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4th anniversary stock contest — $75 prize
Topics: Uncategorized
Somewhere between my last two posts, this blog passed the four year milestone. It began with a simple concept: by sharing honest microcap analysis with like-minded investors, we all could benefit from each other’s research and ideas. 562 posts, about the same number of comments, and thousands of emails later, the idea that took root in September 2005 is still going strong.
Over the years many of my best ideas have come from readers. So for the 4th anniversary of this blog I have a humble request … give us your best microcap idea for the next few months.
I’ll sweeten the pot with a $75 Amazon.com gift certificate for the best-performing pick.
The Rules:
1. picks can be long or short, but shorts must be borrowable
2. register your pick by putting a comment in this blog post with a paragraph describing the reasons for your pick – Picks without any analysis, and email picks will be disregarded
3. microcap stocks only — market cap must be $300 million or less at the time of entry
4. performance will be measured from the close of the date of entry until Dec. 31, 2009
5. No more than two picks per reader. Each must have a paragraph of analysis to be considered. I reserve the right to repost picks that interest me (with attribution of course).
Give us your best. I look forward to another great four years.
And most of all, thanks for the past four!
Related posts:
I recommend Santarus (SNTS), a fast-growing little pharma company whose stock got crushed a couple of years ago when Par Pharmaceutical (PRX) challenged the patent on Santarus’s largest drug (Zegerid). Santarus recently (in July) won the first part of the lawsuit (verifying that Par was violating the patent), and I expect a favorable ruling on the second part of the case (the validity of the patent itself) any day between now and February (which is the end of the 30-month “generic challenge window”). I expect that the ruling will be favorable because the patent has already been re-examined by the patent office and declared valid. There are approximately 60 million shares outstanding, and the company is worth at least 2x run-rate revenue of approximately $150 million/year (i.e., $300 million divided by 60 million shares equals $5/share) plus its cash on hand, which is around $1.30/share inclusive of a $20 million milestone payment Schering Plough will pay in December upon FDA approval of an OTC version of Zegerid (which Schering will market and on which it will pay SNTS a low double-digit royalty). So, I expect this stock to be north of $6/share any day between now and February, and yesterday’s close was $3.30/share.
I’m picking China Precision Steel (CPSL) short. This stock has traded wildly in the past year, ranging between $0.86 and $4.14. The key here is that the Chinese steel sector is in a capacity glut and political forces prevent trimming workforces. Today another Chinese steel company, Sutor, announced disappointing results and is down about 20%. According to Yahoo! the only analyst following China Precision Steel expects the company to turn back into the red when it announces earnings on Monday. We’ll see. Anyways thats my pick.
[...] The 4th anniversary microcap stock-picking contest has been live for less than a day, but its already getting more interesting. [...]
I pick Advocat (AVCA). The nursing home operator has a measly $38 M market cap even after doubling on the year. Revenue, earnings, and FFO are all improving. Also important — because Advocat self-insures for liability — litigation expense was kept in check. Updated facilities and improved medicare figures seem to be positive drivers. Remember, Advocat previously ran from under $3 to over $20. I think its going to do that again.
I pick Graham Corp.(GHM)currently at $13.93. Graham Corp supplies heat transfer equipment to multiple industries and has been in business for over 70 years. Fundamentally, ROE and ROA have been historically high and this company has used it’s earnings to grow market share consistently. Cash reserves are high, and the last year and a half have been slow. But last year this stock was over 50$ a share and industry is starting to pick up again. This solid earner is being noticed at Motley Fool and CAPS as well as some financial blogs.
[...] Enter the Microcap Speculator stock-picking contest Comments 0 Post Comment Disclaimer [...]
My pick is BRSI, a thinly traded company with a proven product which has recently seen a 70% increase in Army contracts for their emergency aircraft parachute systems. The trend in the government contracts for the company is up, yet the price has moved little. The company has been in business 1981 and their product has saved 240 lives to date. Disclosure, I am long BRSI.
I pick APT (Alpha Pro Tech) which has already had a nice run-up for the year. It’s more of a short term pick as part of its allure has to do with the swine flu news. They make face masks and announced a tripling of their capacity on 9/1 to accomodate demand. Revenue in the June quarter increased by 63% from the previous quarter, They are profitable and have no debt. Their other product family (building supplies) revenues increased by 95% from the previous year so they are not a one trick pony.
