Answers: Penny Options Trader and the “I’m Gonna Buy this Energy Stock on January 23” Tease

by Travis Johnson, Stock Gumshoe | January 4, 2024 12:21 pm

What does Marc Lichtenfeld say to buy before he "loads up" in a few weeks?

Marc Lichtenfeld[1] is pitching a special report called “Double Your Money: The $7 Energy Stock Poised for Explosive Profits,” and he’s doing so with a tease about a little stock he’s going to buy on January 23, urging you to subscribe now so you can buy before he “loads up.”

So what’s the story? We’ll explain. It all comes in an ad for Penny Options Trader[2] ($1,495, potential “money back guarantee” if this trade doesn’t provide the opportunity for a 100% return).

Here’s the short version:

“‘I’m About to Personally Load Up on THIS $7 STOCK…’

“One pro analyst predicts it will surge to $50!

“Get the urgent details BEFORE his buying frenzy starts on January 23.”

And the intro to the ad…

Marc Lichtenfeld here with a major announcement.

On January 23, I’m going to invest thousands of dollars into a single stock…

An under-the-radar $7 energy company that I’m confident will more than double over the next year…

And I couldn’t be more excited.

But wait a minute… as I look through the Gumshoe archives (yes, we try to save all of these thousands of promos… just in case), that starts to ring some bells. In fact, here’s one we saw back in October…

“Marc Lichtenfeld here with a major announcement.

“On October 24, I’m going to invest thousands of dollars into a single stock…

“An under-the-radar sub-$10 energy company that I’m confident will more than double over the next year…

“And I couldn’t be more excited.”

And that was introduced by some emails from his publisher:

“To avoid any ‘conflict of interest’ – we’re giving EVERYONE at The Oxford Club[3] the chance to get all the details on this sub-$10 stock…

“BEFORE Marc invests on October 24!

“This way, YOU have a head start on Marc’s biggest play of 2023.”

But that wasn’t the first time. This is a few months before that, in mid July…

“I just identified a $7 stock that I believe will be one of the biggest winners of the year…

[4]

“And I wanted to give you a heads up.

“You see…

“To avoid any conflict of interest, I typically don’t invest in the stocks I recommend.

“But this is different.

“Based on my research, I’m convinced the $7 stock I just uncovered is going to

“AT LEAST double in the coming year.

“And the proof is so overwhelming that I refuse to sit on the sidelines.

“To keep things fair, I’m giving you the chance to get in first… before I load up on July 25.

“So if you want to score a first-mover advantage, this is your chance.”

So yes — if you persist in thinking that saying something out loud in a video on the internet made it true, or that newsletter pundits worry about their reputation or stand by their word and believe they’re somehow putting their names on the line when they’re putting out a promo, here’s a good reminder… NOPE NOPE NOPE.

Ads are designed to get your attention, and if they can do that, many publishers will keep using them over and over, even if the repeats don’t make any sense or they make the pundit look like an idiot. It may not even be Marc Lichtenfeld penning these new words, I have no idea how much sway he has or how much integrity he might try to express, it may be some intern at the Oxford Club who was told to update the presentation with new dates and send it out.

And heck, this is a Penny Options Trader pitch, so maybe he did buy the options[5] contract or the stock on July 25 or October 24, and perhaps he sold or got stopped out and can say, perhaps even with a straight face, that he’s “giving us a chance to buy before he does” next time. That doesn’t jibe with the “invest” language, since a short-term options trade is not really investing, and the language of the pitch implies that he doesn’t own the stock today, despite promises that he was going to buy in July and October… but one never knows, partly because newsletter pitches like this tend to intentionally use words that have a broad range of meaning, but that imply something more specific (with the legal department probably helping to thread that needle).

But what’s the stock, you ask? What does Lichtenfeld say he’s buying (again?) on January 23?

Well, obviously, we know what it is since I’ve been watching this teaser campaign for six months now… so I’ll take you out of your misery — he did not update the teaser details or the clues at all, those are still from mid-year, and the stock must therefore still be the same. He’s pitching the oil[6] services company RPC, Inc. (RES).

