Covestor - pztrick Blog

PRXI pitched on CNBC

Wed, 11 Jun 2008 23:06:06

...with a $20 price target. It is yet trading at ~$4.50, so very good opportunity for anyone interested.

Just sharing the news here on Covestor.

Related Stocks: PRXI

Accumulating PRXI

Sun, 25 May 2008 21:05:53

Since initially purchasing PRXI at ~$10.50 last November, I have continued adding on and am presently cost-averaged at $6 even.

If PRXI continues to linger below $5, I might throw my next paycheck at some more shares, but they are supposed to announce a seven-figure corporate sponsorship deal at any time, so I don't think I'll have the opportunity.

I am PROBABLY done purchasing PRXI, and will begin buying other companies... I plan to hold these PRXI shares for a few years, without trying to micro-manage the ups and downs.

Related Stocks: PRXI

FMD September Call at $6.35 cost

Thu, 10 Apr 2008 13:04:38

I held FMD for a month or so and sold last wednesday at a small +5% gain, and fortunately dodged this week's onslaught that ensued after TERI(guarantor of their loan securities) went bankrupt.

My reason? I recognized the fact that previously, FMD could sell their securities to investors at very lucrative margins, but in the post-credit-crunch market investors will only be willing to pay a lower amount for the same student loans now that there is greater perceived risk... I did believe FMD would survive, but the upside didn't seem as great as other picks, so it was a question of portfolio allocation(not doubt in FMD). Of course, now FMD is down by half, so my upside would be twice as great.

I am fully invested in other comps, and with as much capital as I have I can only really hold 2-3 stocks at a time anyway... but FMD appears to be a very good candidate for a september call option.

I've never traded options, but they have always appealed to me because even with my small amount account(~$2000) I would be able to expose myself to 10+ stocks with conserative calls with explicit risk involved(the call premiums). I haven't structured my long portfolio with calls, just because I recognize that small companies like PRXI or GSI can take forever to reach intrinsic value or so--and I'm patient enough to continually buy and cost-average rather than expend capital on time-sensitive options that might not hit.

However, FMD's story WILL unravel this summer. It will succeed in securitizing a loan this summer, or bust. September calls at strike $5 are trading at a premium of $1.35--giving you the opportunity to own FMD this fall at a cost basis of $6.35... VERY GOOD! What is the risk? Your premium...

Risk: 10 september call contracts for 100 shares = 1000 * $1.35 = $1350.
I'm not knowledgeable enough to give a valuation, but Yahoo-covered analysts are polling a $9.50 target. I would be more optimistic, at least $15:
Reward1: 1000 * ($9.50 pps - $6.35 cost ps) = $3150
Reward2: 1000 * ($15 pps - $6.35 cost) = $8650

I know most people's magic reward-to-risk ratio is 3 or better for making a trade... The conservative $9.50 target is close at 2.33, and my own optimistic target is accordingly much more optimistic at 6.41.

If you're still bullish on FMD, I think the september call is the perfect way to enter a position with well-defined risk that you can either stomach, or pass up for another trade.

I don't have the liquidity to purchase and hold a good-sized position in FMD, but I do plan on spending for enough call options that when exercised could amount to 1/3 of my account. Isn't leverage fun?

-Patrick

Related Stocks: FMD

uWink - Buy now, or wait for profit?

Thu, 10 Apr 2008 02:04:27

uWink is a very attractive penny stock, but this fresh comp is still operating in the red. It's easy to imagine buying at $1.50 and selling at $10 in a few years--but I'd be much more comfortable waiting for this company to turn a $0.01 one-cent profit and getting in at $3 per share--that's half as many shares though :(

Related Stocks: UWKI

AUTH set to grow!

Thu, 10 Apr 2008 01:04:07

I held AUTH last fall and saw a gain from $10 to $16 per share... Recognizing the price as overvalued, I sold... and it has since re-traced to $10 or so.

My crystal ball, 10/31/2007: http://caps.fool.com/Blogs/ViewPost.aspx?bpid=21447&t=01001072766726776534

I am again interested in purchasing AUTH. The fundamentals are poor, as the company just started turning a bottom-line profit the past six-months, but it does have a solid growth story.

