1 Hot Stock to Avoid

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Company Star Scientific (Nasdaq: CIGX  )
Submitted By TSIF
Member Rating 99.93
Submitted On 8/27/2011
Stock Price At Recommendation $2.13

Star Scientific profile

Star Rating *
Headquarters Glen Allen, Va.
Industry Cigarettes
Market Cap $300 million
Industry Peers

Altria (NYSE: MO  )

Phillip Morris International (NYSE: PM  )

Lorillard (NYSE: LO  )

Sources: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and Motley Fool CAPS.

This Week's Pitch:
Star Scientific has made multiple run-ups over the years, and subsequent run downs. They have minimal income and rely on share issue when the price gets upward. The price has gone upward over their substitute cigarettes, but no sales developed to cover expenses. The next round was sueing various tobacco houses, namely RJ Reynolds for patent infringement. On top of the court trials rumors that they had isolated chemical called Anatabine as a regulator of NF-kB's which can potentially affect Asthma, Crohns, Alzheimers, Parkinsons, Irritable Bowl Disease, Cancers, arthritis, thyroid disease etc. The focus has been on Alzheimers.

Friday the share price spiked 20% and then dropped in half as the interpretation from their patent royalty claims against Reynolds American [ (NYSE: RAI  ) ] were squelched. I had a limit down set to kick-in above $3.50, but apparently the knee jerk was too short lived and I had to settle for kicking it in much lower. 

I'm still confused that if investors think Star Scientific's patented cure for Alzheimers is worth Tens of Billions why they let a little thing like a patent infringement suit rattle them. Maybe the price will go back up again as bargain hunters root for the cure. More likely this round is over and the historical sub $1 norm is in range. Hard to tell when speculators are driving.

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The Motley Fool is investors writing for investors. Dan Dzombak owns shares of Altria and Philip Morris International. Pitches must be compelling and made in the past 30 days. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (4) | Recommend This Article (3)

Comments from our Foolish Readers

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  • Report this Comment On September 06, 2011, at 3:05 PM, YankeesWin wrote:

    Time once again for the Fool's weekly bashing of Star. If the author is so confused as he admits in his own article, maybe it would serve investors better if he withheld comment until he wasn't. And by the way, it isn't a rumor that "they had isolated chemical called Anatabine". They now have two products on the market with the main ingredient being Anatabine. I suggest the author do a little more research before his next attempt at bashing Star, which without a doubt, will be soon to follow.

  • Report this Comment On September 06, 2011, at 4:09 PM, TSIF wrote:

    The "confused" part of the pitch is sarcasm. If investors think Star has a cure for these terrible diseases why did they sell so many of their shares over that sham of a patent infringement case. Why aren't you LONG and STRONG??

    If their products are so "great" when are they going to earn any money? Their revenue was $770,000 THOUSAND last year......Their expenses were $20 Million.

    Even if they ever prove there is anything magical in Anatabine which has been tested for many years with no conclusion, they don't have any exclusive rights on it either.

    As long as they have new bagholders to help them dilute, they will continue to exist. Of course there is no reason to have any dialogue with any current shareholders. When you are in love with your stock and you have a "dream" you aren't going to wake up until the nightmare part of the dream is well in play.

    This "author" only "bashes" Star when their stock price doubles irrationally. It might happen again, but hopefully not any time soon. No SHORT holdings, none planned, just contributing some material for those who aren't in dreamland yet.

  • Report this Comment On September 07, 2011, at 1:53 PM, YankeesWin wrote:

    Give me a break! Show me one article posted here on the positive results recently shown with Anatabine, readily available from trusted sources, especially the Roskamp Institute concerning inflammation reduction.

    Your statement.."Even if they ever prove there is anything magical in Anatabine which has been tested for many years with no conclusion, they don't have any exclusive rights on it either" is totally wrong. There have not been years of testing in the way the compound is being tested now and not even for the same uses. And yes, they do have exclusive rights for many of the key elements of the properties of Anatabine.

    You probably thought Amazon and Google were irrationally overpriced when they were reporting huge net losses as the stocks doubled, then doubled again, then again.... We aren't talking about a $200 stock here after all. The market cap of this company is totally undervalued and thats not counting the future success of Anatabloc and CigRx.

    Dreaming is not part of the research being conducted with fantastic results at the Roskamp Institute, as well as other highly reputable research firms, not only in the U.S., but worldwide.

  • Report this Comment On September 08, 2011, at 5:37 PM, TSIF wrote:

    You cited three reasons you were buying STAR in another post.

    1. The Reynolds lawsuit = ZERO.

    2. The other products that appear profitable.

    $770,000 THOUSAND last year in income VS Expenses of $20 Million.

    There have NEVER been any products from STAR that EVER came close to paying the salary's for the executives.

    3. Anatabloc. It's an extract from plants. If it does pan out, anyone can sell it, anyone with better connections and a better pipeline than CIGX that has to sell via their website and by phone. It's not even on their own website.

    You cited that the market cap is low without number 1 and without number 3 baked $770,000 worth of annual sales and a $20 Million expense line is worth a market cap of $368 Million.

    You also indicated that we "aren't talking about a $200 stock here after all". What does the price of the stock when used alone in any context have to do with the market cap or the value???

    Stock valuation is more than just looking at a share price, falling in love with a product, and speculating on what its worth when it's just being introduced to the market, without regard to market cap, potential sales, costs, margins, etc. STAR would need to sell $150 Million of Anatabloc AT $90 PER MONTH via it's website and by phone to even broach it's current market cap. Before anyone would seriously buy it out over a supplement, requiring no FDA approval, no matter how promising, they would just produce it themselves.

    Medical institutes such as Roskamp kick out reports like this constantly and even if correct having little bearing on productization. I don't know ANYONE who would pay $90 per month for a supplement, even if it performed better than prescription drugs that are now generic for a $3 co-pay on most insurance policies.

    STAR has played this cycle for years, sucking in new investors errr...speculators..... Pardon us for being skeptic. Good luck.

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