Patrick's Rants



3/24/2011

DEER In The Headlights

Filed under: Money,Stocks — site admin @ 6:55 pm

I run a simplistic stock screener in my TDAmeritrade account to look for stocks that I might be interested in buying – usually with the goal of selling at a higher price in a short to medium term time frame1. Recently, DEER popped up on my screener as falling within the price and value criteria. Looking at the chart, the price fell straight off a cliff within the past few days. DEER is a small appliances company in China, where the market for small appliances is potentially huge. This is the beginnings of an interesting dance between what might be termed investigative investors and a publicly traded company.

The first volley appears to have been fired by “Alfred Little” over at Seeking Alpha. He alleges that that Deer overpaid for land use contracts and that his attempts to confirm the contracts actually exists were in vain. He believes that massive fraud may be taking place at Deer and it’s time to bet on the downside. For its part, Deer alleges that Alfred Little is engaging in internet rumor mongering in an illegal attempt to drive the price down and take advantage the the huge price drop in a massive short collusion. In management’s defense, they have made significant purchases recently (and at $11.00 per share)

Bloggers seem to be today’s version of Geraldo Rivera sneaking into a mental health facility or, dare I say it, deep throat. A tiny kernel of truth sometimes exists. A blogger, an investigative investor, may stumble upon something that makes sense to them – heck read some of my posts, you’ll see I’m sure about what I believe whether it’s right or wrong. The tug-of-war that was started just days ago by Alfred Little may just end up being one blogger’s attempt to make a fast buck using the internet rumor machine or he could be cracking open the next Enron. Unlike Enron, though, there is insider buying, so I remain neutral on the whole affair.

It will be interesting to sit here, on my hands buying my own adjudged good buys, and see how this plays out.

  1. My dominant, but not only, trading style is to buy channel trading stocks

Disclaimer: I am not suggesting you buy, short, sell, run options on or otherwise transact in any way in DEER. If you do, it’s your own money on the line.

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