I wrote briefly about that company the first time I saw Lichtenfeld tease it back in July, and even dabbled in an options speculation myself at the time (didn’t work, it has since expired worthless), but that was in a Friday File[7] for our Irregulars, so I’ll go through some more of the details for you here today.

Just FYI, though, if this stock is going to $50 “within a year”, as one analyst reportedly put it in the Spring of 2023, well, it’s got a long way to go — since Lichtenfeld started pitching this story back in July, the stock is roughly flat. And that might be a bit generous — the first email I saw promoting this pick was on July 11, when the stock was at about $8, but the stock spiked higher during that week so he may well have driven more attention to it a few days before. If we go back to July 3, the first trading day of that month, this is what the chart looks like — that’s the total return for RES in orange, compared to the average energy stock (using the XLE ETF) and the average oil services[8] stock (the OIH ETF, in purple).

[9]

And no, it would not have been possible for Lichtenfeld to make much money from buying the stock or an options contract on July 25, as he said he would do — that’s roughly the orange peak there on the left of the chart, he would have paid close to $9 per share, and today it’s around $7. The stock did drift a bit higher again in late September and October when oil was performing relatively well (and, perhaps not coincidentally, when Lichtenfeld was again running his “I’m gonna buy this on October 24” promo… but it seems likely the Oxford Club lawyers would have at least stopped him from selling to book a profit while that second promo was running).

I know, I’m being kind of picky and mean to Marc, and I don’t know the guy… maybe he’s a saint, and maybe most of his ideas are great. I’ve liked some of his stocks in the past, and he often seems to be a perfectly reasonable investor and a relatively conservative fella, typically focused on income investments. When he’s not indulging in his hobbies, which I love (he’s a Mick Jagger impersonator and a boxing ring announcer). But these repeated ads that don’t acknowledge past behavior drive me a little nuts.

Still, what does the ad say about this stock now? Let’s check in with some little tidbits from the pitch:

“It’s currently my favorite sector in the market… by a landslide…

“And I’m not alone.

“Every billionaire investor you could think of – including Warren Buffett[10], Carl Icahn[11], David Tepper[12] and more – is piling into the sector like never before.

“But if I were to pick one single energy stock that I am certain will head higher, I know exactly which one it would be….

“It’s NOT an oil producer… a refiner… a pipeline company… or a royalty trust.

“Rather, it’s one of the most overlooked – and most profitable – businesses in the sector.

“From December 30, 2021, to March 30, 2023, sales have nearly tripled.

“And profits are rising even faster.

“In the past 15 months alone, profits have gone up 3,757%.

“And yet, for reasons I’ll soon explain, the stock has remained incredibly cheap at less than $10 per share.

“In fact, out of the profitable stocks that trade on the S&P 500, only 17 trade at a cheaper valuation than this stock.”

That’s all completely unchanged from his first version of the ad back in July, as you could probably guess — so those facts are or were true, but also a little bit dated.

And yes, RES would be one of the “cheapest” companies in the S&P 500 if it were in that index — there are only a dozen or so large cap companies that trade with a PE ratio below 7, which is roughly where RES sits today. There are well over 100 companies in the Russell 3000 that trade at lower valuation than than, and many of them are relatively small energy companies, so it’s maybe not terribly exceptional on that front, but it is trading at a low valuation.

More from Lichtenfeld on that valuation…

“Is that because profits are expected to go down in the future?

“Hardly.

“As we speak, experts are projecting earnings to skyrocket again in 2023…

“And hedge funds[13] are quietly loading up on this $7 energy stock…

“In fact, Chuck Royce, of the $10 billion fund Royce and Associates, just increased the fund’s position by 71% this past quarter.

“Ken Tropin, of the $18 billion firm Graham Capital, upped his stake by 140%.

