Monday, May 26, 2008

4th Interesting Stock - started buying some today...

The companies name is Bridgeline Software. They'll be presenting on June 5th at an investor conference for anyone interested. Their Market Cap is tiny at roughly $27 million.

Below is a link to their investor presentation from April 2008

Here is what I like about the company's prospects:

1) Acquiring companies at reasonable multiples. This tends to generate better cash flow growth and, via acquisitions, enables the company to grow at faster than market/industry norms. They have a dedicated team looking for opportunities.

2) Internal growth within each market (city) they operate in. They want to add accounts within each city + selectively move into new cities when accretive deals present themselves.

3) Substantial growth for further market penetration via new cities/team acquisition.

4) This is a company that has executed well and isn't a short-term growth play / trade. This is a multi-year hold, in my opinion. That is why my investment strategy for such a company is to buy an initial position and then build up a much bigger position over the course of 6-12 months (dollar cost averaging) as I see the company executing its strategy and as I see them post their results over the forthcoming quarters.

Here are a few pictures/numbers worth noting

Here is a chart showing their revenue growth over the last 7 years. Pretty impressive, huh? <--click on growth rates for 3 year view through 2007.

Here is their 2008 1Q EPS announcement, which shows accelerating growth.


This is a very thinly traded stock and subject to BIG swings. Trendlines have to be looked at closely relative to the VOLUME of the direction in which the stock is moving as the stock can trade up or down on VERY small volume. Big volume moves (accumulation/distribution) need to be looked at closer as better gauges of investor's long-term thoughts on the company's prospects.

I think the assessment of Cognizant ( a competitor of Bridgeline's) in the attached article is SPOT on...

Bridgeline is an information technology consultant and outsourcer, a business particularly subject to the vagaries of the economy. When the economy slows consultants can be an easy way for businesses to reduce their expenses. What's more, there are few barriers against competition, since it isn't difficult to start a consulting company. Even worse, it's a hard business to grow because productivity in consulting companies is directly related to the number of employees. If you want to double your sales, you typically have to double your workforce.

My bottom line:
BLSW trades at nearly 1x its current annual sales rate (most recent quarter * 4). If the company continues to grow via acquisition (new cities) + add additional customers in existing markets, which they seem quite capable of doing, the stock has additional revenue/profit upside. Cognizant, a market peer (albeit much bigger) trades at 3.5x sales whereas BLSW, a TINY, underfollowed company, trades at 1x sales. Once the company gets to $50 million or $100 million the company will be more widely followed and will attract a larger market multiple. Having said this, I think that might take awhile....But, with such a huge upside, and with them being takeover bait (due to low market multiple) I really think the downside is pretty minimal for this company. This could end up being a 10 bagger over the next 3-5 years if the company can profitably grow to $100 million via their current strategy and execute it as well as they have over the last few years.

Dan Ross

Indiana Jones & Memorial Day Movie Ticket Sales

I love seeing spin by PR people and industry executives.

Just look at this comment below

"Fox senior vice president Bert Livingstone said high gas prices were encouraging people to see movies rather than take long trips away from home. "This is the last great bargain," Livingstone said. "

Then reality sits in.........
But movie receipts were about 16 percent smaller than last year's Memorial Day weekend, and revenue for the year to date is down nearly 4 percent at $3.3 billion, with attendance off nearly 7 percent.

I just got back from a trip to Port Aransas, Texas (coast of Tx), in between Padre and Galveston. Preliminary info. I heard was that the number of people on the beach was up notably vs. last year as many people thought Texans stayed in Texas vs. going to Florida :) Oh, and I drove with my adorable girlfriend as airfare prices were ridiculous. Net/net we saved about $350 from driving vs. flying but it cost us in terms of time spent on the road & one nights stay in San Marcos, to hit the outlet malls there :)

Dan Ross

Wednesday, May 21, 2008

Interesting Wind Energy Articles

1) OGE

2) T Boone Pickens Tampa Project

3) China's 2007 Wind Energy Report

One thing never really discussed much, within those articles, is how important it is to have good transmission lines. When you produce the energy you then have to get it "onto the grid" where the power can be transmitted over long distances or you can use it locally, "off grid." Either way, you still need to get the energy to whatever resources are using the energy.

