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JakilaTheHun (99.94)

Microcap Analysis Thread - (Ignore This)

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August 05, 2009 – Comments (28)

Since CAPS will not allow me to rate microcaps that have a market cap under $100 M, I wanted a centralized location to store my analysis of some of these companies on.  I created this blog for that purpose.  You are free to read or comment, but I'm not writing this for anyone but myself, which is why I wrote "Ignore This" in the thread title.

A lot of these companies will come from anticitrade's liquidation value selections.   I have the individual quick DCFs for all these companies stored at home, but they are in a giant file with DCFs of over 100 companies, so this will allow me to more easily recall which microcaps I have analyzed that were not also ratable on TMF.

28 Comments – Post Your Own

#1) On August 05, 2009 at 2:10 PM, JakilaTheHun (99.94) wrote:

CE Franklin (CFK):

My adjusted NTA figure was $3.43 after writing off goodwill and some inventories.  Earnings look relatively strong, but cash flows have never been quite as positive.  It looks like working capital balances have been the primary culprit, which probably means rising inventories and receivables.  This could be bad, but I'd have to delve deeper to discern with any level of certainty.

Steady-state free cash flows from 30 cents to 55 cents per share would be realistic, but conservative.  Going more strictly on net income, earnings have been around 70 cents to $1.20 per share. 

11% cost of capital to be moderately conservative.  My most conservative valuation is $7.15 (using 30 cents per share in Year 1 FCFs).  With 54 cents per share, that figure jumps to $10.10.  Earnings of $1 make it jump up to about $16.  

If CAPS would allow me to green thumb, I would.  I give it a conservative probable valuation around $8 and it could very well be worth anywhere from $10 - $18.  Selling under $5.50, it's a reasonably good bet. 

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#2) On August 05, 2009 at 2:14 PM, portefeuille (99.60) wrote:

Since CAPS will not allow me to rate microcaps that have a market cap under $100 M, I wanted a centralized location to store my analysis of some of these companies on.  I created this blog for that purpose.

great. my concept is adopted, hehe ...

we need more followers!

 

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#3) On August 05, 2009 at 2:15 PM, portefeuille (99.60) wrote:

sorry! never get to the end before responding. stupid me!

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#4) On August 05, 2009 at 2:27 PM, TMFJake (75.83) wrote:

Nice way to pressure us to make a change to a volume-based filter. :)

In a recent post to portefeuille's blog, I asked for ideas on the volume rule:  e.g. Support all major exchange stocks and any OTC or PK stock that meets $X Daily Trading volume.  

Jakila, is that what you have in mind? 

--jk

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#5) On August 05, 2009 at 2:34 PM, SRF4REAL (70.52) wrote:

My most major successes have been in the smallest cap companies over summer.  A shame that many are uncovered gems and "internet of the 90's" opportunities...  

got my vote! 

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#6) On August 05, 2009 at 2:36 PM, portefeuille (99.60) wrote:

okay, now that this post is ruined, I just might as well respond.

my post

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#7) On August 02, 2009 at 3:07 PM, JakilaTheHun (99.94) wrote:
I really wish they'd lower the market cap.  I don't see any legitimate reason for a $100 M cut off, especially when many Fool writers have repeatedly pointed out that the greatest returns over the past few decades have come from micro-cap companies, often with market caps in the $25 M - $60 M range.
The rationale behind the $100 M cut off, I believe, is to prohibit rating pump-and-dump penny stocks, but as we've seen, the market cap rule doesn't prevent those sorts of scams from being ratable and low volume is the big ingredient that allows these scam stocks to gain momentum anyway.  TMF should institute volume limits rather than the $100 M market cap limit. 

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#9) On August 02, 2009 at 9:41 PM, TMFJake (96.77) wrote:
Whether or not you've presented an overwhelmingly convincing case, I'm agreeing with you that a volume threshold could be better--but not that the current rule is absurd...
How would you propose we implement the volume filter? Tastylunch has proposed we support any ticker that trades on the AMEX, Nasdaq, and NYSE, and require average daily volume (say X million) for OTC and PK stocks.  Is this the approach that you'd recommend as well?

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(from that post)

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#7) On August 05, 2009 at 2:40 PM, Bays (30.34) wrote:

I just bought CE Franklin on the Toronto Exchange!

