Avoid This Stock

Editor's note: This article is a stock pitch made by a member on CAPS, The Motley Fool's free investing community. The pitch is published UNEDITED and is the opinion of the CAPS member whose pitch it is, in this case: TSIF.

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Company Star Scientific (Nasdaq: STSI  )
Submitted by TSIF
Member Rating 99.96
Submitted on 8/8/2012
Stock Price at Underperform Recommendation $4.68

 

Star Scientific profile

Star Rating (out of 5) *
Headquarters Glen Allen, Va.
Industry Cigarettes
Market Cap $608 million

Sources: S&P Capital IQ, Yahoo! Finance, and Motley Fool CAPS.

This Week's Pitch:

You can change your name, but you can't change your stripes. The last two days as Star Scientific Inc's ticker changed from CIGX to STSI the share price has climbed almost 20%. (Although the increase was "probably" mostly from recent peer review articles). The thought that Star Scientific may split off its tobacco products from its health products seems to have resonated with both the proponents. The problem is that neither bet at these price levels is investment grade. Of course both sets of proponents quickly attack any negativity toward their darling, so new investors, (which appear to jump in everyday) needs to filter through the noise.

Star's lawsuits against Reynolds American [ (NYSE: RAI  ) ] and other tobacco companies concerning the "curing" of tobacco have gone no where over the years. If the tobacco companies were that concerned they would simply swallow Star up. The aides to quit smoking sell at a low volume loss.

The newest play, that a component in cigarettes, anatabine, which Star Scientific sells in a compound called Anatabloc cures thyroid related autoimmune diseases, aides against inflammation in joints and possibly every ailment known to man, (including Alzheimer) has been the second leg of the out of bounds share price runaway the last year.

The bottom line is that even if both of these max out in a big way for Star they are still not worth nearly the market cap they have grown into. ($670 Million). They are constantly issuing shares to keep the lights on. ($40 Million worth the last year alone). There is nothing proprietary about what they have in the Anatabloc line. EDIT: Regarding my "nothing proprietary" about Anatabloc: I am aware that Star has Patents and a patent pending with the U.S. Patent and Trademark Office concerning extraction ofantabine from tobacco leaves and at least one concerning a combination use for obesity and weight loss. None of the patents are through the FDA. As was exhibited by the patents on curing tobacco leaves, there are multiple ways to "skin a cat". Other potential users of anatabine will either find their own methods of use or could easily license it from Star. All Star founders ultimately care about is their own future which can easily be meet without a $670 Million fictitious market cap in the stock. This was partially exhibited by the $2.3 Million in stock options issued this past quarter despite an $8 Million net quarterly loss.

IF studies support them AND IF some other company felt there was market opportunity they could grow it from scratch at a fraction of Star's bloated market cap.

Many of the current investors have conviction bias, so this pitch isn't for them. The issue isn't could they, should they will they hit a home run with their lawsuits or their supplement, the question is what that would be worth. The answer is a fraction of their current market cap. IF medical benefit is asserted by Anatabloc Star's share price will collapse even faster as a big player or two with an already established network jumps in. Star's feeble; over priced mail order business will collapse even faster.

I'll, (as well as any other CAPS players of influence who pitch their down thumb) be branded as a "Short". Playing CAPS has nothing to do with being short, it's about educating (yourself and others) and I would actually caution anyone against actual shorts. The premium is no doubt too high, the daily volume is low and 30 Million short shares may be right, but a short squeeze on any perceived good news could hurt. Anyone who things ZZlangerhans or poor TSIF could sway the market is a Fool with a huge capital F on their forehead.

You can cure tobacco, you can possibly cure thyroid/inflammation/or even Alzheimer's, but you can't cure investors/speculators from daydreaming about their Millions while continuously cycling in while others cycle out.

Foolish bottom line
While this CAPS All-Star thinks you should avoid Star Scientific, for a stock you don't have to avoid check out our brand new free report "The Only Stock You Need to Profit From the NEW Technology Revolution.""

The Motley Fool is investors writing for investors. Dan Dzombak did not have a position in any of the companies mentioned in this article. Pitches must be compelling, made in the past 30 days, and be at least 400 words. 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 (25) | Recommend This Article (15)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 23, 2012, at 2:18 PM, tommsel1 wrote:

    Whoever wrote this is obviously short and needs for this stock to collapse. Well it is not going to happen. An unidentfied caps member with a strong opinion tells me they are trying to manipulate. Will not work. You will get creamed with this. Star is in a great position to be the biggest discovery this century with its anatabine process. Good Luck on that short Buddy LOL

  • Report this Comment On August 23, 2012, at 2:55 PM, istockyou wrote:

    The more cramer and fools say get out, the more I buy. Been doing it since $1.60.