“He’s one of the rare investors who achieved double-digit returns despite a dismal 2022…

“And legendary investors Ken Griffin, Joel Greenblatt[14] and Jim Simons own $6.5 million worth of shares as well.

“On top of that, billionaire Mario Gabelli[15] now owns a whopping $23 million worth of this $7 energy stock.

“When asked about what stocks he’s most excited about long term…

“He named this company before any others.”

Just to update that a little bit, Graham Capital did up their stake in RPC back in the second quarter (to $615,000, it was still a tiny position in the fund), but they since sold it all and own no shares as of the last 13F[16]. Some of the Royce funds still own RPC, thought the position didn’t change much last quarter. Greenblatt sold ~75% of his RPC position in the September quarter. Jim Simons’s funds did own RPC a year ago, but sold that position down in the March and June quarters of 2023 and no longer own any shares. Mario Gabelli is the one who is still aboard and still a major shareholder, and he’s been buying it for years — here’s what he said about it on CNBC back in July of 2019, when the stock was around $6:

“I’ve been following it for 50 years. If you look at the wiggles, it’s been $25 three or four times. They are in total control. There is no debt. They are a pressure-pumping, infrastructure supplier….

“Short term, things are terrible…. somewhere in the next three years, if oil stays at $60 in West Texas, you are going to have a stock that’s $15-$20. You just sit there and buy it while everybody else is puking it out.”

That may well end up being true, and Gabelli seems to be quite patient with the stock, but it didn’t happen in “the next three years.” To be fair, oil crashed in 2020 with the COVID pandemic and took a long time to recover, so it didn’t “stay at $60”, but it has now been above $60 for about three years again, and RPC topped out at about $12.50 in 2022. Here’s what the last five years look like for RPC (purple) compared to the price of West Texas Intermediate crude (WTI), you can see, no surprise, that there’s a clear connection, as there is with pretty much any oil or oil services company:

[17]

And Lichtenfeld’s promo leans heavily on someone’s $50 price target…

“The $7 energy company I’m investing in on January 23 is – hands down – one of the best buying opportunities I’ve come across throughout my entire career.

“In fact, in March of 2023, analysts at Susquehanna International Group – one of the world’s leading quantitative trading firms – went on record estimating it could go up all the way to $50 in a year….

“That 614% price projection makes my double prediction seem conservative!

“Mark my words…

“I think this profit opportunity could be a TOTAL layup.

“Especially now – with energy stocks heating up…”

That was reportedly true, the Susquehanna analyst did apparently have a $50 price target on RPC at one point, and they “maintained” that target back in March of last year, though they also had a “neutral” rating on the stock. The average price target from analysts never got anywhere near that point, and I don’t know if the $50 was ever even in the average collected data of analyst forecasts, it’s a wild outlier so it might have been a mistake. Here’s what StockAnalysis.com says[18] were the few analyst moves for RPC over the past couple years:

[19]

The highest average price target was about $13, back in 2019. As of today, RPC has “missed” on their earnings estimates in the past two quarters, and the average analyst rates it a “hold,” with a price target of about $9.

And that’s with pretty high expectations for earnings — they’re not expected to grow earnings, they’re coming down from the Russia[20]-driven spike in 2022 and will probably end up with roughly a 10% decline in earnings in 2023, with earnings then staying flat this year if analysts are correct. Which they almost certainly won’t be, because the analysts don’t know what oil and gas prices will do in 2024.

And here’s the growth that gets Lichtenfeld excited:

“Revenue went up from $537 million to $1.8 billion in just two years.

“That’s a 235% jump.

“Earnings went from $7 million at the start of 2021… to $270 million in the most recent quarter.

“A 3,757% increase in just 15 months.

“The company is sitting on $177.9 million in cash.

“And it has ZERO debt.

“The zero-dollar debt figure is why Mario Gabelli says ‘they are in total control.'”

