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When Foolish Fools Disagree. Dueling, stay out of the way and do your homework!!!

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January 11, 2009 – Comments (10) | RELATED TICKERS: RZ , PALM.DL , TCK

When Foolish Fools Disagree.

Upfront, I’ll admit I’m biased. One would assume that most other bloggers writing about particular stocks are biased as well. . Biased can just mean that they have done a lot of homework/research and believe in their position or that they bet the mortgage on a stock and want to convince themselves even further.

One would hope that article writers on Fool are either not biased, or would also say so upfront in their articles.  When Fools disagree, it’s clearly a big signal, (though you should be doing so already), to do your own research!!!! 

For example:On Dec. 26th fool writer Todd Wenning penned an interesting and timely article entitled What to Sell in this Market 

http://www.fool.com/investing/value/2008/12/26/what-to-sell-in-this-market.aspx

Knowing when to hold ‘em and when to fold ‘em is extremely important, and when there are many value plays available why hold onto those that have little momentum in the short run, tying up your cash.  I’ve had similar discussions with friends/family who really thought they couldn’t buy anything, because they didn’t want to add any new money to their portfolio nor sell what was currently losing, conceding a loss. 

 Foolish hat off to Todd for taking on this topic.   Unfortunately, while Todd’s examples of value plays rang true, the advice on tossing out high debt, no cash flow companies left a little too much foolishness on the table unexplained. One should ask why they were in these type of companies to start with. Motley Fool is big on “buy what you know” and believing in what you buy.  Stocks with high R&D, especially tech stocks and medical stocks have very foolish statements.  Getting into them is risky, but the reward can be greater.  Looking at Todd’s two examples of what to sell:

1. Palm (PALM) just announced, and their stock went up 33%.  I think it’s temporary and caught me off guard, but other than some CAPS points, I didn’t follow the industry.  Two-thirds of float traded hands Friday, so many want out and many want in, or shorts need to cover.   R&D on the table, product announce pending, blanket guidelines to sell should be taken with Foolish thought.

2. Raser, (RZ)  as it’s followers know has been taking on debt for a reason.  When you go from R&D to products, the make or break is near. Heavy in R&D is risky. If you don’t produce a product you’re dead.   One might ask themselves under what type of conditions could a company get $20 million in additional funding in November after the credit market tightened?  Actually Merrill Lynch and Prudential were happy to make additional loans against RZ’s deadweight stock. If you follow the comments at the bottom of the article, you would see that RZ has two projects going.  Having two projects might be concerning; if you don’t know what you want to be when you grow up, you may not be a good candidate for people to invest in.  However, the auto shows are this week and Raser’s initial premise was it’s Symetron™ MOTOR TECHNOLOGY.  If any of the car companies currently being pressured to produce energy efficient cars and to stay solvent elect to use Raser’s technology in their PHEV vehicles, things could get very interesting for Raser.

 Second, Raser has gobbled up lease land to support geothermal power.  They have some unique modular scaling techniques that will pipe power to Anaheim in a few weeks, a scant six months after breaking ground.  Additional new technology allows  even lower temperature drillings to be useful.  King Arnold’s decree that energy will be clean and President Elect Obama’s stimulus package will make this a very strong play.  

http://www.rasertech.com/media/movies/html/thermo_speeches.html

I find it unusual that Todd used companies that are heavy in R&D, without any discussion about future products, in order to make his debt/cash flow point. If you discussed debt/cash flow around “mature”  companies,  who were not  banking their future on R&D results,  then you’d have a good case for when to fold ‘em.  I seriously doubt that Raser was a household name, and the use of their company in this article spoiled some good advice.

The follow up on December 30th by Brian D. Pacampara, on  Monday’s Biggest Stock Stars, showed Raser as one of the biggest one day drops.

http://www.fool.com/investing/general/2008/12/30/mondays-biggest-stock-stars.aspx

 I won’t suggest that Todd got it right, or that Todd influenced  Rasers’ fall (though with the volume they have and the 10% short squeeze, I won’t say it didn’t).  I do find it interesting that in Brian’s article, I’m the lead quote on bullish for Teck Cominco (NYSE: TCK), which had scored a nice run.   Guess I’m bullish on the winner and bullish on one of the losers…..par for my fragile caps score. 

