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TMFBlacknGold (98.87)

Cereplast Offers Great Long Term Opportunity

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6

September 30, 2011 – Comments (9) | RELATED TICKERS: CERPQ , DOW , BAK

I won't come out and say that Cereplast (CERP) is the best deal ever - because too many people try to call the next big thing (try allowing Motley Fool to email you their newsletter for a few weeks and you'll see how annoying it can be). But I will come out and say that Cereplast offers a very great long term opportunity.

Now I know what you're thinking: many stocks are currently undervalued due to the market turmoil caused by international government debt. That is true. However, Cereplast was very undervalued before the mini market crash this summer. As of the close on Friday, Cereplast had a market cap of just $44.12 million, which is absolutely absurd given the true potential and current performance of the company.

In the days leading up to Cereplast's Q2 earnings report on August 15th their stock surged 32% (from $2.86 to $3.78), but retracted with the market to its current valuation at $2.80. What exactly did they report?

-As of the first six months of 2011 they had net sales of $14.9 million compared to $936,000 a year ago (nearly $14 million more).

-As of June 30th, 2011 cash equivalents were $13.1 million, up from just $2.4 million on December 31, 2011. Most due to an offering of notes in May ($12.5 million).

-Shareholder equity had increased $7.9 million in the same period.

Even better, (it gets better? yes baby birds, it gets better) they reiterated their 2011 guidance of $28-34 million. How is that better? Well, just about all of their revenue growth is in Europe. Now before you close the page and say "Well, that's a s****hole I don't want to invest in", consider this:

Cereplast sells consumer plastics made from plant starches. So recession, depression, it doesn't matter - plastic bags are not threatened. Many European cities have plastic bag bans, which is exactly how Cereplast captured market share and exploded in the first place. I can't say they won't get hit by more bad news out of Europe since they probably will. But that just makes them even more attractive.

Their cash equivalents alone (as of June 30th) make up 29.7% of their market cap. Let's say cash equivalents stay constant by year's end and their stock closes around $3.50 (a 25% gain). Cash would still make up 23.7% of their market cap!

Do your due diligence (research, research, research) and keep an eye on Cereplast. I wanted to get in earlier this summer if it closed below $4.00, but I added to another position instead. Looks like that paid off, because I am salivating every time I look and see Cereplast down another $0.05 everyday. Sorry for all these darn words, but its a great long term growth opportunity. Stay Foolish!

 

BlacknGold

9 Comments – Post Your Own

#1) On October 01, 2011 at 5:02 AM, mhy729 (29.82) wrote:

Nice write-up!  Thanks for bringing this one to my attention (think you first mentioned it in an earlier post about oversold stocks), it certainly is one to keep on the watchlist.  I've got yet another company to do research on...I'll have to start paring down the list of stocks I want to look into, if I'm to have spare time available for other things.

Btw, do you keep tabs on your older blog posts?  I've left a few comments as of late, some of them specifically directed to you, and haven't gotten any responses.

Hope all's well with you, and be careful out there! (this market looks to be stricken with another case of the Eurozone-induced VIX jitters) 

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#2) On October 01, 2011 at 11:49 AM, Teacherman1 (42.89) wrote:

I have it on my watch list and have had for some time. It just hasn't come down to my start price yet.

I agree this could be a good long term growth stock, but it will take a while, and there could be some bumps in the road, so I would feel more comfortable getting it at a lower price.

I am hoping that this "schitzo" market will allow me the opportunity to get it where I want it.

They have a good product and there is demand, but there is also risk from "much bigger players" in the same market.

It is possible they could carve out a "niche" for themselves, servicing those users who are too small for the "big boys" to mess with.

They could also become a buyout candidate down the road.

I am willing to take a position and wait for them to "grow" into a solid investment, but I have found that I do much better if I wait for the price of the stock to come to me, instead of "reaching up" and "grabbing" for it.

Good post about a company that some may not be aware of, and one that is well worth looking at.

JMO and worth exactly what I am charging for it.

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#3) On October 01, 2011 at 12:07 PM, TMFBlacknGold (98.87) wrote:

Teacherman1:

I am willing to take a position and wait for them to "grow" into a solid investment, but I have found that I do much better if I wait for the price of the stock to come to me, instead of "reaching up" and "grabbing" for it.

 Great piece of advice that I learned not too long ago myself!

 mhy729:

Thanks for the comment! I have to admit that I haven't been looking at my posts for a while, but I am going around and responding now (currently finished with August responses). It's been pretty crazy with school, but I am finally going to catch up this weekend and post a few more blogs this week. One on Motley Fool as a Game, where I dissect my CAPS score (accuracy, score, closed and active picks, etc) and encourage others to do the same. Also, I have been researching Pittsburgh area companies and will start to focus on them instead of Blackngold Pharma blogs, since zzlangerhanns has much more knowledge than I do in that arena. I will only write about the pharma stocks I own (ATHX, KERX, NBY).

BlacknGold

 

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#4) On November 07, 2011 at 11:19 PM, TMFBlacknGold (98.87) wrote:

As mentioned in the original post, CERP faces some uncertainty in the European market. They took a 20% beating today despite raising their revenue targets for the year and posting a 260% increase in profits - all due to the possibility that some of their European accounts may never receive payment. The worst in Europe is not over, so I may wait to jump into this one. It is well below my target price already, so I will look to start accumulating shares for a sweet long-term return.

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#5) On November 11, 2011 at 12:23 PM, mhy729 (29.82) wrote:

Cratered today on private placement announcement...could be a nice opportunity to begin accumulating if you believe in the company for the longterm.

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#6) On November 11, 2011 at 12:27 PM, mhy729 (29.82) wrote:

By the way, have you taken a look at MBLX?  Both CERP and MBLX look quite interesting....

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#7) On November 11, 2011 at 12:47 PM, Teacherman1 (42.89) wrote:

Hey BlacknGold and mhy729

Today would be a good time to start.:)

I added a lot more today to get me down to just about what the new investors are getting it at.

In the meantime, I am taking a beating in CAPS because I can't close it and re-open to show my new price.

I liked them at my old price, and like them even more at my new one.

I think the "day traders" are just playing with each other today. It won't be long before it starts back up.

Dilution is fine as long as the new money is to grow, and not to cover old problems. In this case I believe it is to fund growth.

JMO and worth exactly what I am charging for it.

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#8) On November 24, 2011 at 6:45 AM, mhy729 (29.82) wrote:

I'm in CERP @ avg. cost basis of 1.20.

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#9) On December 07, 2011 at 4:36 PM, TMFBlacknGold (98.87) wrote:

I actually never started a position. I'm waiting to free up some cash, which should happen at the end of the year/mid January. I put some money in ATHX at $1.20 and it popped after the stupid "pump-n-dumpers" at SeekingAlpha wrote an article about it. I guess I'm not complaining about a quick double thought.

I am looking to get into CERP when my cash opens up. It should still be in the low $1 range. The company actually has more cash on hand than its market cap. Unfortunately, Europe will continue to bring down the share price. It is a great opportunity for investors who are following it though!

BlacknGold

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