Thursday, May 3, 2012

Earthquake at Green Mountain and more

This is why I stay away from companies involved in scandals with medium to high probability of financial fraud. The hilarious thing is GMCR was also a high octane growth stock with stratospheric valuations. Put those 2 together and you have a recipe for waking up to a 45% drop in stock price.

Traders will probably start piling into the stock looking for an oversold bounce, but as a conservative investor, I don't touch any stock that has a material probability of going to 0, and I believe Green Mountain is in that boat.

Another stock in the news these days that could be in trouble is Chesapeake Energy (CHK). I can't even begin to fathom how this could be the SECOND time Aubrey McClendon has been involved in a scandal like this. Now, on top of the loans he received using his stake in the company's natural gas wells as collateral, it's also been revealed he was running a $200 million hedge fund during his lunch break, betting on the exact sector/segment his company does business in. Really? Come on now... What is he thinking?? and for that matter, what is the board of directors thinking allowing this activity???

Depending on what exactly was done based on what knowledge, this could very well turn into illegal territory such as insider trading and front running for McClendon, and could also mean financial consequences for the board of directors

I recommend investors AND traders stay away from both of these. There are tons of opportunities out there and there is absolutely no need to be involved in these kind of fiascos. 

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