Written by yours truly last fall when I yet held it,

"They dominate the market they're in(50%+ market share, and that share is growing, and patents for the technology), and the market they're in is growing(biometrics industry will double $3bln in 2007 to $6bln in 2010). Further, as demand grows and consequently production, they should realize extra revenue just because the cost per unit is declining as they realize greater scale economies(cheaper to manufacture many units compared to few)... "

I have no extra capital to invest right now--but AUTH is next on my watch list for purchasing and holding through 2010. If some catalyst lifts PRXI or GSI soon, I will sell the winnings and buy AUTH or so.

- WEB "moat" would be patents and market share

- Good projected growth

- Possibly significant margin improvement( the greater scale economies anecdote above)

-Patrick

Related Stocks: AUTH

FMD a contrarian play?

Wed, 09 Apr 2008 23:04:44

The contrarian play is very attractive, and I would definitely rate FMD a buy--but since I can find a company with similar upside outside of the financials industry, I prefer to avoid the risk.

Related Stocks: FMD

FMD is gone

Wed, 02 Apr 2008 20:04:26

Sold 4-02-2008.

I do think they will find success securitizing student loans this summer, but no longer at the sweet margins they previously enjoyed. Recognizing this, I feel the upside was not as great as other investment opportunities(aka prxi).

Related Stocks: FMD

Highlights on GSI

Mon, 31 Mar 2008 16:03:36

http://biz.yahoo.com/prnews/080331/cnm037.html?.v=7
Q4 2007, released today after-hours

EPS .36
EPS excluding one-time gain, .17 (met consensus)
EPS year-ago .01 (big improvement yoy!)

Revenue $268 million (~$80mm below consensus)
Revenue last qtr $345mm
Revenue year-ago $42.5mm (good improvement!)

WTF REVENUE DECLINED? NOPE, JUST EYE ON THE BALL-GROSS MARGINS.
--> CC elaborates; says that one distributor that they have worked with previously would have had essential 0% gross margin--no profit. So, they opted out of the revenue, which would have been $80mm, which would have meant flat revenue qoq, but zero bottom line... So ignore the drop in revenue.
--> With under-estimate revenue and on-estimate EPS, you get a surprise gross margin. Coupled with the above anecdote that they dropped an underperforming margin distributor, I find management encouraging--they are focused on highest gross margins possible.
--> Further, Longmen(one of their mining projects) is situated in the Shenzdhong province(I know I got that name wrong..), and faces virtually no price competition, so their margin is safe from competition driving it down.
--> They indicated that their gross margin would improve by 2-2.5% by FY08 year end as a result of vertical integration/or sourcing more iron ore from their new Daxgiou Mine(got that name wrong too, probably).

MACRO-CHINA TREND
--> China is aggressively fighting inflation, and has been hiking interest rates since March 2007
--> China steel industry is very fragmented comprising 1100 small comps; there is no clear leader/monopoly(except for GSI in 5 years!!).
--> Domestic steel comps will be desperate to find capital to continue ramping up production, and this will necessitate joint-venture partnerships.. particularly with GSI.
--> GSI is 'negotiating with several companies, expecting new project in the forthcoming quarter or so'(HINT!) GSI has access to US financial markets/financing, something their domestic peers do not have.
--> In all, GSI is in a very good situation to benefit from tightened credit in China which enables them to approach their peers in joint-venture growth projects, with their access to US financing.. etc.

LONGMEN SLIP-UP
--> Longmen is their steel producer that they acquired last year, with a capacity to produce 2.5mm tons of steel per year
--> During CC, one individual from Roth Capital(I think) cleverly suggested that Longmen was expanding their mine capacity in a related question--and Yu the director confirmed his suggestion: GSI just received a permit from the Chinese government to increase the mine lines, and had not released this information publicly yet.
--> Yu goes on to say this should amount to an increase in capacity from 2.5mm tons to 5mm tons, annually.
--> Also of note, Longmen enjoys a 15% tax rate, compared to 35% for peers--because of the "Go West" Chinese gov't initiative that hopes to incenticize comps to develop infrastructure in the less developed western interior of China... Just thought I'd throw that in there.

