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Monday, May 23, 2016

Why Lending Club (LC) Is A Great Speculative Play

Normally I don't recommend speculative stocks on this blog.  I want to make sure I give you all the best possible advice and at the same time be respective of your risk appetite.  But in a market like today's, when one day is up and the next is down, there is no headway being made by the long-term stock market investor.  This is why if you want any chance at a decent 5-8% return, you may have to take on more risk.



That's what I did recently, buying shares of the beleaguered Lending Club (LC), the company that recently ousted its Founder and CEO, Renaud Laplanche for breaking internal rules.  I'll spare you on a summary of what actually transpired.  You'll have to do the research for yourself.  I will tell you, however, that what Mr. Laplanche did was not illegal.  An impropriety?  Yes.  But not illegal.  The board acted swiftly and terminated Laplanche, and the stock, which was not doing well to begin with this year, tanked even more.

This company went IPO in August 2014.  A darling of the fintech movement, along with Prosper and other micro-lending outfits, Lending Club is now smearing the entire industry.  The blood being spilled on the street was murderous in nature, and not many had the courage to pick the stock up at $4 and some change.  I started a position in LC, seeing in my analysis that there was nothing inherently wrong with the core business...let me clarify.



Whereas Lending Club itself was suffering from a drought somewhat of new investors putting in money to fund loans for reasons such as concerns over a hike in defaults, and market volatility, business operation was still humming along.  Meaning that though the volume of new investors funding accounts to buy loans was diminishing, it was still happening, albeit at a slower pace.  Laplanche perhaps felt the pressure to keep the pace up.

Now he's gone and the business is being investigated by the SEC, the news of which drove the stock below $4.  That's when I picked up some more shares.  What is the SEC going to find, really?  Nothing!  They couldn't find Madoff for years!  Catalysts that I see driving the stock down in roller coaster fashion include...more SEC intervention news, and institutions dropping out of any dealings with LC for having had their trust violated.  But there are so many more stories that could drive the stock back to the $8 range, a double.  For example, LC today closed 8% up after news that the Shanda Group, a Singapore-based investment group, took an 11% stake in the company.  Now that is a bold statement.

I'm sitting at $4.02 so I made out today nicely.  I anticipate more investors seeing LC's stock bouncing back from this oversold territory and buying up the stock.  After all, it's the obvious mispricings that provide the best returns.  LC is one mispriced stock I will keep buying below $4.00.

Remember to do your due diligence, my friends.  Until next time. 

   

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