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Because it does not make sense not to

Glen’s Christmas Special Part 3/3
By
Glen Bradford
This is the last part of the Glen Bradford Christmas Special. The goal is to identify companies that are worth following that I haven’t mentioned yet. I want to overview a couple companies looking to uplist and give examples of what happens to small, growing companies.

One of my core beliefs is that as companies grow, the tendency is that more people own them. In other words, more people own larger companies. Going along with this philosophy, as companies grow, they get more shareholders. I feel that the more shareholders a company has, the more likely it will trade around what it is worth and shareholders may experience the winner’s curse. The way to take advantage of this is to own small companies priced to be small companies that are growing on the path to becoming larger companies. The same applies to exchanges. The larger the exchange, the more likely the company is closer to intrinsic value. I’ll illustrate three potential values using this framework briefly.

Starting on the pink sheets, which is the lowest of the lows, is Sino Agro Foods (OTC: SIAF). The rumor is that they’re going to be paying a dividend and uplisting to the OTC. They are currently selling less than book value, and I don’t find them excessively cheap by my absurd standards, but nonetheless they are worth more. From the pinks, the next leg up is the OTC.

China Armco (OTC: CNAM) is on the OTC, but in my opinion, not for long. It’s moving on up. This is my Grand Slam breakfast meal and part of my daily diet. If you are able to crunch numbers on the back of a napkin or a envelope, I would recommend doing so here. Keep it, you might just find yourself stopping by the framing store a couple years from today or maybe this next year looking to frame your first Grand Slam as well.

From the OTC, you start getting into the larger exchanges. In the USA, these are the AMEX, NASDAQ and NYSE. The NYSE would be the home of all the big boys, but the technology boom created room in the NASDAQ that some of the big boys didn’t want to leave. Telestone Technologies (NASDAQ: TSTC) may look expensive at first glance. Check out the forecasted growth and managements naked enthusiasm about their forward growth potential not in double digit percentages but in whole number multiples of where we are today.

And so this concludes my brief Christmas special. I’ll close by mentioning a couple stocks worth mentioning. China Gerui (NASDAQ: CHOP) is another idea to take advantage of high-end specialty steel in China. As I’ve mentioned before, that’s been heating up on the stimulus package over there. Lastly, ZST Digital Networks (NASDAQ: ZSTN) could be really cheap after popping out a darling quarter.

Disclosure: Bradford was long China Armco, and Telestone Technologies at the time of publication.

Glen’s Christmas Special Part 2/3
By
Glen Bradford
This is the second part of the Glen Bradford Christmas Special. The goal is to identify companies that are worth following that I haven’t mentioned yet. The fundamentals I mentioned in the last article are the ones that are easier to follow and I’ll call them surface fundamentals. The type of fundamentals I’ll try to illustrate now are undercurrent fundamentals. This is where you try to outguess industry “experts” as to the true trend of where things are headed. I learned this lesson the hard way, when I found a company mid-2008 in the construction industry that was fundamentally looking great based on the numbers, but the underlying currents were falling apart. Cramer called it correctly. BooYeah!

When I met Jimmy Wang from Worldwide Energy and Manufacturing USA (OTC: WEMU), I could sense the overwhelming optimism that got him into trouble earlier in the year. Their backlog last I checked is being serviced and their backlog was larger than their price per share. Things are shaping up for a Q4 that makes you wonder why you didn’t own this now. I figure margins will improve, but not to where they were as demand picks up again. Did I mention uplisting? It’s inevitable in my opinion starting now. Rumors suggested that $5 was when they were going to get taken “seriously.” Taking a look at their forward guidance and their ability to make guidance in the past, I’d usually grin and move on. In this case, I would advise taking a second look, and a third.
The coal industry also took a breather in the last year. Based on the conversations of the people on television, which are of course factual because everything on television is true, I should start looking at coal for 2010. Well, in 2009 coal was pretty darn good to me. My forecast is that things are going to keep getting better the longer I do nothing. Puda Coal (AMEX: PUDA) looks good to me. If you get jokes at all, it’s a steel at these prices. I’ll give you another coal idea in my next piece.