When transmitting energy cable matters. Different cables (much of it quite antiquated) have different power loss ratios due to thermal limits. Remember, we generate power, then transmit it, then distribute it (from substations where the power is lowered into levels used by consumers). The only reason I bring this up is because TRANSMISSION problems were a core problem involved in the California Energy Crisis. That and crooked energy traders/de-regulation.

You can retrofit existing towers with better cable. There is one company that has both wind turbines and claims to have a "smarter wire" and has a patent for it, increasing revenue and a recent injection of capital from CSFB but, in my opinion, it is highly speculative. The stock has a market cap of $200 million and is traded on the bulletin board as

As you can tell from the wind energy report lots of companies are trying to produce wind energy components & there is a pent up demand for it as well. There are operators ramping up throughout the world, trying to produce more and more energy from wind (as well as solar). I personally believe that the solar energy stocks have gotten ahead of themselves, in the short-term, but we'll see over time :)

Dan Ross

Tuesday, May 20, 2008

CPSL update


If CPSL = $1 billion = roughly a $17 stock. The Shanghai index closed up 2.2% today. Back “off to the races” either today or Thursday…In my opinion this thing is going to run higher through the end of next week, taking an occasional breath as it outstretches some of the shorter-term averages and some people take some profits.

Steel prices going higher per the article below

FYI, pick #3 reacted as I thought it would. The stock was off 15% but I still LOVE what I heard. Given that it is dead money and CPSL pulled back I sold that position and bought some more CPSL yesterday. I hope to build back my initial position in that other company ASAP. Right now I just think there is more ST upside in CPSL. I am about 100% positive I won't be recognizing the losses on those pick #3 (tiny loss) as the "wash rule" will likely apply. (ie. buying back within 30 days of taking the loss, meaning the loss carries forward into my new cost basis for tax purposes.)

Dan Ross

Monday, May 19, 2008

ABAT & CPSL - first two stock purchases

I want to remind everyone that my investment criteria is really what is driving these investment picks. Aside from that, I want growth at a REASONABLE price. I am also sticking to micro/small cap stocks so that, in the event that one of these companies continues growing at staggering pace for the long-term, I can ride it all the way up :)

First Pick
ABAT - $3.50 purchase price. Today @ $4.19 but trending up nicely. This seems like an easy pick for me.

$9 1 year target price, which would be 28x an estimate of $0.32 for the year. Given the 100% Y-Y growth, 8 cent Q1 per earnings result, etc I could make the case for a higher price but, until I hear about expanded production capacity, which would likely crimp the EPS growth, I'll keep my estimates conservative. It would be dumb to imply a higher multiple given that I know additional capacity will likely be purchased/added, which would hurt EPS ...

1) Strong Revenue Growth
2) Strong EPS Growth
3) Very strong backlog - Likely going to add capacity as well to fuel next stage of top-line growth

Revenues for the first quarter ended March 31, 2008 were a record $10,031,969 compared to $5,363,923 for the same 2007 period, an increase of approximately 87%. Advanced Battery Technologies realized net income of $3,848,478, representing $.08 per share, after $629,445 in taxes for the quarter ended March 31, 2008. For the quarter ended March 31, 2007, the Company's pre-tax income of $1,338,036 was identical to its net income, representing $.03 per share. The 2008 quarter represents about a 187% gain in net profit.

Mr. Fu added, "Our production capacity at current normal operating hours is about $45 million per year. With a backlog of approximately $57 million for delivery throughout the next 21 months we are confident we can continue to meet our aggressive targets going forward, while still developing company favorable options to increase added production capacity. This growth reflects the continued demand for our advanced PLI battery technologies and related products. In addition, we are optimistic for the balance of 2008 and beyond.

3) Hybrid Motorcycles. If you are going to be ECO friendly this is the route to go. HUGE export opportunity + growth opportunity throughout Asian economies.