I like where your head is at, JakilaTheHun

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#8) On August 05, 2009 at 2:40 PM, portefeuille (99.60) wrote:

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The $1.50, $100M rules in the "caps" game should be trashed.
I recently had another look at some of the calls I made in this post of mine.
That list of calls has one advantage. There are no rules. No $1.50, $100M, 200 active calls, U.S. exchanges only limitations, none of that garbage.
Now have a look at some of the results.
I did end some of those calls already but let's just look at the performance between the date of the call and today.
ticker start now rel. change (%)
HGSI 0.50 10.67 2034.00
VVTV 0.27 2.51 829.63
SEH 1.49 11.00 638.26
BGP 0.55 3.98 623.64
CENX 1.11 6.54 489.19
DNDN 4.08 23.32 471.57
IFNNY.PK 0.79 4.00 406.33 
BCS 4.13 20.77 402.91
LVS 1.99 9.93 398.99
GMK 0.93 4.61 395.70
FITB 1.46 7.06 383.56
NVAX 0.65 3.01 363.08
STEC 7.60 32.87 332.50
MIC 0.94 3.66 289.36
ACAS 0.75 2.86 281.33
BLC 0.55 2.08 278.18
CSE 1.25 4.39 251.20
FEED 1.68 5.84 247.62
CRAY 2.37 8.23 247.26
ING 3.42 11.47 235.38
EXAS 0.86 2.79 224.42
UIS 0.50 1.62 224.00
BAC 4.02 12.26 204.98
PMI 0.66 2.01 204.55
Most of those stocks were "not currently ratable" at the time of the respective call.
But all kinds of garbage was "currently ratable" at the respective dates. The only problem was that I did not want to make a call on some garbage stock. I just don't find that very "intellectually" satisfying. But I did want to recommend HGSI at $0.50, or Infineon at $0.79.
The $1.50 rule is particularly stupid since the price can be lifted by a split above any threshold.
As usual I could elaborate ...

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#9) On August 05, 2009 at 2:47 PM, ChannelDunlap (< 20) wrote:

The $1.50 rule really hurt earlier this year.  So many stocks down that cheap that I wanted to get CAPS on and couldn't. 

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#10) On August 05, 2009 at 2:48 PM, portefeuille (99.60) wrote:



enlarge

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#11) On August 05, 2009 at 2:52 PM, portefeuille (99.60) wrote:

have a look at that list and start weeping seeing all those lost opportunities ...

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#12) On August 05, 2009 at 2:52 PM, portefeuille (99.60) wrote:

done. hehe ...

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#13) On August 05, 2009 at 3:26 PM, anticitrade (99.65) wrote:

I am firmly in Jakila and Ports camp on this.  When considering a fundamental valuaiton the stock price is fairly arbitrary.  Plus, I think small investors have an advantage on these penny stocks. 

CFK remains one of my favorite stocks, all the reasons I bought it several months ago still exist.  I think a conservative valuation for this stock is about 14.  (Which is up from my valuation of 9.86 when I first bought it)

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#14) On August 05, 2009 at 4:33 PM, JakilaTheHun (99.94) wrote:

Ha!  I expected this post to go barren and turn into something like Port's buy thread.  Now, I'm going to have to start a second blog for microcap analysis! :P

But now that the thread is already ruined ;), I guess I have to respond to everything:

 

TMFJake, 

That doesn't sound too bad to me.  Unfortunately, I'm not much of a technical guy, so I'm not sure what limits would be best for volume.  I agree with the suggestion you gave.

If it's not simple to come up with a realistic volume limit, I'd suggest allowing all major exchange stocks (NYSE, NASDAQ, AMEX) with a market cap over $10 M and not allow trading on any OTC or PK stocks.  I'm not saying that I want to lose the ability to rate legit OTC and/or PK stocks, but I'd trade that for being allowed to rate microcap stocks traded on major exchanges.  

Ideally, I think a volume limit should be implemented on OTC stocks --- I don't know a good set of criteria for this; however, maybe it would be wise to examine a large number of OTC stocks that we all know are legit (i.e. large foreign companies not traded on American exchanges) and see what volumes tend to be typical of these companies.  Some companies that might be good guideposts:

Roche (RHHBY.PK)

Nissan (NSANY.PK)

GDF Suez (GDFZY.PK)

Maybe we should make it so that OTC and PK stocks can't be ratable unless (a) market cap is over $1 B and (b) volume is more than 0.5% of total float.  Not sure if (B) is realistic or not.  

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#15) On August 05, 2009 at 4:37 PM, JakilaTheHun (99.94) wrote:

Fwiw, I don't have much of a problem with the $1.50 price limit.  It is "arbitrary" in some sense, but I understand the point in it --- to weed out penny stocks. 

Maybe instead of lowering the price limit, we should simply say that major exchange stocks with a market cap over $100 M are exempt unless they drop under 50 cents.  Otherwise, the $1.50 price limit should apply.

 

But honestly, I'm fine with the price limit.  It's annoying occasionally (I couldn't rate PAL @ $1), but it's not that bad.  I dislike the $100 M market cap minimum much more because many of the best buys on the market have market caps from $10 M - $100 M.  

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#16) On August 05, 2009 at 10:10 PM, TMFJake (75.83) wrote:

Sorry for contributing to the corruption of this blog. ;)

And porte, sorry I missed your answer to my question in your previous blog.  You went off on a YouTube tangent and I somehow missed your original response. Also, believe me we want to expand to create a Global CAPS someday...

In any case, I think there's some general consensus that a volume threshold as described above would be preferrable.  I'm going to run some numbers and compare how many stocks would be excluded using a 1MM per day threshold vs. our current share price and market cap method.  