If you can’t get the hang of the underlying currents idea, it helps to compare and contrast a company that is less cyclical. If you’ve failed to get Too Much Information, you can always Carbon Copy ME. Know where I’m going? China MediaExpress Holdings (AMEX: CCME) is another company that is cheap on a forward basis. Assuming that management hits their targets, which is incentivized by them earning shares, the forward earnings guidance puts this company earning $2 per share ballpark in 2010, looking at around 25% growth going into 2011. Who is interested? Do note that if you know what you’re doing, you can buy commons through the warrants for $2 off, Christmas Special. But it’s already a special in my opinion since they’re at ¼ the price of their competitors Focus Media Holding Limited (Nasdaq: FMCN) and Vision China (Nasdaq: VISN).

It’s time for that speculative idea. Sparkling Events (OTC: XODG) looks interesting as they are trying to mass market their LED lights across North America through various retailers. Their latest press release suggests Home Depot, Menards, Costco, Lowe`s, Ace, Do it Best and True Value. I want to point out that I do not yet own this one, but am watching attentively from the sidelines.

Today, I again tried my hand at shopping for Christmas presents. I spent a couple hours wandering around Kohls (NYSE: KSS) and my dad and I were able to find my mom a turtleneck. I came to the conclusion that shopping for most people this time of year has to consist mostly of waiting in lines rather than actually sorting through goods to be purchased, whether those lines are made up of cars waiting to get through intersections or people in front of you in the checkout isle.

Disclosure: Bradford was long Worldwide Energy, Puda, and China MediaExpress at the time of publication.

Glen’s Christmas Special Part 1/2
By
Glen Bradford

I wanted to cover some companies that may not be the cheapest in the world, but still would confuse those efficient market experts out there for being relatively inexpensive based on some future projections. I also think that mentioning other ideas that are worth owning going forward probably won’t dilute my reputation of being aggressively cheap. I will tell you how I see it. It’s always fun to take a look at companies from various value perspectives. By staying on your toes, you can see the best values in less time and take better advantage of them. And so, we begin a quick Holiday series that I’ll try to make at least a little bit interesting. I want to teach the idiosyncrasies that differentiate forms of fundamental investing.

One of the first lessons my mentor Doug Hall taught me was that earnings only count if they follow from revenues. On my search for the ideal investment, I’ve encountered many companies that don’t have revenues, a handful of which have earnings that come from god knows where. After earnings comes the growth of those earnings. There are different types of growth that I find appealing.

The first type of growth most enthusiasts try their best to find using stock screeners. It’s that predictable variety that appears to persist through time and hopefully continues into the future. So, what do you do when a company projects 50% revenue growth for each of the next 3 years? If you know how to read a financial statement, you might even notice that they’re making money and they are fairly inexpensive based on those projections. Care to learn more? Check out Yongye International (Nasdaq: YONG). Off you go. Note my positive sentiment on the booming Chinese agriculture industry.

Then, you have organic growth and acquisition growth. I’ll be honest. Most companies absolutely suck at acquisitions and usually hurt themselves going forward by overpaying for their target. So, it’s fantastic when you are following a company and it’s actually making good decisions. I’ve followed this next company all the way from when it’s ticker was CHID (not CIHD, Thanks Joenatural, but the intent was to inadvertently advertise CIHD, worth looking into, the old CIHI I believe). Uplisting is a possibility and it’s on several uplisting watchlists that I’m aware of. Lithium batteries are something that excites me, especially in China. New Energy Systems (OTC: NEWN) is not only in uplisting city but is on its second acquisition in a month. That’s crazy for such a small company.

Who likes expansion growth? This is the kind where your growth appears more jerky, but huge in a good way. I think that if I were to quote the multiple expansion in capacity being undergone by China Biotics (Nasdaq: CHBT), you probably wouldn’t believe me the first time, not to mention that they are looking to do it again at the beginning of the New Year. One of the things that differentiates this from most of the companies I cover is that it is optionable.

In this brief adventure, I want to close out each article with a speculative idea. We’ll call this “potential growth.” The first is sitting on a mountain of Jade and just ran a profitable quarter earning 8 cents. Not bad for a 44 cent stock that’s selling for ½ of its book value ballpark, not to mention what the mountain of jade is worth. Jade Art Group (OTC: JADA) is certainly interesting if you note that they made money this last quarter without filling their existing contracts as far as I can tell.

The same selection process that I use to shop for stocks has spilled over into other aspects of my life, for example Christmas shopping. I recently spent 5 hours wandering through Target, Walmart, and past various stores in the mall in an attempt to buy Christmas presents with my father. Not surpringly, the only purchase decision that we made was lunch… and we even bought the dog a 50-lb bag of dogfood. Pretty much the only thing I got out of this experience is that the stores are crowded and other people are buying a lot of stuff that they don’t need. I just can’t justify buying Christmas presents when there is so much more to be had in the equity markets.

