock.’
“Because of this, its share price is just starting to show a big momentum push right now and Alex believes a Golden Cross is likely to happen on or near August 29"
Who is it? This is, sez the Thinkolator, Och-Ziff Capital Management (OZM), one of the hedge fund management companies that went public not long before the 2008 financial crisis (along with the much more successful Blackstone (BX) and the similar Fortress Investment Group (FIG), among others). OZM is highly levered (they borrow a lot of money to amplify returns, apparently), but is awfully cheap based on earnings — though that doesn’t make them stand out, FIG and BX and others are also cheap on that metric.
Like Blackstone and others, Och-Ziff describes itself as an alternative asset manager, running lots of different investment funds and strategies for institutional investors, and they are a publicly traded partnership. So it’s a little bit like an MLP in that you can expect distribution payments (similar to dividends) and a K-1 form for your taxes each year (shareholders in publicly traded partnerships are liable for the partnership’s tax burden, similar to MLPs or REITs they don’t pay corporate tax but pass along the taxable profits to shareholders). The dividend is not steady or steadily growing, however — unlike fairly predictable businesses like owning shopping malls (REITs) or owning natural gas pipelines (many MLPs), asset managers see their earnings fluctuate quite a bit from year to year. This year will likely be good for all of them if they’re good managers, thanks to great equity returns (you’ve probably heard of “2 and 20" — that’s a standard renumeration for alternative asset managers, they get 2% of assets as an annual fee plus 20% of returns above some benchmark number), as the past couple years have been good in a bull market where institutions are willing to pay for some “hedging” or alternative exposure because they’re afraid of crashes. That’s likely why the stocks are pretty cheap based on earnings, investors are afraid of the cyclicality of the business and are, perhaps, worrying that next year won’t be as good.
But if you want value and momentum, you might find it here — the momentum, as measured by the golden cross, has not yet come… but it’s close. That’s if you use the simple moving average — and in that case, it actually showed a “Death Cross” for OZM back in May or so, with the possibility that there might be a “Golden Cross if the two lines continue to converge (which would mostly mean the stock goes up for the near term). If you use the exponential moving average (EMA) that some technical analysts prefer, however, which weights the averages differently, then the stock flirted with a Death Cross back in May but the short-term average is already above the long-term average so can’t, by definition, have a “Golden Cross.” So technical traders may quibble about this, but the stock is cheap by most metrics and does have some upward momentum. And it pays a pretty nice distribution, though that distribution is heavily weighted to the year-end payment made usually in February (the trailing four quarters provided a yield of 13.5%, more than half of it in the February payment).
Whether that means it will be a great investment, well, that’s your call to make — I don’t own shares and I don’t know how OZM has done of late in terms of growing assets under management (AUM), which is the lifeblood of any asset manager, I can just tell you that this is the stock Alexander Green is teasing. Investing other peoples’ money and taking a fat fee is a great business, but it’s also very competitive and not necessarily steady.
So go forth, researchify, and let us know if you like OZM — or if you think it will make a “golden cross” and bring riches down upon us… just use the friendly little comment box below to share your thoughts. Thanks!
Poster Comment:
Han Trinh says: Would putting MLP’s in an RRSP make a difference? I keep all my USA dividend paying stocks in there as I don’t get dinged US withholding taxes because of the Canada/USA tax treatise. But I have not tried buying an MLP yet.
Stephen Lindquist says: This hedge Fund is now the second largest Hedge Fund in America, thanks to their 31 year old real life wolf of Wall street, Jimmy Levin. He made what is widely known as the best bet on Wall Street in FYE2012 when he bet $5.Bn on restructured debt and made (OZM) a cool $2.0Bn in pure profit. He’s the youngest partner at the firm by over 30 years and made partner when he was just 27!!! He went to Harvard and double majored in computer science and finance, and at the start of 2012, OZM had total AUM of $28.8Bn. Since Jimmy made such a sage bet on debt restructuring, he’s now the Head of Och Ziffs Global Debt , and in the two and a half years since they had AUM of $28.8Bn, he has single handedly increased that number to $45.9Bn, a well over 50% increase in people who put their faith in Jimmy . Given OZM pays a 6.7% dividend and is priced at just $13 and change, as long as Jimmy remains their golden goose, I wouldn’t be at all surprised to see OZM STOCK PRICE INCREASE BY 60-80% OVER THE NEXT YEAR!