    Thanks.

  • Report this Comment On August 23, 2012, at 3:04 PM, TSIF wrote:

    istockyou, how's JOEZ working out with that philosophy.

    tommsel1, not short, advised against shorting in my commentary, (which was a simple pitch made as part of the CAPS game to support my downthumb and generation reasonable conversation. That there are so few 400 word or so pitches in the game results in the biopharms getting more of the "weekly articles".

    Your comment, however, tommsel1, was entirely predicable and a fine example of why real conversation can't be had on the Yahoo boards and other fourms where those that are either pumpers or have conviction bias squeeze out other converstations.

  • Report this Comment On August 23, 2012, at 3:04 PM, TSIF wrote:

    PS: There was an addtional note added to my pitch:

    Regarding my "nothing proprietary" about Anatabloc: I am aware that Star has Patents and a patent pending with the U.S. Patent and Trademark Office concerning extraction ofantabine from tobacco leaves and at least one concerning a combination use for obesity and weight loss. None of the patents are through the FDA. As was exhibited by the patents on curing tobacco leaves, there are multiple ways to "skin a cat". Other potential users of anatabine will either find their own methods of use or could easily license it from Star. All Star founders ultimately care about is their own future which can easily be meet without a $670 Million fictious market cap in the stock. This was partially exhibited by the $2.3 Million in stock options issued this past quarter despite an $8 Million net quarterly loss.

  • Report this Comment On August 23, 2012, at 3:23 PM, Bearsinbulls23 wrote:

    what you've just said is one of the most insanely idiotic things I have ever heard. At no point in your rambling, incoherent response were you even close to anything that could be considered a rational thought. Everyone in this room is now dumber for having listened to it. I award you no points, and may God have mercy on your soul.

  • Report this Comment On August 23, 2012, at 3:49 PM, Momentum21 wrote:

    "I award you no points, and may God have mercy on your soul."

    TSIF - you have been successful with this pitch if for nothing else than pulling this quote from the blogosphere!

  • Report this Comment On August 23, 2012, at 4:21 PM, TSIF wrote:

    ;)

    There are a few equites with very stong "conviction bias". ZZlangerhans and I seem to generate more than our share of replies!

    I'm usally literally afraid to pitch ZN when it cycles up and I call it down.

  • Report this Comment On August 23, 2012, at 6:00 PM, davidcalleo wrote:

    What does the FDA patent have to do with whether or not this may work? IF it does help with Thryoid disease and AZ then more people will buy their product. Then sales go up and then the stock will go up. Is that too difficult to comprehend? Flint Study comes out and says this lowers CRP levels that makes the stock go up too. AND if by chance they are awarded anything with the curing process the stock will go up too. Too many positive things here and you have made them all appear negative. IT is a speculative play and that is why you buy the stock. You are purposely trying to knock this down so you may profit. You have to look at this in a sensible manner and NOT slanted like you all have done.

  • Report this Comment On August 23, 2012, at 6:39 PM, thefamilyman wrote:

    You really should have spent more time researching...

    TSIF wrote - "The bottom line is that even if both of these max out in a big way for Star they are still not worth nearly the market cap they have grown into."

    My response - Apparently you do not know the size of those markets. If even only 10% of the people currently diagnosed with those diseases start buying Anatabloc, the company will have a multi-billion dollar market cap. And that's not counting the other things Anatabloc works for like my skin condition and my allergies.

    TSIF - "None of the patents are through the FDA."

    My response - What does this mean? Seriously, patents are issued by the USPTO...

    TSIF - "Other potential users of anatabine will either find their own methods of use or could easily license it from Star."

    My response - And you know this how? The correct answer is that you do not know because your statement is pure speculation. Here's my speculation - I think that once Star realized the potential for anatabine, their scientists and lawyers have been doing everything they can to identify and patent every way possible to produce or use anatabine. That's my speculation...

    TSIF - " I am aware that Star has Patents and a patent pending with the U.S. Patent and Trademark Office concerning extraction ofantabine from tobacco leaves..."