Again, that’s all true, at least as of six months ago — but a lot of it was COVID and that collapse in energy prices, which caused a lot of drilling to stop. RPC is a drilling and pressure pumping contractor, so if activity slows down, they make a lot less money. Oil services companies are generally more levered to commodity prices than even the actual oil companies, and they tend to go through boom and bust periods. RPC had revenue of $1.8 billion back in 2018, it sunk to $537 million at the lowest point during COVID, and it shot back to $1.8 billion in the highest four quarters following Russia’s invasion of Ukraine[21]… but sales have now drifted back down a bit. The analyst estimate is that they’ll end 2023 with $1.6 billion in revenue, about the same as the full year for 2022.

The company is still on pretty solid ground, though — that crazy growth from their worst quarter to their best quarter doesn’t necessarily mean much, other than that the oil business went through a massive crash (COVID) and a strong recovery (Ukraine), but they do still have a good balance sheet, with no debt and now about $172 million in cash. And they also have a major shareholder with a controlling stake, so that seems to have led to a focus on long-term survivability and avoiding unnecessary dilution.

Here’s what Lichtenfeld says about the business:

“… it doesn’t drill, transport or explore for oil.

“Rather, it provides large oil companies with the tools and resources they need to do so!

“As a result, the company doesn’t have huge expenses…

“And it keeps A LOT more if its profits too.

“In fact, it has one of the highest returns on invested capital I’ve ever seen.

“Return on invested capital measures how profitable a company is with its investments.

“And this company’s is a staggering 32%.

“That’s more than Microsoft, Alphabet (Google), Tesla and Nvidia!”

The ROIC is still pretty high for RPC, but again, this is a boom and bust business on that front — here’s the ROIC charted for this company against the daily spot price of WTI crude oil over the past decade — oil high=high profits, oil low=losing money. They may be above average at that, I haven’t compared this to other oil services companies, but service providers can’t generally avoid those boom and bust cycles entirely:

[22]

The Return on Invested Capital for RES averages out to about 6-7% for the past five years, if you include that down-then-up cycle.  Which is not terrible, but is far from exceptional.

Just to point out how much that investment return fluctuates for a little oil services company like this, here’s that same ROIC chart for RES (purple) compared to the ROIC for ExxonMobil (XOM, green), which rides some of the same cycles but with a LOT more ballast, or the kinds of companies Lichtenfeld called out in Microsoft (MSFT, blue) and Alphabet (GOOG, orange). Investors generally pay a lot more for stable earnings than they do for rollercoasters that go up and down.

[23]

Still, Lichtenfeld persists in pitching the “undervalued” nature of RES:

“Normally, when a company increases profits by 3,757% in 15 months… the stock becomes so expensive that the upside all but disappears.

“Regular investors feel like they missed the boat.

“But in this case, for reasons I’ll explain, the stock has remained insanely cheap.

“Consider this… If this energy stock just traded up to the average valuation of the S&P 500… it would be over $27.

“That’s a gain of nearly 300% just for becoming an average stock.”

Maybe, but investors aren’t dummies, as a group — they know that oil services companies have gone through a lot of boom and bust cycles in the past 20 years, and they will generally pay a higher price for a company that grows earnings at a steady 10-20% per year than for one whose earnings might fall 90% one year and jump 1000% a couple years later.

That might be a mistake, maybe oil will boom for years and buying the service providers is a great idea at these low current valuations… but highly cyclical companies usually trade at a discount if the average investor believes that the cycle is not going to turn in their favor over the next year.

So yes, while much of this ad sounds new and exciting, with that “I’m going to buy on January 23” comment, some of it sounds oddly out of time now that we’re a few days into 2024… and the ad is all over the place when it comes to how current the data is — the emails and the promos are going out hot and heavy right now for this purchase that Lichtenfeld says he’ll be making on January 23, and the ad includes quotes from financial press articles from late September of 2023… but the ad also still carries a “June 2023” date under Marc Lichtenfeld’s signature.

This is the general commodity price expectation built into Lichtenfeld’s thinking, it appears:

“With crude oil prices expected to zoom toward $100 per barrel by the end of the year…

“And OPEC’s announcement of further production cuts in the year ahead…

“I can almost guarantee we’ll see a huge rally in energy stocks in the second half of 2023.”