I will go with BEXP, BRIGHAM EXPL CO. It has been the top performer for me this year. Brogham has accelerated the drilling activities during the remainder of 2009 and believe they will continue to discover more oil in Bakken formation. BEXP is my pick. I am long BEXP.
My pick is BRSI, a thinly traded company with a proven product which has recently seen a 70% increase in Army contracts for their emergency aircraft parachute systems. The trend in the government contracts for the company is up, yet the price has moved little. The company has been in business 1981 and their product has saved 240 lives to date. Disclosure, I am long BRSI.
[...] is still plenty of time to get your picks in for the stock-picking contest. The contest goes until the end of the year, and picks may be submitted at any time. [...]
Long ECU Silver (ECU.TO) because it is a junior miner and I believe gold and silver will go through the roof once people realize that the rich are already in on the game. Of course, they are in the game to preserve wealth, not for profit per se. Anyway. ECU has huge (I mean HUGE) silver reserves, it owns one of the biggest silver deposits in the world (the Velardena property) in the gold belt of Mexico. Measured and indicated resources 310 M ounces of silver equivalent, inferred resources of 460 Moz and a quantified potential of up to 930 million ounces of silver equivalent as defined by their auditor (Micon). The best part of the story is that ECU hasn’t recovered from the lows of March, but it’s just ramping up its production which means they will start to generate some serious cash flow. Right now, they have two mills. Last but not least, the CEO of the company is a geologist, which adds trustworthiness.
Long SilverCorp Metals (SVM) for the same underlying reasons – gold and silver bull. BUT, this company is already in serious production. Since at least 2008, they are the biggest single silver producer in China. They opened their first mine in 2 years and continue to add mines to their portfolio through organic growth, which does not dilute shareholder value. Costs are very low in China and the local government is very cooperative because they like the tax revenue. Low cost production means that they actually have a negative cash cost for silver! Lead, zinc and gold pays for the workers, equipment etc. Their production cost, even without taking into the cash flow from lead, zinc and gold is LOWER than what Silver Wheaton buy silver with! This is an absolute success story.
Looks like I made a mistake by entering SVM as its market cap is too big. Sorry.
I pick NXT Energy Solutions (NSFDF) which recently presented at the RedChip conference. This is a company that has a break through technology that can find oil and gas anomalies from a jet airplane. From their presentation they claim they can do for oil and gas companies in weeks what it takes 2D seismic to do in years and at 1/10th the cost. After proving out the technology in Canada, this year they have launched their services internationally focusing on Colombia. This summer they did a 7000 sq km survey for Pacific Rubiales for $2.3 million. Pacific Rubiales is the largest independent in Colombia. They said they are talking to more than 20 other O&G companies about surveys and it sounded like things are progressing quickly. There are over 700,000 sq km of potential surveyable land in Colombia so even surveying 1/4 of this land at the rate they charged Pacific Rubiales would mean 60 million in revenue in just one country. They mentioned that O&G companies are inquiring about surveys over land in Peru, Ecuador, Paraguay, Brazil, and other countries as well. The company has over $5 million in cash on hand with no debt. Their burn rate is ~$1 million a quarter. With multiple contracts pretax margins are 80% plus. Disclosure, I am long NSFDF.
[...] is still plenty of time to enter the microcap stock picking contest. You can enter at any time, and results will be measured from date of entry to [...]
If we're allowed two picks, in addition to my SNTS I'll throw in DUSA, which is dermatology device maker. They just reported a 21% year-over-year sales increase, and are tracking around $28 million in annual revs. If you value them at 2x revs and throw in their $15 million of cash, you've got an EV of $71 million. With just 24.1 million shares outstanding, that's fair value of just under $3/share. I bought a bunch earlier this week at an average price of just under $1.60; it closed yesterday at $1.56/
[...] have good news and bad news on the microcap stock picking contest. Bad news first — the participation has been disappointing. That's my [...]
