Feb 6, 2008
A few news items worth mentioning:
- Advocat, Inc. [[AVCA]] received a letter from activist shareholder Paul Kessler of Bristol Investment Fund pressuring it, among other things, to let shareholders vote on whether to de-stagger the board of directors and to hire an advisor to weigh strategic alternatives. Similar demands from Kessler, who controls about 5% of shares, have been disregarded by the company. I expect no action here even though Kessler’s demands would probably increase shareholder value.
- China OTC Player has an interesting post on three companies that could benefit from China’s devastating snowstorms [via Seeking Alpha]. He names China Solar (CSOL.OB) (formerly Deli Solar), China Pharma Holdings (CPHI.OB), and Sino Gas (SGAS.OB)
- Air Industries (AIRI.OB) announced that its Welding Metallurgy subsidiary has won $1.07 million of new contracts during the month of January 2008. The company says that this is the largest aggregate amount of new contract awards in a single month for Welding Metallurgy since its inception in 1979.
- Bagel-maker BAB Holdings (BABB.OB) announced $.10 earnings for 2007, virtually identical to 2006 results. That’s fine with me as long as they keep paying $.08 or more in annual dividends.
DISCLOSURE: Long AVCA, AIRI.OB, BABB.OB. No position in other stocks mentioned.
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Dec 5, 2007
Yesterday I was flabbergasted to see
what purported to be a press release from Eternal Technologies Group (ETLT.OB) entitled “Eternal Technologies Does Not Have Sufficient Assets in the United States to Post Bond to Stay Enforcement of Writ of Execution and Asset Seizure.”
Yet even a quick glance revealed that something was not right. First, the press release was not worded in the way a company — even one that has stumbled with the English language — communicates with shareholders. The whole press release seemed to be aimed at striking fear in ETLT shareholders, based on a threat that can best be described as a meaningles
s sideshow.
There were other red flags. The release was issued on Market Wire. There’s nothing wrong with Market Wire; its as good as any other wire service. But its not the one that Eternal Technologies uses. Every Eternal Technologies press release this year has been issued on Business Wire. And the bogus press release listed Angela Junell as the contact, instead of ETLT’s real IR contact, Annie Shi of Heron Public Relations Group.
Since I was 99% sure that the negative release was a hoax, as I posted in the comments here, I bought a lot of ETLT shares into the plunge this morning. Sure enough, later in the morning, Western Securities posted what it called a “Clarification.” It didn’t explain that the former release was fraudulent, but it at least correctly attributed Western Securities as the source of the ridiculous drivel.
To ETLT management I have this advice: you may not agree with the lawsuit, but either post the bond or pay up. For only $730,000 you can probably add 50% to your current market cap. and ensure your ability to continue to access U.S. capital markets. That’s a very small price to pay, so do it and move on.
DISCLOSURE: Long ETLT.OB.
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Nov 30, 2007
Eternal Technologies (ETLT.OB) shares have been hammered in the past few months, but there are two reasons that the future may be much brighter:
- E-Sea spinout: Earlier this week, ETLT announced that it would spin out up to 70% of its E-Sea Biological Engineering Co. to shareholders, and list E-Sea as a separately traded company. E-Sea owns a Chinese patent for dialysis technology and produces and markets instruments for detecting breast disease specifically breast cancer by applying its image processing technology. According to the latest 10-Q quarterly filing, E-Sea had about $5.5M in revenues and $2.15M in net income for the first nine months of 2007. Medical device companies generally trade at far higher multiples than the other businesses in which Eternal Technologies is involved (agriculture and land leasing), so the spinout should unlock value. The company expects to complete the restructuring in the second quarter of 2008.
- Institutional support: Sansar Capital Management, a hedge fund shop focusing on Asian investments, filed a Schedule 13G indicating that it had purchased 2,438,685 shares, or 5.18% of ETLT. This institutional support, from a fund believed to be savvy, should both lend support to shares and quell some of the doubts regarding the legitimacy of Eternal Technologies.
Add to this equation the facts that Eternal Technologies shares are oversold, that the company remains solidly profitable (though revenues did decline sharply last quarter), and that ETLT currently has far more cash than its total market capitalization. To me, the risk/reward for ETLT looks fantastic in the mid-term.
The rest of the news is just noise. Yes, there was a judgment entered against the company for about $730,000 in a Texas court related to an investment contract, but that is old news. The company had long disclosed the claim, had reserved against it, and has since filed an appeal. More importantly, $730,000 is less than 2% of the cash on ETLT’s balance sheet.
I bought more shares yesterday at $.55, and may continue to add to this position.
DISCLOSURE: Long ETLT.OB
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Oct 19, 2007
China Pharma Holdings (CPHI.OB) has come a long way since I purchased the stock and profiled it in early August. In less than three months, shares rose from around $1.40 to over $3.75, although they gave up almost 10% by the close today. Curiously, only a part of the runup appears to be related to fundamental news. While China Pharma reported good earnings in mid-August, most of the rally occured in September and October in the absence of any substantial news.
I took profits on my remaining shares today, cognizant that: (1) a period of consolidation was likely after a 150%+ rally; (2) a good part of the rally was probably due to frenzied trading of Chinese stocks rather than company-specific events; (3) Chinese stocks are typically vulnerable after the Chinese National Party Congress adjourns; and (4) though last earnings report was solid, cash flow remained negative and collections of receivables may continue to be a problem.
To be clear, I do not believe that the fundamental situation has deteriorated at all for CPHI. But after a two-month 150%+ rise, massive short-term expectations have been baked into the stock price and anything but a blowout quarter may disappoint new investors. I’m interested to see how shares react to any weakness, and will not hesitate to reenter if the price action warrants it.
Finally, I’d like to thank reader J.Z. again for pointing out the stock. It has been my best performer for the latter half of 2007, and he deserves all the credit.
DISCLOSURE: No position.
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