MISCELLANEOUS
--> (not sure if I heard this part correctly) DQ, another steel subsidiary of GSI, will begin producing silicon steel instead of carbon steel going forward..? Per ton, carbon sells at $742, and silicon sells at $819. Higher margin for GSI selling silicon going forward.
--> Random clips from director Yu on next acquisition: "very optimistic" "GSI is most-sought after [company] buyer in domestic steel industry" "negotiating with many companies, expecting new project in forthcoming quarter or so"
--> He also explains that Chinese regulation will govern the time-line for any new projects... gov't has to okay mergers and other business, etc.

PATRICK'S PITCH
The real prospects for GSI growth(specifically, stock price growth :D), is Mergers & Acquisitions.
China steel industry is a fragmented 1100 company mess, with many state-owned enterprises that are not efficient producers. GSI was the first private steel comp in China, and the Chinese gov't wants to consolidate the inefficient SOEs and is now encouraging private acquisitions(by GSI). I expect GSI to gobble up many Chinese steel comps in the next few years, but the money for takeovers has to come from somewhere--which is why I'm so delighted with their organic growth in their existing steel comps/ore mines. All they need to stage this takeover of the China steel industry is revenue from their existing comps, and it's great that they know how to make money good:

Organic Growth:
As demonstrated above, with existing ore mines/steel producers, they have focused on improving their gross margins and gross production.
Evidence of focus on improving gross margins(3):
- Vertical integration, sourcing more ore from their own Daxgiou mine
- Steel production moving from carbon steel to silicon steel(additional $60 bones per ton or so)
- Dropped underperforming distributor that was not netting as great a margin(and explains drop in revenue Q4). In other words, they're picky.
Evidence of improving gross production(1):
- Just obtained permit to increase Longmen steel production from 2.5mm to 5mm tons

Mergers&Acquisitons:
- Yu did imply they were negotiating for a joint venture/m&a "this forthcoming quarter or so"
- Let me re-iterate that many domestic steel comps will be desperate for capital in the higher-interest rate climate the Chinese gov't is introducing, and GSI is well-positioned to act on it.
- In a Roth Capital presentation in 2007, the outlined their plan:
M&A #1: Baotou Steel Pipe JV (Baotou)
M&A #2: Shaanxi Long Men Iron & Steel JV (Long Men)
M&A #3: TBA
This is a Coastal Region steel company already in private ownership. Negotiations are well underway. Located in a prime domestic and international transport hub, its existing owners are considered to be inexperienced steel producers. The company sells predominately to the construction industry – an industry with a very bright future in China. GSI believe they can bring major improvements to the business. Expected annual sales of $923m in 2008 rising to $1.17bn in 2010. This is anticipated to be 80% owned by GSI with the acquisition consideration being 10m shares. Expected to be completed late 2007.
M&A #4: TBA
One of China’s leading SOE steel companies and a dominant player in the transport infrastructure product market, it has 30,000 employees, a nationwide sales and distribution network as well as international sales offices. Expected annual sales $3.8bn in 2009 and $4.4bn in 2010. This is assumed to be a share based transaction. Expected completion; late 2008.

M&As: Other
GSI’s participation in China’s steel industry consolidation does not end with M&As 1-4 listed above. Items 1-4 only represent M&A’s that are either already completed or at advanced stages of completion. Over the next couple of years progress is expected to be made with regard to further acquisitions.
They have already completed MA #1 and #2. I expect news on #3 or #4 this quarter(for reasons above)... But the long-term pitch is interested in that last paragraph, "M&A's: Other".

CONCLUSION
I sincerely believe GSI will successfully execute these and more M&A's in the coming years, and will rise to be the leader in the Chinese steel industry. However, their ability to execute these M&A's is dependent on cash flow which is dependent on successful organic growth in subsidiary comps like DQ, Longmen, etc... So as long as they're kicking ass with organic growth--I'm bullish on the long thesis that they'll be able to grow huge through M&A's.

Related Stocks: GSI

Financial Woes brings you value play FMD

Thu, 27 Mar 2008 22:03:39

I decided months ago that I would find one financial stock that's been sold-off in this credit/liquidity crisis to LTBH that would kick ass, and, well, I picked FMD.