    My response - Really, I did not know that. I am under the impression that it is too difficult purify anatabine to an acceptable level from a plant source. That is why Star has been ISSUED a patent for the ONLY known process for producing commercial quantities of synthetic food grade anatabine.

    TSIF - "All Star founders ultimately care about is their own future which can easily be meet without a $670 Million fictitious market cap in the stock."

    My response - If this were true, management would be selling. They are not.

    TSIF - "IF studies support them AND IF some other company felt there was market opportunity they could grow it from scratch at a fraction of Star's bloated market cap."

    My response - This is just more speculation. You have no idea if this statement is actually true.

    Yes, I do have "conviction bias". But not the way you think. I acquired most of my position after I experienced Anatabloc for myself. I own the stock because the product is the most amazingly effective thing I have ever experienced. And I'm not the only one who feels that way...

    http://www.youtube.com/watch?v=StVre96Vzr8

    http://www.urbandomesticdiva.com/

  • Report this Comment On August 23, 2012, at 7:21 PM, TSIF wrote:

    davidcalleo: What the FDA has to do with this is that without FDA approval/regulation/protection, there is NO MOAT. Anyone can sell it. Yes, it's a speculative play, speculate if you want. If you don't want to include valuation and potential end game then I hope you don't need your "speculating" money for anything important.

    thefamilyman, thank you for your response. I appreciate responses that add to dialogue. You have some good points, but I think you are missing part of mine. Star and it's founders have proven that they are only interested in supporting themselves as long as they can. Look at the stock options in excess of any potential revenue. Why don't they sell their stock now?? The volume is too low, the market would not support the volume, they would need to file, alerting people to their intent, this would start speculation. They are making a good living on their salaries. No need to kill the golden goose.

    Regarding the size of the markets and the potential. At this point regaring potential, they have proven nothing. I give them the benefit that they "might" achieve massive success, if they do, on a product that's been around and been tested for decades, pull off a win then that will definitely attract competition. There is no maybe or guessing involved. Show me a Billion dollar market and you will find other players with better sells connections, marketing and manufacturing.

    There is NO "only known" method of anything given enough resources and enough time.

    I'm glad you are getting results from the product. It does appear to be getting a following. Despite several quaters of being on the market Star is in the position where they need to spend more to make more and they just don't have it. They will continue being an ATM machine to raise funds. It will not rate a $600 Million market cap even if it makes good on several of it's claims. One can debate the miracles all they want, but EVEN if any are proven, STAR's valuation is already overly inflated.

    Best of luck, buy what you know, but buy it at the right price. I do hope it continues to help you and it would be great if it helps others in a variety of ways. I wish STAR all the best, but those doing their DD should look at the complete package.

  • Report this Comment On August 23, 2012, at 7:53 PM, busker17 wrote:

    LOL at TSIF's ultra-biased and unfocused methodology. Why not give your fellow-Fool users some space and breathing room to comment on your writeup? The fact that TSIF attempts to debunk any positive comments on Star Scientific within a few minutes of their posting tells me all I need to know about TSIF's character and agenda. I'm long Star Scientific for multiple reasons not even touched on in TSIF's "analysis".

  • Report this Comment On August 23, 2012, at 7:55 PM, TSIF wrote:

    KV-A "FDA" PLEASE make doctors prescribe Makena instead of a generic!! Sorry.....

    KVPHQ-OTC Markets 0.14

    SOMX, Somaxon Pharmaceuticals, Inc. (NASDAQ:SOMX) Doctors please prescribe our prescription silenor? Sorry, the two generics that were licensed work just fine without your "additive". $0.29

    VIVUS Inc. (VVUS)-NasdaqGS

    Found in many places, Doctor will you prescribe Qsymia for weight loss? Doctor, why should I when the two generics you combined are cheaper?

    Down from $31.21 to $21.22 in four weeks.

    STAR IF (which I think is highly unlikely, but lets assume the best), they become successful....will you pay 3 to 4 times more for the same thing??

    Yes, I know it's not a pregnancy drug, it's not a sleeping, aid and it's not a weight loss drug, (yet)(although Star is missing some potential market share without these on the list of 30-40 items it's given credit for). I know it's a miracle drug. It's a miracle it has a $600 Millon market cap and no revenue.