Jakila, you also suggest another interesting idea that we've kicked around--just putting a limit on market cap only and lowering the threshold somewhat. 

Stay tuned.

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#17) On August 05, 2009 at 10:33 PM, portefeuille (99.60) wrote:

And porte, sorry I missed your answer to my question in your previous blog.  You went off on a YouTube tangent and I somehow missed your original response.

No problem. I feel pity for "my readers" at times.

Also, believe me we want to expand to create a Global CAPS someday...

great!

In any case, I think there's some general consensus that a volume threshold as described above would be preferrable. 

So do I.

I'm going to run some numbers and compare how many stocks would be excluded using a 1MM per day threshold vs. our current share price and market cap method.

great!

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#18) On August 06, 2009 at 4:55 AM, TMFBabo (100.00) wrote:

TMFJake: If you go with a number, I hope it's a lot lower than 1MM.  1MM would actually be more restrictive on the micro caps I personally watch than the current limits that are used.

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#19) On August 06, 2009 at 8:57 AM, JakilaTheHun (99.94) wrote:

To sum up my thoughts more coherently; I believe:

(A) All stocks traded on one of the three major indexes should be ratable if they have a market cap over $10 M.  I'd prefer no volume limits on these stocks at all; but I wouldn't oppose some very liberal volume limits. 

(B) OTC and PK stocks should be treated under a completely different set of criteria than major exchange stocks, with a $1 B minimum for market cap, a minimum price of $1.50, and a minimum volume threshold (e.g. 0.5% of total float?).  Almost all the scam stocks are going to be OTC or PK, anyway, and infrequent trading patterns on OTC + PK stocks allow people to make points that aren't precisely realistic anyway.  

(C) I'm indifferent on the price limit issue.  I wouldn't mind it being lowered, but if it were, I'd prefer that it stay over $1.  I think under no circumstances, should TMF allow stocks that trade at 20 cent prices to be traded b/c it would be unrealistic since the commissions and fees paid to trade those sorts of stocks would often eat away at any gains.  So even though I agree that price is somewhat "arbitrary", I think some sorta minimal price limits are a necessary evil.

 

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#20) On August 06, 2009 at 8:57 AM, JakilaTheHun (99.94) wrote:

P.S. Feel free to corrupt away this blog :)

I've already created a second blog for my microcap analysis. 

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#21) On August 06, 2009 at 9:01 AM, anticitrade (99.65) wrote:

Well put jakila, I agree unconditionally.  Now we just need to find your new secret blog and start corrupting.

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#22) On August 06, 2009 at 9:04 AM, vishtr (< 20) wrote:

Allright, I'll pay no attention.

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#23) On August 06, 2009 at 9:05 AM, JakilaTheHun (99.94) wrote:

Anticitrade,

The secret to the non-corruption of my second blog was that I didn't post "Ignore This" in the title.  I should've known that posting "Ignore This" in the title of this one would immediately draw hundreds of people in! 

It's like a "Don't Touch" sign or when you are walking and see a "Don't Step on the Grass" sign.  You never would've thought of stepping in the grass beforehand, but once someone told you not to do it, you suddenly couldn't resist yourself from doing it ;)

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#24) On August 06, 2009 at 10:08 AM, portefeuille (99.60) wrote:

A limit for the price is stupid, there is nothing more to say about this (the split argument is hard to beat I should think). Maybe there should be a cap on the score points that you can gain, say the starting price is set to $0.30 for "outperform" calls once the stock/fund exceeds this price. Just to make it highly unlikely that someone gains more than 10000 score points with just one pick ... I think an additional 5000 score point per call limit would make sense.

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#25) On August 06, 2009 at 10:33 AM, portefeuille (99.60) wrote:

Maybe there should be a cap on the score points that you can gain, say the starting price is set to $0.30 for "outperform" calls once the stock/fund exceeds this price.

Maybe there should be a cap on the score points that you can gain, say the starting price is set to $0.20 for "outperform" calls once the stock/fund exceeds $0.90.

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#26) On August 06, 2009 at 10:37 AM, portefeuille (99.60) wrote:

plus a 300 score point cap for the score points to be gained from one "outperform" call as long as the corresponding stock/fund does not exceed $0.90.

 

now I like it, hehe ...

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#27) On August 06, 2009 at 10:42 AM, portefeuille (99.60) wrote:

okay not really. It would be best to limit the score points in a smooth continuous way.

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#28) On August 06, 2009 at 10:52 AM, portefeuille (99.60) wrote:

And not just for "outperform" calls with a starting price below $1.50. I am sure that in a few years, if the "caps" game still exists under the current rules, quite a few players will have active or ended calls that will have "made" greater than 5000 points. That would give new players a very hard time to catch up in a reasonable time. bravobevo is already hard to get even though he has not made any "huge hits", he just made a huge number of calls, another problem. Maybe a "time decay" needs to be introduced but the better way would be to start the scoring system and rules from scratch.

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