Analyzing the Metrics of Stocks Advertised on CNBC

Companies are advertising their stocks during commercial breaks on CNBC and other television networks. After seeing several such commercials on CNBC, I started noting the stocks’ ticker symbols. While it is not a comprehensive list of advertised stocks, there are enough companies to give you a sense of their metrics.

All 13 ticker symbols I wrote down are for exchange-listed stocks. All but two of those stocks trade for under $5.00 per share. Eight have market capitalizations below $30 million—the minimum required to be considered for our small-cap Model Shadow Stock Portfolio. (I’ll contrast our Shadow Stock rules with these companies momentarily.)

Four companies on the list have not realized any revenues. S&P Global Market Intelligence data shows four more as having revenues of less than $1 million for the past four reported quarters: Can-Fite BioPharma Ltd. (CANF), Lexaria Bioscience Corp. (LEXX), Nexalin Technology Inc. (NXL) and Soligenix Inc. (SNGX).

Only two of the companies are profitable: Alliance Entertainment Holding Corp. (AENT) and VersaBank (VBNK). Only Alliance Entertainment is realizing positive cash flow from operations.

Unsurprisingly, most of these companies have been issuing shares. It is common for newer and emerging companies to raise capital by selling shares.

Though all these stocks are in the small-cap universe, they are not the type of companies that are considered for the Model Shadow Stock Portfolio. In addition to the minimum market cap size requirement of $30 million, the Model Shadow Stock Portfolio requires companies to be profitable and have price-to-book-value (P/B) ratios of 0.90 or less. The maximum market cap for being added to the portfolio is $300 million. Financial stocks—including those in the rental and leasing industry—or limited partnerships are not considered because of the portfolio’s use of the price-to-book ratio.

RedChip Companies Inc. was hired by nine of the 13 companies listed in the table to run commercials. Business Television runs ads for three of the four other stocks. Both RedChip Companies and Business Television produce television shows designed to publicize the publicly traded companies they work with in addition to producing the on-air commercials. Their shows air on Bloomberg, Fox Business and other television networks. RedChip Companies’ shows also appear on CNBC.

If you catch one of their shows, pay attention to the disclaimers. The companies being profiled likely paid for the spots.

There is nothing wrong with a company promoting itself. Companies commonly give presentations to analysts. They also interact with institutional investors.

These companies are very small and are not getting much attention. While bargains can be found in the shadows of Wall Street, the fundamentals of these companies point to a high degree of risk.