  • Report this Comment On August 23, 2012, at 7:58 PM, TSIF wrote:

    busker17, sorry, I had this qued while you made your entry. Unlike the Yahoo message board someone can reply to comments or criticism. There's plenty of space. WE can make room for you too. If you want to make a comment that's factual, I'll leave it to be the last one. I know some of you aren't content unless you get the last word in. Be my guest.

  • Report this Comment On August 24, 2012, at 8:45 AM, TSIF wrote:

    Star Scientific has a patent on blowing smoke up peoples rear, I wouldn't want to infringe on it.

    I can give Star and the early stage scientific review articles, (scientists have to write about something to get/maintain degrees and tenure), 100% credance and ignore that no one else is jumping in on this great news, but yes, still hammer them on valuation.

    I don't consider myself an expert in anything. I participate in CAPS to "educate, amuse, and enrich". I make my pitches and document my thoughts and thousands of them have been rec'd for sharing them on the board. Hundreds of players have tagged me to check in on me.

    Star is NOT, and will never be worth a $600 Million market cap. (Especially on a non-FDA (needed or not) product. They are down $78 Million in market cap since I wrote my pitch on the CAPS forum, (not as an article). What MF does with it is up to them. A half dozen new people have added accounts and a few even made a pick on my last "cribbed" article. Stick around, write a pitch of 400 words or so and you can get pulled for a weekly. Or much less and get used in an article.

    What happended to $78 Million in market cap STAR LOST after reporting another quarter of sells? (Stock options and losses).

    No, not a doctor. I am at about a 90% accuracy rate on predicting valuation on biopharms in the last three years. Which does mean I'm wrong frequently, usually on upthumbs. Buy their products if they help you, buy their stock if you want to support them, but if you are buying it to get rich make sure it is money that you don't need and that it doesn't fuel dreams you can't live without.

  • Report this Comment On August 24, 2012, at 9:23 AM, TSIF wrote:

    Hedge your bets, invest in cocoa.

    https://www.webmdhealth.com/nl/nlv.aspx?id=81B7F1A61421958E&...

    Aug. 13, 2012 -- Drinking a cocoa-rich beverage every day may help brain health in older adults, a new study shows.

    The study, published in Hypertension, included 90 elderly people who already had mild cognitive impairment (MCI), which can include difficulty with memory, language, thinking, or judgment.

    Mars, Inc., maker of the cocoa powder, funded the study.

    But don't forget your 30 minutes of exercise!!!

  • Report this Comment On August 24, 2012, at 9:35 AM, tommsel1 wrote:

    No need to comment any further. you are stupid. Good luck on our thinking.

  • Report this Comment On August 24, 2012, at 4:40 PM, stokboy74 wrote:

    Here some facts. I have been taking Prednazone for 14 months to no avail. My entire body full of joints is inflamed. I went to my ruehmatologist(sp)? this Tuesday and got a cort. shot in both shoulders. When I got home, my Anatabloc was in the mailbox. I took two and went to bed with sore feet, knees, hips and wrists and shoulders! I took two more Ablocs in the morning. Two more at night. Each day the same. Tues., Wed., Thurs. Today, Friday, I have no soreness. Gone. I felt it already on Wed. and I bought some STSI. I am 61. If you like to be active and do normal physical things, you will appreciate where I am coming from. I was diagnosed with PMI a year ago. My shoulders are still sore from the shots! No BS. I don't care what my comfort costs. You are wrong TSIF whatever boy!

  • Report this Comment On August 24, 2012, at 4:47 PM, jsteen101 wrote:

    Distribution through GNC is a "Mail Order" business?

    The FDA now issues patents?

    After having their Tobacco Curing Patent validated for the 2nd time by the Patent Office RAI has asked the Supreme Court to review this case. Companies typically settle suits like this as it is the cheaper way to go. Obviously, this one has the potential to be very expensive for RAI.

    The Tobacco companies would have already gobbled them up? How do you know they haven't tried and didn't like the price and chose to take their chances in court. I do not know this happened and you do not know it didn't.

    Just a lot of blather with some serious credibility issues. Surpassed this is what the revered "Motley Fool" chose to publish

  • Report this Comment On August 24, 2012, at 6:52 PM, TSIF wrote:

    stocboy74, your own experience is great antidotal information. I hope it continues to do well for you. It doesn't speak anything to STARS current or potential valuation, but I understand your loyalty. It’s great that it helps you, but the numbers of expenses/income do not support that it will make a good investment. All the best.

    isteen101, no, the FDA doesn't issue patents, what it issues is considerably more valuable and protected and STAR won’t be getting any.