Well, that “almost guarantee” didn’t turn out particularly well — the biggest energy ETF, the Energy Select Sector SPDR Fund (XLE), was almost exactly flat for all of 2023. This is the comparison of XLE (purple) to the S&P 500, measuring total return in both cases (meaning that dividends[24] are included):

[25]

And since this is an options letter, called Penny Options Trader, it won’t surprise you to hear that Lichtenfeld is talking up a leveraged approach to buying RPC…

“When we performed our audit last year, something rather remarkable caught our attention.

“The majority of our top triple-digit winning recommendations…

“All came from ONE powerful options strategy…

“But not just any options…

“Penny options….

“… trading penny options is an inexpensive strategy that allows you to potentially SUPERCHARGE returns on QUALITY companies…

“Utilizing discounted entry prices for pennies on the dollar.

“Take our record-setting AbbVie trade, for example.

“When I recommended this company, the stock was trading for $63 a share…

“While the options were trading for just $1.18 a share.

“In other words…

“One hundred shares of the stock would have cost you $6,300…

“While a single options contract – which gives you the chance to control 100 shares – would have cost only $118.

“AbbVie’s regular shares went up 66% in ten months – which is tremendous for a stock…

“But our penny options skyrocketed 907%.”

So presumably he’s “investing” not in the shares, but in some longer-term call options. Or actually, given the language of the ad, it sounds like he’s doing both — buying the shares, too, and just getting some leverage by adding a “penny options” speculation. That is always exciting when the stock goes up, of course, since your returns can be spectacularly higher, though we should always remember that it’s not just the return that matters, it’s the probability of a positive outcome and the amount you’re risking if you’re wrong. That ABBV options contract could easily have been a 100% loss if the stock had gone down a couple percent in that year instead of rising 66%.

Here’s how Marc puts it:

“Although history may not repeat itself exactly, I predict a similar scenario to play out with the $7 energy company I’m recommending today!

“Yes, I’m confident this stock could at least double within the next year.

“And yes, I think it has the potential to go as high as $50.

“But if you add on a penny option here… you get the potential for even more explosive profits… in a much shorter time frame!

“So if the stock moves 100%… our penny option play could jump 500% or more.”

Details:

“The penny option I’m recommending alongside my favorite $7 energy stock is available right now for only $0.65… or a total of $65 per 100 shares.

“That’s less than you’d pay for a casual dinner!

“And it leaves a ton of room to potentially capture a MASSIVE gain.

“Finally, here comes the best part of all…

“On January 24… this company is set to release its latest earning report.

“That’s the winning catalyst that could send the stock soaring 100% or more going forward.

“I’m personally buying this stock in my brokerage account beforehand.”

OK, so he also “personally bought” before the last two earnings reports, we have to assume (that’s what he said he’d do, at least), and if he still owns the stock he’s probably sitting on a loss of about 20%. We don’t know for sure which options contracts he might have bought, if he did indeed buy “penny options” in those previous quarters, but since he’s got some subscribers who presumably follow his recommendations then the open interest in those current options contracts will probably tell us what he’s buying — right now, the overwhelming amount of open interest is in the $10 call options for RES that expire on March 15 and June 21, that’s about 80% of all of the current outstanding options contracts (most of the rest is for the $7.50 strikes at those same expiration dates). The June 21 $10 call options are where most of the volume is today, and those would have been close to 65 cents within the past few months, so that’s probably what Lichtenfeld is recommending — as of today, the bid is 35 cents and the ask is 40 cents, so there’s enough volume to make these contracts somewhat liquid.

How do options work? If you’re new to this kind of speculation, a call option is a bet that the stock price will go above the strike price before the expiration date, you get the right to buy the shares (“call” them from the seller) for $10 each anytime between now and June 21, 2024, so roughly six months. A “put” option is just the reverse, it gives you the right to sell shares (“put” them to the option seller) at the strike price anytime before expiration.

