Session of 02/20/2007

[David Randolph]

Good morning

Well, the market is not opened yet, but since there's a lot to do today, there's no problem in opening the message board earlier.

Someone brought up the problem of ignoring potential mid and large cap investment opportunities by being focused just on below $500 M market cap companies, so I've reignited a program to study this type of stocks on the Premium area of the www.3stocksonfire.org.

On this message board (which is free) we'll maintain the focus on small caps, because the objective of the 3 Stocks on Fire Portfolio (turning $15,000 into $150,000) is more achievable (although still very, very hard) using this type of stocks, which show more short term potential.

So far I've studied 239 small caps, as you can see on the Stocks Covered List. But more small cap stocks were studied on the Premium area that should be included on this list.

So I'll copy/past those analysis to this board today and update them with necessary changes, so I can add those stocks to the Stocks Covered List. It is also my intention to number the list and establish a simple rating using colors, as nica33 suggested the other day, that is, green for bullish, black for neutral and red for bearish. That way it will be easier to keep track of successes and mistakes, it will be easier to learn

You can talk about stocks on fire and suggest new ones to be analyzed, but I'll be short on time to cover them today (also because my Reuters Data Link service isn't working - I'll have to wait for Ramsburg to fix this - and this way I need to update several days of quotes by hand to use Metastock).

Feel free to talk about anything you please today.

By the way, I'll maintain CPNE.OB, ETLT.OB and PFSW in the 3 Stocks on Fire Portfolio.

Have a nice day

[elliemae]

David, I am curiuos about JSDA.  I realize it's valuation is high for current earnings, however, it has gone from 2% to 25% market penetration in a contract with a national distributor (FIZ) and when JSDA announces earnings on March 8th, they will also announce new retail stores that are selling their products.  On yahoo message boards, they have been spotted in Costco, Wal-mart, Target, Krogers, Publix, Smith's, Albertson's and a few other grocery stores that I can't recall.  Before Dec. 31 they had an exclusive contract with Target and now have new contract with bev. distributor.  They sell soda (multiple flavors in regular, diet and the new pure cane sugar, and also have organic drinks, teas and energy drinks)  Cramer tauted them as the next HANS back in Dec.  I know Setravis has held JSDA for a while.  What is your opinion of JSDA?  Is there really a 10 fold potential with the PPS/market cap. in the next 2 years?  Thanks in advance.  Elliemae   

[David Randolph]

I made the following analysis on FORG on January 3, 2007:

http://video.google.com/googleplayer.swf?docId=-1136344636897386159&hl=en

I was bearish on FORG and the stock is down 12.5% since my initial analysis. I can't upload the updated chart because Reuters Data Link isn't working on my Metastock, but it is easy to find at www.stockcharts.com, for example.

[wontfindaname]

What about DVAX? They really fell hard after intermediate data for their hayfever drug showed that none of their study subjects had hay fever to begin with. Not negative news, just bad luck with their study sample. It might be a good time to buy in now.

[David Randolph]

The following MSI analysis was made on January 4, 2007:

«Here's MSI's analysis on Terliso's request:

http://video.google.com/googleplayer.swf?docId=7722375774132999249&hl=en

This is an interesting reverse-merger/new IPO situation that I'll need to study more carefully. I'll do that in a new thread, MSI has passed to the second phase of the new buying process.»

After further investigation the stock was actually bought to the Main Portfolio at $1.93 (it closed at $2.42 on Friday).

My latest update on it said the following (I update the initial analysis of every holding of the Main Portfolio every trading day on the premium area of the website):

«The market absolutely doesn't care about Movie Star, all eyes and ears are on information about Frederick's of Hollywood. The problem is the latest press release only said the following about FOH:

«Further, we are excited about the recently announced plan to merge with Frederick's of Hollywood. The combined company will have sales approaching $200,000,000, better efficiencies and a powerful brand portfolio."»

The market currently values FOH at:

23.7 million newly issued shares*$2.42 = $57.35 M + 60% of the $20 M rights offering = $57.35 M + $12 M = $69.35 M.

Well, that is less than the price paid to take the company private in 1997, which was $70 M, as you can read here: http://www.bankruptcydata.com/fredericks.htm

I know the company filed for bankruptcy in 2000, but it reemerged from Chapter 11 in 2002 and I think www.fredericks.com has made the company more profitable since 1999 (www.fredericks.com had revenues of $3 M in 1998, $10 M in 1999 and $20 M in 2000. Perhaps $70 M in 2007? That is about half of the company's revenues - the difference being that selling online means less costs than selling through physical stores, so I expect the company to be more profitable now than what it was in 1997).

I believe www.fredericks.com has a bright future, even more so when it starts shipping internationally, or else opens operations in Europe and Asia.