    Funny, half of you suggest that STAR is all about Anatabloc and the patent lawsuit is old news. Half say it's about the lawsuit and Anatabloc is icing. Reading through the rogue Yahoo message board, the only consistency is that all investors in STAR are genius and will be rewarded. Everyone is shorts, will be destroyed, or will rot in hell.

    Buy it up, someone needs to make up for the 12% drop since earnings came out.

  • Report this Comment On August 24, 2012, at 6:54 PM, TSIF wrote:

    Cocoa, people, you heard it hear first. Hedge with cocoa.

  • Report this Comment On August 24, 2012, at 7:19 PM, Mega wrote:

    It's not technically difficult to make anatabine pills, and Star's intellectual property is limited (although their willingness to file harassing lawsuits might not be). If it was a good business, other companies would enter the market.

    Anyone know the analyst who published the 2013 earnings estimate of $1 per share? That sounds like an entertaining read.

  • Report this Comment On August 25, 2012, at 9:55 AM, TSIF wrote:

    Thanks MegaShort, but this is hanging around at the top of the newsfeed and those who are buying into one of the two "stories" with no valuation metrics applied are really, really, upset right now at MF. If anyone new is looking at this as a real life investment, then maybe they will look into the financials a little bit in addition to the story. They certainly can't get any real opinion off the yahoo board.

    I did some math in my spare time. You divided last quarters sells from Star by the price per month of the pills, you would find that EVERYONE who buys Anatabine POSTS their support on the Yahoo boards, SA, etc. Everyone! Now they are looking at giving Anatabine to animals. I heard on Facebook that a lot of people made accounts for their young kids and pets. Wait until we start getting the support of the pets.

    That is until the Reynolds lawsuit crashes, and half the support leaves the stock.

  • Report this Comment On September 11, 2012, at 8:32 PM, Retirefunds wrote:

    Still doing DD but I believe Star product could be a game changer. FDA approval not needed as it is a nutracutical. Having said that, nutracuticals are often copied by more efficient producers, which may be the case here, however patent provides some good protection and certainly should give Star a first mover status in what seems to be game changer for inflamation suffers. Given the last 5 years of research on inflamation and its tie in to so many afflictions, the market cap be just a foot note in a year or two. I may average in on dips over the next month or so.

  • Report this Comment On September 12, 2012, at 12:20 PM, TSIF wrote:

    Glad you're doing some DD Retirefunds.

    Keep in mind that in addition to the pro/cons you note and despite what proponents of Anatabine think, Star's share price is and will be tied to the tobacco curing case. A rejection of an award will drive this down substantially until the pure anatabine investors emerge. Might be a short term heavy dip or longer term as antabine needs to build sells and Star need sto seek more interim revenue/dilution.

    A win in the Reynold's case would mean money for Star and will create a short term pop. Those in it for the settlement may sell quickly dropping the share price back down, or may hope for additional settlement and licensing and hold.

    Short comment, share price is due for short term large movement one way or the other in the near future. As you know from my other comments, I'm not a proponent of STAR's market cap, now or in the future on just anatabine, but respect other open minded opinions. Good luck.

  • Report this Comment On December 21, 2012, at 10:52 PM, Rich281 wrote:

    This article is a very accurate description of the risks anyone would be taking if they invested in Star Pharmaceuticals. Star has recently announced that they are completely breaking from their past which emphasized finding safer tobacco products, and/or tobacco smoking cessation products. This is a positive move. Most pharmaceutical companies are concentrating on complex medications to treat disease, Anatabine stands out for its simplicity. It has been said before that aspirin if it were discovered today, would likely take hundreds of millions to get approval and release as the drug we are so familiar with today. Still, STSI might just be on to something with Anatabloc. As someone who is taking Anatabloc, I can truly say the results have been amazing, and more profound than the results that I have gotten from NSAIDs or other anti-inflammatory drugs. I was fully expecting a placebo effect that would fade with time, but this effect has not faded. The results don't happen at once and require several months to become apparent but then build with time and usage. I recently stuck my toe in the water with a small investment in STSI, fully aware of the stock being a tremendously long shot, and that my own experience has given me a conviction bias. I don't have any illusions about this company, but I do want the company to continue to produce the product.

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