[To be finished--falling asleep at keyboard.]

Related Stocks: FMD

Global Exhibition Brand

Thu, 27 Mar 2008 22:03:54

Again, this is a lazy pitch, but I just want to get some clear ideas written on the pitch for PRXI.

-Very sold-off at less than $10/share... Media sensationalism that I don't agree will impact Bodies exhibits turn-out.

-Awaiting court ruling that is likely to give PRXI ownership of Titanic artifacts recovered to date, with the condition that the collection remain intact... The artifacts are only counted for $3mm in the balance sheet, were appraised at $50mm+, and are speculated to be worth as much as $400mm or more. This is just a potential upside--this isn't the primary(or even secondary--more like tertiary) value play for this stock.

-Bodies exhibits were the growth story of 2007... Huge EPS growth over consecutive quarters. This may continue, but the short thesis is that Bodies is a fad and will dry up. I disagree, and point out that medical and educational institutions attend in droves and will indefinitely... Anatomy rocks?

-Management is ramping up new exhibits to provide new revenue growth--to date, they have acquired Dialogue in the Dark and Sports Immortal.

-They are developing permanent venues; in particular, they have just signed a 10-year contract with the Luxor in Las Vegas to develop a Titanic-themed bar and restaurant complete with a re-constructed bow of the Titanic that visitors may pay to take pictures in front of, and of course the Titanic exhibit.

-They are beginning to mine ancillary income sources, like merchandise and beverages.. it helps.

-Mark Sellers recently funneled ~9pc of his HF into PRXI.

The Bodies exhibit and media fiasco is a problem(though some speculate the media attention, though negative, will actually increase attendance), but new exhibits, new ancillary income sources, create a newer and more attractive growth story. The media fiasco has just given smarter money a sweet entry point.

PRXI experienced huge growth in 2007 with the revenue explosion of their Bodies exhibits, but I foresee a new business model and growth story for PRXI going forward; not developing and operating their own proprietary exhibits, but becoming a global exhibition brand that purchases(and/or leases) existing exhibits and delivers them to impressive venues and global audiences everywhere.

This brings me to my "moat":

-With all the bells and whistles that are the exhibition business--promotion partners, beverage and merchandise outsourcing, global venue relationships, capital(did I mention they are in great financial shape?)--PRXI will be well positioned to ramp up new exhibits and rake in cash.

That moat and business model is my own speculation; management has not given any implication that is the direction the company will go, but what can I say?--I'm a visionary... and Premier Exhibitions could be that brand if they rise to the challenge.

Furthermore, let me make it exceedingly clear that the stock is very sold-off right now and will certainly recover with only the existing Titanic and Bodies exhibits considered.

Related Stocks: PRXI

2010

Thu, 27 Mar 2008 22:03:08

-Demand for steel in China is growing

-Steel prices rising

-Chinese steel industry is fragmented; 1,100 different companies with no clear leader. GSI aims to grow through a series of joint ventures and takeovers at huge discounts.

-GSI operations are situated in Western China and benefit by the "Go West" initiative by the Chinese government to ramp up new infrastructure in the under-developed Chinese western interior, or a 15% tax rate(compared to 35%+ for peers).

-$8 entry is cheap/strong margin of safety.

-If all goes as planned, GSI will grow into a behemoth steel producer by 2010 through a series of joint ventures and mergers/acquisitions -> $3.50 EPS by 2010, or 700pc EPS growth in 2 years. Very optimistic, but none of this growth story is priced into the stock--so even it under-achieves you still stand to gain on $8/share now.

I did not give this pitch very much thought, but I wanted to get some 'ink' flowing as I cover this stock as long as its in my portfolio.

Monday, 3/31 Earnings Preview: Some people have really pumped the stock and expect an earnings surprise and subsequent up-trend to $15/share or something similarly bullish--but I'm not terribly interested in the earnings release. My long thesis is based on a Joint Ventures/Mergers/Acquisitions growth road map that is judged on a 2010 timeline, so any short-term earnings speculation isn't very meaningful.

Related Stocks: GSI