All in all I maintain that MSI shares are a great opportunity at the current market price and I'll keep holding it.»

[tocitygirl]

Hi David

Good morning.  Do you think it's still good to buy cpne.ob before the earnings? Thanks in advance

[David Randolph]

Hi David

Good morning.  Do you think it's still good to buy cpne.ob before the earnings? Thanks in advance

I think so. Michael made a great long term revenue model for CPNE.OB that justifies a much higher share price. I'm expecting CPNE.OB to rise above $5 after the 4th quarter earnings release, but that's always hard to know. Let's just say I remain a short and long term bull on CPNE.OB.

Good luck

[David Randolph]

STEC went down so much that went from being a mid cap to a small cap. On my initial analysis which was dated January 5, 2007, I thought the stock was somewhat overvalued and expected a correction, but not a 33.5% fall out in just one month and a half:

STEC analysis:

http://video.google.com/googleplayer.swf?docId=-5532008685805142754&hl=en

Earnings will be out today and probably the company will disappoint investors (since the market has been giving that tip), but maybe the stock will bounce after touching the 200 days SMA support (blue on chart). Long term prospects seem nice. I'll take a look at STEC's results after the bell and will update this analysis, I think there's something to be learned here (and maybe a trading opportunity).

[bourbonstreet_crawdaddy]

Hello David,

I hope that you are having a terrific day. Would you please let me know what you think of these profitable Hot Stocks:

DSEN.OB
CXTI.OB
EGLY.OB

I think that you might find DSEN.OB     to be worthy of your close attention, since margins are improving, profitability is excellent, and the stock is catching fire!

Thanks for all of your excellent work......

Bourbon   

[njshiva]

David,  can you look into ACY when you get a chance.

[kpusan]

Good Morning

NTTL is on fire still holding @ .42

[David Randolph]

David, I am curiuos about JSDA.  I realize it's valuation is high for current earnings, however, it has gone from 2% to 25% market penetration in a contract with a national distributor (FIZ) and when JSDA announces earnings on March 8th, they will also announce new retail stores that are selling their products.  On yahoo message boards, they have been spotted in Costco, Wal-mart, Target, Krogers, Publix, Smith's, Albertson's and a few other grocery stores that I can't recall.  Before Dec. 31 they had an exclusive contract with Target and now have new contract with bev. distributor.  They sell soda (multiple flavors in regular, diet and the new pure cane sugar, and also have organic drinks, teas and energy drinks)  Cramer tauted them as the next HANS back in Dec.  I know Setravis has held JSDA for a while.  What is your opinion of JSDA?  Is there really a 10 fold potential with the PPS/market cap. in the next 2 years?  Thanks in advance.  Elliemae   

Technically the stock looks bullish, after a 10% or so correction from the recent highs above $15 (unfortunately I'm unable to provide a chart).

Fundamentally:

- Market cap is $344 M. Develops, produces, markets & distributes beverages including five brands: Jones Soda Co., a premium soda; Jones Organics, a ready-to-drink organic tea; Jones Energy, energy drink; WhoopAss, energy drink; & Jones Naturals, a non-carbonated juice & tea.
- I see dilution, especially in 2006. Currently the share count is 25.42 million, and it was just 21.6 million in 2005. You can check the historical share count on this link nica33 provided (awesome link).
- Revenue trend is positive, but not all that much growth until 2006. But, you already know that, but expect a huge jump in 2007, right? Still, I see $38.9 M revenues expected for 2006 and $52 M for 2007, and that seems too low for a $344 M market cap in the beverages sector.
- EPS expected for 07 is $0.14. With the stock trading at, let me see, $13.56, the forward earnings multiple is 97

My take is, probably those guys at Yahoo and Cramer are right, JSDA's fundamentals are poised to improve, but that seems completely priced in. I believe the stock is way overvalued at this point, therefore my rating is negative.

[spiritgate]

How about ZERO.OB

[nullzero]

PCCC looks good  .

[David Randolph]

What about DVAX? They really fell hard after intermediate data for their hayfever drug showed that none of their study subjects had hay fever to begin with. Not negative news, just bad luck with their study sample. It might be a good time to buy in now.

I'm sorry wontfindaname (cool nick ), but I have a problem with biotech stocks, as you can read on the 3 SOF Portfolio FAQ Q&A 15, especially when they're losing ($15 M) or so a quarter.

I explained this personal position previously, besides being hard to value, I believe 90% of biotechnology stocks will be lousy long term investments, as they need to continually dilute shareholder's value to finance operations.

I believe that in the future, when all the hype from the sector goes away, the government will need to sponsor this kind of investments (because they're socially useful, but the risk is too high for the average potential return in my view). But this can be 10 years or more from now.

Anyway, I know nothing about DVAX specifically, good luck