The Microcap Speculator

Worth reading:

• Patriot Scientific Reports Q3 FY’08 Results - market really hated this one, sending shares down over 20%. I was a very early fan of PTSC but have been skeptical since it peaked. With the big settlements behind it, how can PTSC justify its valuation?
• Candente: Copper Worth Looking At - Otto Rock via Seeking Alpha, on why Cadente is a likely takeout at a much higher price
• China 3C Group Enters into Supply Agreement with Wal-Mart Stores in Zhejiang Province - CHCG needed a little good news after the latest dour outlook.
• YTB International Reports Total Revenue of $141 Million and $3.2 Million Net Income for 2007 - YTBLA is en fuego, rising from below 1 to around 4 in just a few weeks (chart). The funny thing is I never even heard of this company.
• The Short Case for Origin Agritech - Interesting read but imo this stock was rides up and down on the fancy of momo traders.
• BAB, Inc. Reports Profit for 1st Quarter FY 2008 - Earnings hold steady at my favorite publicly-traded bagel company. As long as they do, I’ll keep collecting that huge dividend.

DISCLOSURE: Long CHCG.OB, BABB.OB. No position in other stocks mentioned.

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A few items:

• BAB Holdings (BABB.OB) announced another $.02 quarterly dividend. Shares have recently traded in a price range of $.85-$.95. Though the trading is thin, the yield is fat. Just counting the regular dividends — not last quarter’s special dividend — BAB Holdings gives shareholders $.08 per year. At the bottom end of BAB’s price range, that amounts to a 9.4% yield, and at the top end, an 8.4% yield. Not too shabby!
• I’m still long the junior/mid-tier gold miner field bet posted Feb. 20. So far, the results are mixed: Gold Fields [[GFI]] is up about 10.6% since then, and Gammon Resources [[GRS]] is up a solid 26.4%. On the flip side, Golden Star Resources [[GSS]] is down 3.2% and U.S. Gold [[UXG]] is down 2.6%. My takeaway? The disparate results show the need to play this one as a field bet. That’s why when I decided to increase the bet yesterday, I added another stock, Tan Range Exploration [[TRE]], instead of adding to existing positions. Next add will probably be Western Goldfields [[WGW]]. The stocks still don’t reflect the recent rally in the underlying metal, or potential earnings power. As long as gold holds $900 over the next three months, I expect a slingshot move in the juniors and mid-miners.
• Microcap nursing-home stock Advocat, Inc. [[AVCA]] reports earnings next Wednesday. Though the stock is under pressure on light volume this week, I like it at these levels and may boost my holdings in advance of the quarterly report.
• Littlefield (LTFD.OB), the bingo hall operator frequently mentioned here as a play on aging baby boomers, was a little light on earnings. I’m out of the stock and have no plans to reenter until financial results improve.
• China 3C Group (CHCG.OB) continues to hit new lows, though it reaffirmed fiscal 2007 earnings projections of $.43 to $.47. At today’s price of $2.23, I think that the Chinese electronics retailer offers a pretty good risk/reward in front of the 2008 Olympics. I’m a buyer.

DISCLOSURE: Long BABB.OB, GRS, UXG, GFI, TRE, AVCA, CHCG.OB. No position in WGW (yet) or LTFD.OB.

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1. Commerce Planet: CPNE.OB took a beating after announcing mediocre earnings. CEO Michael Hill said he was pleased with the quarter (I’m not), adding: “we executed on initiatives to more effectively spend our advertising dollars increasing our efficiencies and performance results. We expect this strategy to lower our future operating costs and protect the quality of our ongoing revenue stream.” Frankly, I think companies that blow their quarter could do with a little less corporate doublespeak. I was wrong on this position, but I don’t plan to stay wrong.
2. Investors also punished China 3C Group: CHCG.OB after its quarterly earnings announcement. I didn’t think it was that bad but if the stock continues to trade down I will exit this position as well.
3. Air Industries: AIRI.OB reported a slight loss, but promised a strong second half on a record backlog. “The improvements in revenue and gross margin, as well as progress with our consolidation strategy, as exhibited in the second quarter of 2007 are a harbinger of the growth to come in the second half of the year,” said Peter Rettaliata, Air Industries Group President and Chief Executive Officer. “Importantly, resulting from our growth initiatives, we look forward to a return to profitability in the second half of the year.”
4. What’s going on with gold shares? All kinds of miners including Western Goldfields: WGDFF.OB, US Gold: UXG, Crystallex: KRY, and Agnico-Eagle: AEM are off almost 10% today, yet gold futures were only off slightly. We’ll find out soon whether it was a fund liquidation or, as James Sinclair has posited, OTC derivatives blowing up. I have cut my gold exposure considerably but still own some Goldenstar Resources: GSS, a little Crystallex, and a few other small positions.
5. As expected, Accredited Home Lenders: LEND sued to enforce their buyout contract.  However, Lone Star pushed back the deadline for the tender until August 28, which indicates they are likely to try to renegotiate on price.  I am told that LEND has a strong argument in the pending litigation.
6. I’m doing some very exciting things at my primary job that will slow down my pace of posting until mid-October. Please stay patient and understand if I don’t get to your questions right away. Thanks.

DISCLOSURE: Long GSS, KRY, CHCG.OB, AIRI.OB, CPNE.OB.

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Editor’s note: This column is a special feature from guest blogger Suri Duddella, the best chart reader I know. Click the charts below for a bigger picture. As noted previously, I own CHCG.OB. For more of Suri’s work, visit his site and order his book.

MicrocapView by Suri Duddella, the author of “Trade Chart Patterns Like The Pros” at http://www.suriNotes.com

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