With only a month to go, I thought I would add a short candidate: SEED.(Origin Agritech Limited) , currently at $14.03. This microcap is overhyped and overbought, short on cash and has limited licensing on products competing with Monsanto. It's currently being shorted by Citron Research. I think it looks like a scam for investors trying to go green and China at the same time, but there is nothing holding this one up. I don't know if it will collapse before year end, but the days are numbered for this stock. It's market cap is over $300 million today due to the price inflation but it will be a micro cap when the stock collapses.
Better late than never, right? TGB Taseko Mines just announced some pretty good news with a nice gold and copper find. Currently at 3.73 in the current trading day.
Great idea for a competition, although I am going to wait closer to the end of December before I submit my entry.
An extremely-underfollowed pick which will skyrocket due to operating and financial leverage as it is discovered by investors:
1) Trans Energy – TENG.OB – owns 30,000+ acres in West Virginia which have the Marcellus Shale underlying – companies all around TENG are buying land for $2,500-$3,000 per acre; Antero's recent purchase (see Antero Resources' website) for $3,000 per acre validates TENG's acreage position.
You can currently own TENG for $43mm (30mm debt + 14mm market cap) while the underlying asset value is really 75-90mm (30,000 x 3000); When you subtract out the 30mm of debt, this leads you to equity value of 45-60mm or $4-$6/share as compared to the current price of $1.20 (where there seems to be at some shares offered). They just sold some pipeline assets which probably helps their liquidity position even further than indicated in the above debt figure.
This is a micro-cap stock which is very underfollowed and will be explosive once it starts hitting more radar screens due to the operational and financial leverage in the company.
Trans Energy – TENG.OB – owns 30,000 acres of land in northern West Virginia which contains the Marcellus Shale – competitors surrounding TENG have demonstrated that this region is one of the lowest cost regions in this dynamic natural gas play. Acreage is currently changing hands for $2,500-3,000 per acre due to the robust well economics. Antero Resources has a press release detailing how they paid 3000/acre for land right next to TENGs:
http://www.anteroresources.com/?p=58
TENG can be purchased for $43mm (30mm debt + 13mm market cap) currently and the land is worth $2500-$3000 per acre, implying an equity valuation of $45-60mm (30,000 x 3000 less 30mm for debt) or $4-$6/share as compared to the current price of $1.20 (where there appears to be at least a few thousand shares available). I think this overlooked opportunity will be explosive once investors catch on.
Also, management owns 65% of the stock and there appear to be numerous E&Ps that would be ready to bid on their acreage. I think this company gets acquired within 6 months.
My selection is a small biotech with a good chance for explosive growth before the end of the year: Anadys Pharmaceuticals (ANDS). Their lead compound, ANA598, gained attention last year about this time when an early 3-day study found that it reduced the amount of virus in Hep C patients better than any competing drugs in its class under development at that time. The stock moved up sharply, but later fell back after there was concern over side effects at the highest doses. Now the initial results of a longer study examining the effects of adding ANA598 at lower doses to the standard of care are about to be released. Before the end of the year we should get a good idea of the drug's effectiveness and its side effect profile. With a market cap of only $100 now, a successful trial could double or triple the stock price as a competitor at a similar stage of development recently sold for $370 million.
My pick is Fortress International Group (FIGI) @ $0.63.
Fortress International Group is a data centre construction/facility management company that established itself just as the economy started to go down the tubes in 2007. Since then, the backlog of work has dried up, and the company has been forced to aggressively cut costs just to stay afloat. However, recent 10k filings have shown that the company is now finally starting to break even, and for the first time, the company made a (small) profit for the last quarter. Going forward, the company have stated that they can break even on earnings of $60 million a year. Given that they’ll do sales of about $80 million in 2008, I can see Fortress doing $5-$10 million in earnings next year. If that’s the case, the €8 million market cap looks like a great price to get in.
There is a huge risk with investing with FIGI though. If we the credit markets seize up again, FIGI will probably end up going bankrupt as clients will no longer be able to borrow money to start new projects.
Who won this competition? Trans Energy (TENG.OB) was up 71% and I think it is still a double from here… check it out and refer to my post above for what is a relatively simple value story to understand. How does the winner get the prizes?