Disclosure: Bradford was long Yongye, New Energy Systems, China Biotics, and Jade Art at the time of publication.

Other companies that I would recommend looking at are $GRVY if you like net cash plays.

Bradford’s Top Picks 2010
By Glen Bradford

(Note that I own these, and that I own other stocks that I am also buying a lot of.)

Happy Holidays! Only those interested in not losing money should continue reading. Admittedly, in the last year I have bought a couple companies at higher prices than I should have. I am a believer that my ability to pick bottoms is significantly greater than my ability to pick tops, which is probably why I dropped everything including final exams running headstrong into March 2009 to buy the most undervalued companies I could find. The past is the past. What’s 2010 look like?

To be honest, 2009 predictions were significantly less risky to make than 2010, as I was confident in China, Russia, and Oil bottoming and taking the rest of the global economy up with them as the global economic powers stimulated the world economy. I pretty much could have said anything was a buy and come out ahead. The best I can do for 2010 is say that I don’t know. I don’t know if there is a broad-based way to come out ahead. I could guess about stuff but I want to be known for talking only about things worth talking about. That said, I’ve got some growing companies that are priced as if they are stagnant or even worse based on my forward looking earnings estimates. I figure buying the companies I mention below and closing your eyes for a year is a better strategy than anything else you’ll see on TV. These are among the best opportunities I’m looking at.

Lotus Pharmaceuticals (OTC: LTUS.OB) is one of those companies that most value investors stare at in disbelief and begin by wondering the cause of the ridiculous cheapness. This company keeps kicking the crap out of its already bullish estimates and is priced to die a horrible death. Simply put, if you look at it and don’t like what you see, don’t waste your time reading the rest of my article. I can’t really help you if you can’t help yourself. China Medicine (OTC: CHME.OB) is a company that’s more of what I would consider value in disguise. It looks like it’s fairly priced, except for the wild card that the TNT blockbuster growth going forward appears to be mind-numbing at first, second, and third glances.

A couple companies that I learned more about at the Brean Murray Carret China Growth Conference include Skystar (NASDAQ:SKBID), Biostar (OTC:BSPM) and Puda Coal (OTC:PUDA). I’m convinced that they are currently trading at fractions of their intrinsic value and sitting in cash instead of these stocks for the next year is a losing deal. I don’t think I can say enough good things about these three companies.

Then you have the two pretty obvious oil plays. China North East Petroleum (AMEX: NEP) is priced to shrink. Just take a look at some of their latest statements. Longwei Petroleum (OTC: LPIH.OB) still hasn’t reached my $3 “Mr. Obvious” target, not to mention that it’s easily worth double that. Rumors indicate that the Gujiao facility is more powerful than suggested.

So, that’s really all there is too it. Soon, you’ll be wondering why you didn’t buy these at these levels as you panic to buy them at higher prices. If you want to play the game a bit more proactively, you might want to start reading message boards along with your quarterly and annual reports. I use InvestorsHUB. I believe that sometimes cutting edge information comes from all sorts of nooks and crannies and being exposed to the latest ideas is a great way to stay in touch and avoid panic-selling. Note that I own all of these companies and that there are other companies in the world that I own as well. At the current time, I am aware of 50+ companies that likely won’t lose an investor money a year from today. Pay nothing, get something. For those of you following me, I did turn my Apple stock into an IPod, but it took an extra Christmas.

Disclaimer: Bradford was long all the companies mentioned at the time of publication.

I must be crazy. I only buy for one reason. When asked what that reason is, I say, “Because it doesn’t make sense not to.” I’ve got 3 companies trading at ridiculously low multiples of my calculated future earnings a couple years down the road. These low prices indicate that investors find the opportunity unbelievable.

The investing world must be tone deaf as they are unable to hear the battle cries of HearUSA (EAR). All of my research suggests that there’s a storm brewing that is going to take HearUSA to higher highs. After talking to the company, I’m biased to believing that their estimates are of the “easily beatable” variety. But then again, I also am disregarding analyst reports on the company as they seem rather uninformed and don’t include any of the big upside that I’m seeing. There are two speculative catalysts to consider that I will mention briefly.
1. HearUSA’s innovative relationship with AARP seems like lighting off fireworks in the dark. The fuse is lit. The question is: How big of an explosion are we going to see?
2. Siemens AG recently reported that they are open to a sale of its hearing aid subsidiary; valued at $3.7B by Mark Troman of Bank of America Merrill Lynch. Note that HearUSA’s Siemens debt is self-liquidating. Don’t you think that whoever is interested in Siemens AG wants a distribution channel?