#2 Pick - CPSL (China Precision Steel) - Investment thesis is growth in middle class in china = more domestic demand for products that require steel. Simple as that.
Avg. cost of $4.80, today @ $7.96. I have made a nice paper profit on this stock so far, purchasing multiple lots at various prices. I think somehow speculators are thinking it is a play on rebuilding China following the earthquakes there in the last 2 weeks. Truth be told, they are wrong. These guys aren't doing steel for buildings but people see a potential supply/demand imbalance in the short-term and are driving this stock up on CRAZY volume.
China Precision Steel, Inc., a steel processing company, engages in the manufacture and sale of high precision cold-rolled steel products in China. The company produces and sells precision ultra-thin and high strength cold-rolled steel products with thicknesses ranging from 7.5 mm to 0.03 mm. It also provides heat treatment and cutting of medium and high carbon hot-rolled steel strips. The company's precision products are primarily used in the manufacture of automobile parts and components, plane friction discs, appliances, food packaging materials, saw blades, textile needles, microelectronics, packing, and containers. It sells its products in China, Nigeria, Thailand, Indonesia, and the Philippines. China Precision Steel was incorporated in 2002 and is headquartered in Sheung Wan, Hong Kong.
Analyst Estimates - 0.24 this year and 0.37 next year or 35% growth. $.37 x 35 multiple = my target price of $12 - $13. They are adding ANOTHER production line with the current one running at 50% capacity, which would normally worry me except their recent results show 61% top line growth!
Recent EPS announcemnt
Operating income was $4.4 million, up 136.9% from $1.9 million in the third quarter of fiscal 2007. Operating margin increased to 23.5% from 16.0% in the year ago period. <--I think this is due to increased factory utilization....

Sales growth was Great!
Revenues for the third quarter of fiscal 2008 were $18.7 million, up 61.3% from $11.6 million in the third quarter last year. The increase in sales revenue is due to increased production and exports of low carbon hard-rolled steel coils and subcontracting income during the quarter.

Technical Analysis
This stock is trading its entire float of shares day in and day out. Anyone short the stock is getting crushed as the stock is getting more and more volume and going up on that volume. The weekly chart below indicates that the RSI can still go up for a bit before it is overbought so I will wait to sell any shares for the time being. Part of me wants to lock in some profits around $12 and let the stupidity decline but I will determine what I am going to do in a few days since the momentum on this is BEYOND amazing right now. I'll play it by ear. I expect the stock to take a "breather" before going higher into the $12, possibly $17 area.

I'll post pick #3 sometime in the next few days. I bought a few shares of this company last week and, while I am up slightly, I want to see how the EPS results cause the stock to shake out tomorrow. No matter how I slice it I want MORE shares at my original buy-in price so a 10% drop would be greatly appreciated :)
Dan Ross

Wednesday, May 14, 2008

Investing 2008 & Beyond - Why I have been out...

The "lack of posting" for the last 1.5 weeks stems from my desire to get back into investing in a big way. I recently conducted an audit of my 401k account and was quite disappointed with the returns YTD vs. the markets, despite making a few trades within my reach that generated positive returns. Basically, two of my funds stunk it up for me and I underindexed at -6.8% vs. -5.6% for the S&P 500 during the time period measured.

Getting to the point.....

Moving forward you'll see the same old posts as before EXCEPT I'll be adding a bunch of my opinions re: the stock market, interesting trends, stocks I think are worth looking at, etc. All the standard disclosures will be ALL over the place as I am not an investment advisor. I was at one point, working as a research analyst (jr./sr.) for about 3 years after graduate school before growing very disenchanted with the sales mentality involved in the business. Only did I learn after the fact how disengenious the industry had become (banking/research relationships that were unbelievable.)

Two things to chew on today...
1) More wind energy moving forward.

2) A great chart showing Chinese coal consumption

Bottom Line: China has polluted their environment GALORE over the last 10-15 years. They are focused TREMENDOUSLY on eco-friendly power options moving forward. As they do this, and change their subsidies for power (less to coal) major changes are in-store and might present interesting opportunities in wind/solar energy alternatives. When China chooses to do something it truly SHIFTS the supply/demand dynamic in an industry and that can light a fire to any companies revenue/EPS/stock price!

Dan Ross

Saturday, May 3, 2008

Gas Prices hit new highs - Impact to the Economy??

Evidence shows time and time again that when oil/gas prices hit new highs the economy hits the brakes in a hurry as it reduces disposable income by $20-$40 a week for each American household.

Crude oil now trades at over $112 per barrel and, as the below illustration shows, the cost of one gallon of gasoline has just surpassed the inflation-adjusted peak of 1981. They say this is due to increased global demand, geopolitical tensions, and a declining US dollar. I would say it is primarily due to #1 & #3 with speculation in there as well. If we were to show a concerted effort towards balancing the U.S. Budgets the $$$$ would appreciate and commodity prices would come down quickly

Source: <---Check out the free service. Great info. to empower yourself!

Dan Ross