I haven’t looked at a teaser pitch from Private Briefing for a while, that’s the “pay as you go” monthly newsletter from Bill Patalon at Money Map Press — in the interim, the it looks like the price has just about tripled to $19.99 a month (that’s $239.88 a year for those who are math challenged)… and in order to induce you to pony up for that letter he’s hinting around about a company that runs funny, eye-catching commercials that drive in 60,000 new customers a month.
Will it be a huge moneymaker for you? Well, that I don’t know — but I do know that the name and ticker he’s “selling” for $20 we can find for you for free… we’ll just have to sift through the clues a bit.
Who knows, maybe if you like this one or think about the service for a while you’ll want to try his newsletter, that’s your choice… but our mission here at Stock Gumshoe is to take away a little of the false urgency brought on by marketers and copywriters and let you think things over in the light of day. Don’t ever subscribe to a newsletter just to get the name of a “secret” stock — and that’s not just because you might be wasting your money or committing to a newsletter you don’t really want, it’s also because, for most people, buying heavily marketed “secret” info destroys your brain’s ability to judge it carefully — if you paid for it, confirmation bias tells you it must be awesome and you must buy it now (otherwise you’d be a chump for buying it, right? No one wants to admit they’re a chump — even to their own brain).
But still, we do want to know what this stock is, right? Who knows, maybe we’ll all love it. So what are the clues in the ad? Jumping right in…
“The Company Behind This Funny 60-Second Commercial Is Set to Hand Investors Some Very Serious Gains….
“My early projection is 201%….
“This company has created television commercials so powerful, they manage to convince 60,000 people every month to ring them up and beg for their products.
“And the story gets better…
“Not only do these callers beg for their products… they even beg for more products the company doesn’t even offer.
“Which is why to satisfy all those callers, this firm is now embarking on some very lucrative initiatives that are about to have a huge impact on its bottom line.
“They’re buying up multi-million dollar companies, building partnerships with members of the Fortune 500, and creating new and innovative product lines as we speak.”
Lots of companies still make money using television ads, of course — that’s why there are so many ads on television. But it sounds like what we’re being pitched here is a direct marketing company of some sort that is embarking on some kind of “upsell” strategy to expand their offerings.
Do we get some more details? You betcha! Apparently some hedge fund guys have bought in, too…
“… three of America’s sharpest, high-profile hedge funds have taken very large positions in this company.
“Including one that recently increased its position to nearly 15%…
“Make no mistake: When hedge funds unload piles of money, it means a massive moneymaking opportunity is set to follow.”
Hedge funds as a group are terrible, as you have probably realized — the best ones run by extraordinary investors are great and earn their massive fees, at least in my mind, but the average ones perform much worse than the average boring old index fund…. and there are so many hedge funds that you’d be hard-pressed to find a decent-sized stock that doesn’t include several hedge funds among its investors. So that’s not all that impressive, necessarily, but it does provide us with some more clues for the Thinkolator. As does this…
“Their business is simple: They provide instant payments to folks who want to cash-out on their personally held long-term annuities….
“Business began booming after the recession – but it’s about to take off to a whole new level.
“That’s because this company recently announced two major initiatives… both completely missed by the mainstream media.
“First, they made an agreement with credit juggernaut Visa to offer pre-paid spending cards that could lead to millions in new revenue right off the bat….
“The second initiative is even bigger…
“You see, this company just plunked down $54 million in cash to purchase one of the country’s most popular lenders.
“One that just originated $1.5 billion in new loans…..
“… it instantly provides this company with a huge cross-sell opportunity they can use to super-boost their revenue – and become a diversified financial machine.”
OK, so that’s enough for the Thinkolator. But then I ran across this in the ad just to help us confirm… and remind us that copywriters can be sneaky…
“I’ve been keeping a close watch on buying sprees made by some ‘knowledgeable insiders.’
“I’m talking about heavy-hitters like Carl Icahn, George Soros, Warren Buffet – not to mention a handful of influential hedge-fund and private-equity players who have specialized knowledge of certain companies I follow.
“That’s exactly the kind of situation we have today.
“And according to a Form 4 filing with the SEC…
“A very powerful Madison Avenue investment firm, Trishield Capital, just spent $1.32 million to buy 132,859 shares of this company.
“That purchase brought this firms total stake in this one company to 2.03 million shares – nearly 15% of the shares outstanding.”