China Clean Energy (CCGY.OB) just finished the completion of its Jiangyin plant which can be used to produce biodiesel and specialty chemicals. This should expand capacity at triple digit percentage rates (xxx%). It’s also my opinion that this company is making money that disappears off the income statement due to warrant liabilities. I can’t find any reason not to own, and so I do.

A Chinese pharmaceutical company, Biostar Pharmaceuticals (BSPM.OB), is looking to expand its supply network from 1,320 sales outlets to 10,000 sales outlets in the next 2 years and has recently received several approvals from the local government to move forward with their business. I’m expecting upside surprise going into the next quarter.

One thing I will point out on these last 2 is that the ChiNext, China’s new Nasdaq-style stock market, just opened up with P/E ratios 50+. In those instances, you are paying for the growth. In the companies I’ve mentioned, the prices that the companies are trading at suggest that growth would be a surprise. In this way, you can make uncertainty work for you and get growth for free.

So there you have it. Buy when it doesn’t make sense not to. Bells and whistles should be going off when you can get crazy expansion on the cheap, but sadly most people that play the market get afraid to buy shares of ownership at lower prices and would rather pay ‘top dollar’ as Mike from Hawaii would put it. Pay a little, get a lot. If you’ve been following me — you know the drill by now. Do not lose.

Disclosure: Bradford was long HearUSA, China Clean, and Biostar at the time of publication.

What you don’t know has more of an impact on your future than what you know. Under this mental framework, you can effectively make uncertainty work for you or against you. You make it work against you when you buy companies where the growth expectations are priced in and not meeting expectations will potentially crash the stock price. You can make it work for by buying companies that are priced to shrink and are set to grow.

If you’ve been reading me regularly, besides likely being up over 100% this year, you know I’ve been preparing for the wave of the unloved Chinese uplistings for quite some time. Well, it’s time to ring the bell. We have arrived. We are in the middle of the madness. While most of the attention is diverted to M&A’s and huge IPOs, I’m gladly taking advantage of some opportunities that are so good it doesn’t make sense not to take advantage of them. Oriental Paper (OPAI) is reverse splitting 1:4. Great news, they’re still priced for shrinking and they’re set to grow. I pointed them out at $0.22. After the reverse split we’ll likely see $10+. In my personal opinion, $20+ isn’t out of the question. Target: AMEX.

Take a look at MystarU.com (MYST). A month from now you’ll be calling this Subaye. You may even get a new ticker. This one is undergoing a ton of structural change. A reverse split 1:100, a spin-off of non-core assets, an acquisition and name change to Subaye, Inc. and an increase in authorized shares just to name a few. That is one way to turn a penny stock into a 10 dollar or more stock. I suspect that this one will be looking to uplist by the end of the year. My target: NASDAQ. The fear here is dilution of common equity, and this fear is justified. To me, this is offset by explosive growth potential on the cheap. Pay a little, get a lot. Monday was the highest volume in 2 years. This won’t be undiscovered for much longer.

MYST came out with news today

http://www.earthtimes.org/articles/show/subaye-acquires-new-members-and-invests-in-guangzhou-joint-venture,990178.shtml

Longwei Petroleum (LPIH) is a company trading at $1.40 and forecasted $0.80 per share in 2011 and has a ttm EPS of $0.30. I would argue that this is a no-brainer. I’ve told you about it before. James Altucher reportedly likes this one too. I had the pleasure to watch them present at RedChip’s New York Equities Conference on October 1^st along with 34 other companies. In my opinion, they saved the best for last. Speaking of that, I want to point out the perspective of what I would call an ignorant investor. A question was raised: “Why are you guys growing at 30%+ and carrying a forward P/E of around 2?” I wanted to interrupt, but let the presenter field the question. My response would have suggested that the abundance of uninformed investors like the one that asked the question has offered up the opportunity of a lifetime. It will be interesting to see if Longwei is able to uplist in the next year without having to reverse split. Hey — It could happen. Target: AMEX. I’ve informed my Financial Statement Analysis class that I believe we’ll see $3 by Halloween; 100% in a month.

I keep getting asked: “How do you find these stocks?”