So with the stock at $7.20 today, you’d need the shares to move to at least $10.35 between now and June for the options to be profitable (the $10 you will pay for the shares, plus the 35 cents you paid for the option). Either that, or you need the volatility to pick up, with the stock jumping quickly higher and getting people interested, and that might make them pay a higher premium for the options in a month or two — you don’t have to hold to the end, if the stock jumps to $8 next week those options could jump to 60 cents and you could sell for a quick profit… but that’s not so easy to predict, so I tend to think in terms of where the stock would have to be at expiration time to give me a profit, and what the probability of that outcome might be.

If the stock rises to $13 by June, topping the $12.50 high they reached following the Russian invasion of Ukraine in early 2022, then buying the shares here would give you a return of about 85%… but the options would give you a return of closer to 1,000%. The challenge, of course, is that the stock probably won’t fall more than 50% in six months (that was the big drawdown from April to July of 2022, when oil prices settled down a little), but even just a tepid six months for the stock, staying flat or going up or down 10-20%, would mean a 100% loss for that options speculation.

Which isn’t to say we shouldn’t speculate, or shouldn’t get a little leverage by adding an options position to a high-conviction bet… it’s just to remind us that we shouldn’t compare an options speculation to a longer-term equity investment. And unless you really like heartburn, and can tolerate large losses, you probably shouldn’t bet nearly as much on an options trade as you might on buying a stock. Think of an option bet like this as the frosting on your cake — it shouldn’t be most of the mass, but if you like the flavor overall the frosting will probably make it sweeter, so it might make the whole thing more appealing… and if it falls on the floor, you might cry a little, but you can still eat the cake. It takes all kinds, so you just have to know yourself — maybe you’d rather have a smaller piece of cake with frosting than a bigger piece without frosting, even if you know there’s a good chance that frosting will fall on the floor.

Just don’t bet your retirement[26] and your future entirely on options trading. Don’t try to fuel yourself with only frosting. Please. It works for some people, of course, because the wide range of possible outcomes means that there are always successful outliers to tempt us, some folks will happily eat nothing but frosting all day and will also win the marathon, marry well, and have a happy and healthy life fueled by the constant sugar[27]. But probably the eats-only-frosting guy will need to buy two plane seats, and won’t live to meet his grandchildren.

Over the long term, you’ve gotta pay at least some attention to probability and risk, not just to having fun and making exciting bets. Personally, I’ve always always got a few options speculations going on… it serves as a nice release valve for that temptation to gamble, particularly on short-term moves or events, and every now and then I get the exciting 1,000% return that makes up for the fact that most of these speculations end in 100% losses, so it works out OK… but those kinds of speculations are never more than 1-2% of my portfolio. I like just a little shmear of frosting on my cake, but we’re all different in that regard.

So… interested in RPC (RES)? Probably best to start by reading their latest earnings release [28]and Investor Presentation[29] to get a little sense of how company management thinks things are going, and to help reset yourself after reading all that heady (and no longer current) “$50 price target” stuff.

And yes, they will be reporting in about three weeks — last year their report came out on January 25, so most likely it will be within a day or two of that (they’ll probably announce the specific date within the next few days). Analysts expect them to post earnings per share of 17 cents, and revenue of $372 million, and that year-ago quarter was their best in recent memory so that would represent a decline in earnings of about 30%… though we should note that analyst forecasts have been relatively close to the end result only twice in the past eight quarters, underestimating earnings dramatically in 2022 and overestimating earnings dramatically over the past couple quarters, so don’t put a lot of weight on those forecasts.

See something to like here? Think this relatively conservative oil services company will do well through whatever the next oil price cycle might be? Have other favorites in the oil patch, which is full of stocks that fall into that “value” category of low-PE cyclical companies right now? Want to use options to bet on a strong 2024 for oil prices? Let us know with a comment below.

Disclosure: Of the companies mentioned above, I own shares of Alphabet. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.

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