Four Speculative Plays For 300% In 2010
January 05, 2010
– Comments (33) |
RELATED TICKERS: KAZ
, MCZ
, VLNCQ
Before I even begin I need to get something out of the way. The following plays are extremely risky based on my usual long recommendations. I’m not in any way suggesting that there is no probability of failure here from these companies, or any companies for that matter, as that possibility always exists. What I am saying is that there are certain “particulars” about these companies that make them in my opinion likely candidates to more than triple in 2010. Don’t come crying to me if they don’t, don’t send me a check if they do, and whatever you do, don’t go blindly buying into these companies just because I said so without giving them their due diligence.
Before I start I also want to take the time to apologize to any of you in CAPS land that feel I may have ignored your comments or have been slow to respond. I will be backing away from CAPS and a lot of other things potentially over the next few days/weeks/months as I help my mother combat lung cancer. Family obviously comes first and although I may enjoy combating the “stupid” I frequently find in our stock market, it’s never the top priority in my life. With that being said, if you have offerings of well wishes that I could pass along to her via email, I welcome them at motleyfoolcapsleader@gmail.com (yes that is my real e-mail address). I will not however be answering stock market related questions or offering advice at this point of time because of the above reasons, so keep that in mind.
So without further adieu….
Four Speculative Plays For 300% In 2010
BMB Munai (AMEX: KAZ)
BMB Munai is an independent oil and gas company involved in the exploration, development and production of oil and natural gas primarily in Kazakhstan.
What I find particularly attractive about KAZ is how willing they are to lay out their expenses for investors to see. Through governmental contracts, KAZ can show through 2014 exactly how much capital expenditures they are required to spend on well production and exploration. In the last year KAZ has expanded their well portfolio from 16 to 24 wells which buoyed revenues and kept profits solid.
The concern with KAZ is can they keep expensing under control. The Kazakhstan government imposed an exportation tax on oil in 2009 which added nearly 7 million dollars in extra taxation to the bottom line. It’s not hard to now see why KAZ had to deal with expenses being up 92% over the bottom line of 2008. The good news is KAZ sees both expenditures, expenses and revenues staying relatively flat over the next 12-18 months.
Over the course of 2009 KAZ saw revenues increase from 60M to 69M dollars all while the price per barrel of oil dropped by $3. Remember they did have an extra eight wells up and running in 2009 so don’t read too much into those revenues, but with 38 cents per share in full-year profits, how does 3.2 times 2009’s figures sound? Working capital is not an issue and debt levels are well within tolerance. The concern here is will the Kazakhstan government work with KAZ or will they literally tax them to death.
I fully expect KAZ to produce in excess of the 38 cents profit per share they produced in 2009 in 2010. I don’t suspect we’ll see the 70 cents they made in 2008, but given even a remotely higher oil price, let’s say $74-$90 per barrel, which is where I see oil for much of 2010, KAZ should under similar expensing scenarios produce 0.44-0.48 for the full year. That would place KAZ at a future price to earnings of roughly 2.5 which is incredibly cheap for an exploration sector that typically sees 8-12 as the average. Price earnings to growth ratios are also low in the 0.3 range. Foreign risks aside and assuming political forces cooperate, I don’t see any reason why KAZ can’t lift off this year with any minor move higher in oil and potentially more than triple in value.
Artificial Life (OTC: ALIF.OB)
Artificial Life develops, designs and markets software applications and technologies for mobile telecommunications market. Can you tell where I’m going with this? ALIF.OB is one of the premier mobile app companies out there and they are reaping the massive rewards associated with Apple’s (NASD: AAPL) I-Phone.
Apple, roughly 36% of sales, primarily supports artificial Life’s mobile app revenues. ALIF.OB currently has 20 of the top 100 most downloaded I-Phone app’s under license. That to me is a very staggering number and shows just how well positioned this company is for future success. Although the economy has been staggering for the past two years, sales of the Apple I-Phone and the downloading of applications has not. In fact figures today pointed to the fact that over 1 billion downloads have been registered for the I-Phone over the last TWO months alone.
Artificial Life has been growing revenues and profits very aggressively in an otherwise weak economic environment. Profit and operating margins are running consistently in the 37%-41% range, revenues are growing consistently at 25%-35% per quarter and ALIF.OB is very profitable, producing a trailing price to earnings of just 4! Worried about insider selling? How about none! In fact 3M (NYSE: MMM) became a large shareholder of record in October, purchasing almost 6.5M shares of the company.
It’s extremely difficult to even find one major flaw with Artificial Life, but if there is one it’s that their customers outside of Apple have recently struggled to make their payments in a timely manner, so much so that ALIF.OB recently had to set aside 2.1M dollars in loss provisions for potentially bad accounts. Truthfully though, if this is the only thing holding this company back from rocketing higher, I don’t see that holding it back much longer.
Of this group of companies, I see Artificial Life as the most likely buyout candidate. I see no reason why, if they continue growing like this, Apple won’t want a piece of the ALIF.OB pie. Based on my projections for 2010, I see no reason they couldn’t churn out 0.31-0.33 per share with revenue growth over 30%. And you wonder why I think their stock could more than triple?