Prim’s Algorithm

My stock picking strategy is not unlike Prim’s Algorithm for MST that I traversed across in my PhD Combinatorial Optimization class. In a sentence, I quickly branch out from what I know to expose myself to more of what I know that I don’t know, spending as little time on each non-value add activity as possible. So, I specialize in quickly eliminating opportunities that don’t appear to be the best using basic valuation metrics. I’m one of the few people that actually believes in my ideas as opposed to just writing about ideas — as I own them all myself. After sorting through thousands of companies I stick by one guiding principle: When you can be certain that others are uncertain and that the price that you pay is less than the underlying value — buy. Thus, I own when it doesn’t make sense not to.

Disclosure: Bradford was long Oriental Paper, MystarU, and Longwei at the time of publication.

So,

I’ve been overwhelmed due to unforseen circumstances (birthday, MBA BS, etc.). I’ve come across a couple interesting situations where I’d like to poll the audience (that’s you). Here goes.

I know that I don’t know. These are special situations where there may be some really easy money/huge gains.

——————————SITUATION 1 CIT———————————————————-

Good evening fellas. I’ve been doing this trade with multiple accounts today…As much as I could…I can now share the wealth with others.

This is the deal:
Buy CIT-A at $1.75 (current price)
We will get a MINIMUM of 4.4 shares of common per share of CIT-A, right? (I know its over 4.2, do the math yourself for exact #)…Maybe as high as 6 if the minimum bondholders tender. Let us assume 4.4.
$1.75 / 4.4 = $0.40 cents per share of common.
Sell 4.4 $1 Nov(or January) calls per CIT-A share bought. Current calls with bids: 0.35(Nov) and 0.40 (Jan).

Net effect? With January calls sold, we are buying the CIT-A for *FREE*. We pay like 4 cents with the November calls.

If company goes bankrupt? calls worthless, we break even.
If company does not go bankrupt and exchange works? Two cases:
a) Common above $1, we get $4.4 per CIT-A when call exercised. 4.4 / 1.75 = 250% gain in 2-3 months with ZERO risk.
b) Common below $1, calls expire worthless. We thus get (common-price * 4.4) / 1.75 percent in profit.

One thing with this deal: Selling naked calls can be expensive with regards to margin requirements. I had to sell MANY positions, the ones which were 100% margin requirement, to put as much into this trade as I could.

One further point:
Bankruptcy sucks with this scenario. You can easily ’spend’ a little of the guaranteed profit from the non-BK scenario and buy some Nov $1 puts. This easily gives you huge profit in BK or no-BK scenarios.

Enjoy the trade.

————————-SITUATION 2 – TMI ————————————————-

Warrants are basically rights to buy the stock at $5.5 until 10/2011. Their value is comprised like options of a time-premium and intrinsic-value.

Right now there is almost 0% chance the acquisition does not go through. What is unknown is how many IPO shareholders (roughly 10M shares) will choose to liquidate at $7.01, but the company has cash to pay the ones who do.

So the cash-after-acquisition will range from 20-25M and 100M. The share-count after acquisition will range from 23M to 33M or so.

For the company to make their 2009 performance-bonus of 1M shares, it needs a net income of 42M (15M in 1h 09 but second half is usually stronger). If it makes the 42M target, that means $1.8 EPS if 23M shares or $1.27 if 33M shares (but 100M cash balance, or $3 per share).

So the warrant to buy at $5.5 would be a P/E of 3 or 4.33 under those EPS numbers.

The fact is, just the TIME value of the warrants alone will be worth more than the current $0.40 level.

——————————————-SITUATION 3 EAR HearUSA + AARP = $90? ——————————–

estimates:

Profit margins 20/5, so they take 75% of their hearing aid revenues as gross profit.

Center operating expenses are $10M, which is currently equal to 1/2 their revenues.

Spun off helix for $23.1M

$63M market cap

Average hearing aid is $2000, so they are tracking about 40K a year

1/5 of people that can use hearing aids use them. (low estimate, age increases use up to ½)

50M of AARP potential buyers — 10M will likely use them, 500K in unit sales/year probably (5%)

500,000*$2000*0.5=$500M

50% profit margins (lower than 75% with AARP)

$500M in gross profit probably in the next 3 years.

Price per share: @ P/E of 8

$89.16

Time to call ear doctors and ask them what they think about AARP people and getting hearing aids.

Glen

——————-CT—————

forward P/E very low. most of their losses are from writing off their portfolio. looks like this could be more easy money if you can wait 5 years.