All quite true, but no, Carl Icahn, George Soros and Warren Buffett are not “insiders” on this one — that was just a way to give you an idea of the type of investor he says he follows. And, to be fair, Trishield Capital is a reasonably high-profile hedge fund at the moment considering its tiny size (their 13F-reported portfolio is only about $75 million) — they specialize in distressed investments and “special situations” and they had a great year last year. They reportedly had about a 15% net return in 2014, which puts them in a lot of “top ten” lists for hedge fund returns as long as you segment by size or strategy (the S&P returned 12.5% for the year, just for comparison’s sake).
And yes, this “secret” stock is one of their largest holdings — the stock is J.G. Wentworth (JGW), which you might know from their “cash now” ads. They are a cash buyer of structured payment streams, so they got their start with buying stuff like lottery winnings and lawsuit settlement payments (where you might earn $10,000 a year for ten years, for example, but be willing to take less in order to get the “cash now”). They’ve diversified over the years to buying pretty much any kind of structured payment, including annuities, and they say they’re the leading “purchaser of future payments.”
I don’t know what the economics of this are like, but presumably those who have ongoing lawsuit settlement payments or annuities and are in some urgent need for cash are not necessarily the same people who could easily borrow that cash against their future income from some presumably lower-cost source, like a bank, so there will presumably always be a market for this kind of service as long as it’s not regulated away.
And JGW is indeed diversifying — they’ve consolidated their niche a little bit over the years, notably by buying Peachtree Capital in 2011, and they have recently begun offering more financial services through their direct marketing channels (including, yes, loans and those Visa prepaid cash cards). The company has been around and in this business since the early 1990s, but they went through bankruptcy in the financial crisis because they couldn’t get financing (no one would buy their structured settlement securities at reasonable prices), got a private equity sponsor and broadened their base of funding partners for future securitizations to help avoid that kind of problem in the future, and finally went public about a year and a half ago. The stock has not been strong — the IPO was a disappointment, pricing at $14 instead of the expected $20 and dipping down almost immediately, and though it did bump up to near $20 for a little while it’s been a steady year of bumping down ever since and now trades right around $10.
It’s a decent business as far as I can understand it, particularly because they’ve been able to package and sell their structured notes to institutional investors instead of just holding them and awaiting the continuing income stream, and they’re the only company with real scale that I can see, but they do have a super-voting structure of non-traded B shares that you don’t necessarily see when you look at the basic info on Yahoo Finance (the market cap is not really $140 million or so, as it appears in most quotes, it’s roughly twice that size). They are small, either way you slice it, and this is effectively a levered spread business — they “borrow” by securitizing the future income streams they buy, and they make money because they securitize them at a much lower interest rate than their effective cost when purchasing these structured income streams. This is also a wasting business, however, since these annuities and structured settlements end, so they have to keep buying more new streams of cash to keep growing… which is why they do so much marketing, lots of which appears to be on late-night or niche-channel cable TV (the stuff you’re reduced to watching, I suppose, if you’re stuck on the couch all day and living off of a medical malpractice settlement).
I have to admit that I do not understand the nuts and bolts of this business very well — structured settlements themselves can be complex, and when you securitize them and have to create some sort of accounting representation of that income it’s not necessarily a common-sense picture that’s easy to quickly comprehend. They use terms like total receivables and adjusted net income, which is code for “I can’t figure this out in 20 minutes,” so I will leave it to you to check out the company, let us know if it you find it interesting, and share your opinions if you’ve got any — just don’t put too much stock in the “normal” reported numbers like earnings per share.
Oh, and if you’re interested in that diversification that Bill Patalon is putting a lot of stock in generating some revenue growth for them, you can also check out the white paper that the company commissioned on this — it’s available here (just remember that J.G. Wentworth paid for it). I’d agree that this is a promising growth avenue, since people who need quick cash from selling settlements are probably a rich trove of customers for other probably high-profit or high-fee financial services, but it seems likely that interest rate spreads between what they can offer to annuity sellers and what they have to pay to borrow that up-front capital (when they securitize) will continue to have a much larger impact on their cash earnings. That’s all I can tell you — Private Briefing thinks JGW might climb by 200% or more, and I find their financials somewhat inscrutable… if you think there’s something that makes digging into this quagmire of information compelling or valuable, let us know with a comment below. Thanks!