Again, clearly I’m biased.  I’ve been researching Raser with every piece of data I can find.  The plants running at Thermo and Senator Hatch helping cut the ribbon have been educational.  Understanding what Geothermal offers is exciting. I’ve been buying Raser while the price continues to drop.   I’m happy to have people talk it down, but under the premise of an educational article, this one seems to be a bad choice.  You have to know when to hold ‘em and know when to hold ‘em, but sometimes you have to know when to look beyond the balance sheet, do your own homework, (hence risk/reward), and double down!

 I expect I’ll know by the end of January whether this was a good bet or not.  From Senator Orrin Hatch's speech at the ceremony:

God bless all of you, and God bless this project.  It’s going to be expanded exponentially and it’s going to benefit millions of people in the end, and may be providing one of the main answers to energy needs in our society.”  -Senator Orrin B. Hatch

P.S.  I think He's Biased Too!!!!! 

10 Comments – Post Your Own

#1) On January 11, 2009 at 7:37 PM, JakilaTheHun (99.94) wrote:

I like Raser, too.  There are a lot of highly-rated people here who hate them and believe they're a "scam", but I don't think those people are doing their due diligence. 

I still don't own any shares of RZ, but I will probably start buying very soon, especially if the price stays suppressed.  I think even if the company didn't have cash flows coming in soon, their geothermal development, properties, and know-how might be worth enough to another company so that the stock is still worth $4.   They've added a lot of value to their operations.

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#2) On January 11, 2009 at 7:45 PM, TSIF (99.96) wrote:

Thanks Huney, I don't want to pump them up, but if anything good comes out of the autoshow the next two days, or the Thermal plant gets more publicity, the timing of that with Obama's package could cause a spike that is feed by squeezing the shorts, which could be volitile.  I strongly suspect either I will be poor and embarrassed very soon, or you will have missed a good buy opportunity!!!  I think this is a matter of days, rather than weeks!  :)    Good luck, and thank you for your reply!!!

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#3) On January 11, 2009 at 7:50 PM, UltraContrarian (31.22) wrote:

1. I guarantee you that Todd Wenning, a nobody as far as Wall Street is concerned (no offense to him), did not produce a 20% decline in RZ.  RZ is a volatile stock, it has been making plenty of headlines, and that decline was within its past trading range.

2. A short squeeze is an upward share price move based on shorts covering.  I think you are trying to say 10% short interest.

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#4) On January 11, 2009 at 7:55 PM, UltraContrarian (31.22) wrote:

3. They are plenty of development companies that have solid books & reasonable cash burn rates - thus giving investors a much bigger margin of error.  Why buy RZ, when they will be fighting for survival if their development and production does not go exactly as planned?

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#5) On January 11, 2009 at 8:13 PM, TSIF (99.96) wrote:

1.  The volatility is part of my point. When you're on the ropes, and your volume is low and short interest high, then I suspect that it wouldn't take much to move things.   There have actually been few headlines on RZ relatively speaking, since it's a low cap, low volume stock, unlike the others in Todd's article. I would agree, however, that a writer on a 60,000 member board probably doesn't have much influence, though articles such as these are probably how most of us Fools found this website.   RZ, or any company in R&D used to make a point about  high debt/low cash flow companies to prune should point out that they are different from companies with high debt/low cash flow that are NOT linked to R&D. 

2.  Thanks!

3. Sizing up development companies is a challenge, a small number will produce winning products.  Most will not. From this standpoint I do not disagree with giving RZ a close look.  RZ, however, does have products in both of it's development areas. I can't say whether anyone will buy their hybrid car products, but we should have a good clue in the next few days, so running now might be bad timing. I can say that Thermo is producing power with serious backers for expansion.   So the answer to your #3 is that they are in the final stages of development.  If you've rode them this long then getting off is either too late or too early.

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#6) On January 12, 2009 at 6:49 AM, Gemini846 (80.98) wrote:

The odds are that when the chips fall, if thier product sells and they mass produce and become the next 3 bagger then you guys will be right on RZ. Until then they've got a burden on thier shoulders to make the market hang on as long as possible to give them a chance. Thats a swing for the fence which will more than likely cause a strike out.  Fools that hate them are merely gambling they'll be behind when the money runs out.