Mad Catz Interactive (AMEX: MCZ)
I’ve written extensively about Mad Catz before and will choose here to just copy and paste what I blogged about in August.
Mad Catz Interactive's philosophy is to make your life all play and no work, and they've done a fairly good job of that over the last decade. Mad Catz is responsible for a plethora of video game accessories for the Wii, Xbox, GameCube as well as for the home computer. Mad Catz has put out accessories to games such as the NFL Madden series, Wii Fit and RockBand just to name a few. Just last week Mad Catz and Nintendo entered into an agreement for MCZ to supply an even greater amount of accessories to Nintendo DS.
Despite a weaker economic enviroment and slowing video game sales which were down in the 20 percentile based on recent reports, Mad Catz was able to report record yearly revenue of 112.5 million dollars. This was due in large part to MCZ's expansion beyond the United States. Mad Catz can now count on 40% of their revenue coming from outside the United States which is a clean 10% improvement from just two years ago. One interesting thing to note however is that despite the company deriving 2/5ths of their revenue outside the United States, a select few customers make up a huge swath of their business, so any delays or hiccups in the industry could vastly affect MCZ's business. Gamestop currently is MCZ's largest customer, so closely reading their quarterly reports and buying habits could clue you into how Mad Catz should be doing.
Mad Catz is trading in the penny range yet again but that hasn't stopped them from turning a profit in the past. If you look at the past five years, outside of goodwill impairment charges, MCZ consistently turns a profit of 4-7 cents per year. If you extrapolate out their current 30 cent per share price, this company is trading at 4-8 times its price to earnings in its average year. Keep in mind of course that 2007-2009 have been anything but average years, but as long as MCZ stays consistent and video game sales don't plummett 50% or more, you can almost count on continued profitability. I also feel the need to add here that Mad Catz has implemented cost savings throughout 2009 and 2010 which should net the company over 1 million in savings which should alone translate into profitability.
Although Mad Catz maintains long-term debts of a shade over 27 million, they recently restructured this debt to a lower interest rate over the next five years and renewed a three year credit facility with Wachovia of 30 million dollars, so financing is also not a problem despite tough economic times.
Although a very small company, Mad Catz management has at least one of its top three members there since its founding in 1998. The other two members have 4-5 years experience and are slowly adapting to the industry. You know me, I always enjoy seeing double-digit tenures and I think thats definitely one reason MCZ has performed so poorly over the last year in terms of stock price.
Something to note is that the US Dollar can have a large impact on Mad Catz's results. Since approximately 40% of their revenue is derived from foreign countries, any currency translation where the dollar is stronger can impact their profits by as much as 4-6% which is something we saw in their most recent report. Theoretically here, what we'd like to see is continued weakening of the US Dollar (which should continue by the way) which should help to boost MCZ's profits.
What sort of problems might exist with owning Mad Catz Interactive? Well, as I alluded to above, Mad Catz is largely dependent on a few large customers. In fact, MCZ's top ten customers make up almost 2/3rds of all of their revenue. Any change in the buying habits of these customers or even in their relationships with third party developers could drastically affect their revenue. MCZ will always tell you they have no long-term contracts with these companies but I think that's more scare tactics than anything. Obviously the overall health of the video game industry is critical to MCZ's success. You've heard me say it before and I'll say it again, as long as this purported economic recovery goes as planned, the video game sector will be on fire within twelve months.
It's clear that Mad Catz is supplying the video game industry with products for some very popular and well known games. Revenues were at a record level in possibly the toughest year over the past three decades. I predict that Mad Catz will return to profitability within the next 3-6 months and turn a 2010 fiscal profit of 5-6 cents per share. Although I don't see Mad Catz as a buyout candidate, I wouldn't be surprised to see MCZ out there purchasing smaller rivals in 2010. My bold prediction is that Mad Catz will see $1.15 per share before Christmas 2010.
Valence Technology (NASD: VLNC)
Valence Technology provides lithium ion magnesium phosphate battery technology to various green automotive suppliers.
Without question Valence is the biggest stretch of the four on this list. Valence has never consistently turned a profit, but make no mistake, they have turned a profit before. Due to weakness in the overall economy and sluggish Segway sales which make up a large portion of their sales up until now, VLNC struggled mightily in 2008 and 2009. The good news is that their struggles may be about to lessen.
Valence has received a healthy amount of new orders scheduled to kick in during the third quarter of 2010, so much so that they can expect more than a doubling of revenues based on a year over year status. I’m still a bit unsure as to whether Valence will be able to turn a profit off of this dramatic rise in revenue, but they clearly are moving in the right direction.
This is truly a play on what I’d refer to as the Obama Green Movement. Everyone is always looking for the next big thing and I feel this year could be the year for battery plays. We’ve already seen increased activity from China Battery (NASD: CBAK) but then again, what China stock hasn’t seen increased activity recently? As Valence transitions more from the Segway (no pun intended) and smaller transportation devices into motorcycles and automobiles is when I feel they could see the greatest impact to their bottom line.
Valence is not a charity case and could potentially stick around in the doldrums for quite some time, but the probability of industry-wide consolidation and their projected revenue growth being in the triple digits for the latter half of 2010 gives me hope that they could see a dramatic rise in their stock price some time this year.
UltraLong
RSS Headlines
Fool UK