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#7) On January 12, 2009 at 8:53 PM, harlydog (< 20) wrote:

According to the latest 10Q ending in 9/08, they spent just over $3 million in the previous nine months on R &D

Why would you consider this a stock with high R&D?

 

 

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#8) On January 12, 2009 at 9:55 PM, TSIF (99.96) wrote:

Gee, Harly the Dog, you found me!   Are you taking a break from the Yahoo RZ board since all the regulars have blocked you?   You've been shorting RZ longer than I've been following it; leaving one line no substance posts everywhere that encourage me to buy more. You're also aware that you have to spend money to make money; if RZ wasn't spending money then I'd be worried.  I believe that's what a company in development is suppose to be doing. You, of all dogs, certainly know that RZ is at the end of their "development R&D cycle".  They will make or break soon, you're betting on break. When their share price breaks upward, if you don't get your shorts covered, then maybe they will give you a job on the bottom cycling units, you apparently have that on your resume.   I think they already have enough hot air for the rest of the plant.  At any rate, thanks for popping up here, it's my reminder to average in some more shares. It's going to be a very busy few weeks for RZ, I'm sure you will be watching!

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#9) On January 12, 2009 at 11:58 PM, harlydog (< 20) wrote:

I guess you could say I found you? I wasn't looking. So I guess you are just going to launch into the ad homen attacks and ignore my question. Probably a good choice as it would be hard to support your claim this was a high R & D stock, with them spending just over $3 million annually in  R & D apx 15% of the money the burn.

$3 million is not high.

I don't want to be a stickler for detail, but you say this:

 They have some unique modular scaling techniques that will pipe power to Anaheim in a few weeks, a scant six months after breaking ground.

 Ummm, they broke ground May 9th, the power is not flowing yet and even if it was flowing in a few weeks, how could you describe that as a scant 6 months? The monthly count does not tally for me--maybe it does for you.

Your writing resembles that of Gaines and Minsky on seeking alpha--you know them?

 

One more thing--I am wondering just what it is about Hatch's cutting the ribbon that you found educational.

 The plants running at Thermo and Senator Hatch helping cut the ribbon have been educational. 

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#10) On January 13, 2009 at 9:59 AM, jerlex (< 20) wrote:

I'm not a stock player. I've only invested twice. I don't like to gamble. I'm a manager in the Construction Industy. In early 2001 I worked on Intel's $3billion plant in Az. I was very impressed with the company philosophy and that they could pay cash for such a plant. I believe their stock was around $72/share at the time. After 9/11, like everyone elses stock, their stock dropped down to around $12 or $16 per share. I bought at that time because I knew the company and that it would rebound. I sold after it doubled and moved on. I needed the money.

I tell you this for one reason. RZ also impressed me. I was introduced to RZ 4 years ago. I saw what the company had developed and that they already had a couple of contracts with the Department of Energy and the Military for development. That gave me confidence they were no scam. I saw the potential of what they had developed for electric motors, not just for new electric motors but for existing ones. The quantity of uses made my head spin. In just one house you have motors on the a/c condensor, the air handler, exhaust fans, ceiling fans, garage door openers, let alone the potential in cars or power tools.

I've watched the stock climb from $11/share to $45/share and then after one of the Stock Pros included it in his article "Sell in May Go Away", I watched the stock drop to were it is now. The only basis I could see he included it for was for short term gaines. Hell, this company is in development. It's a long term investment I made and seeing the stock as low as it is now I've only been buying more. I never even thought of Geothermo when I got so excited about their potential.

6mos. is a general term for the actual construction. Commissioning is a fine tuning of equipment done after construction to make sure everything is functioning the way it should. They already know it works or they would not be commissioning it. The power they are generating right now is still being sold. They are finally making money. They have contracts with other Utility Companies too. Everyone wants clean energy.

Now that the first plant is done, the others will come on line even faster, but, they will still be cash poor because they are in the building process and as they build they will be finding better ways of doing things.

Now hopefully the auto industry will come onboard. It's Obama's energy policies (though I don't like them) that will make a boom for RZ.

TSIF. It's good to see someone with some long term foresight. Also, the trade commission is suppose to be investigating whose been playing the Short game with this stock.

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