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In
This Edition... |
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Though we've
been focused on more pressing topics of late, we're still aware many of
you may own - or are at least interested in - a couple of our prior
followings..... like Spicy Pickle (SPKL) and China Energy Recovery
(CGYV). We've got an update for each today.
We'll follow
that with a deeper look at recent (and misleading/incomplete) economic
news.
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Catching
Up With Old Friends |
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If
you were a patient owner of Spicy Pickle (SPKL), then you found
a lot of happiness last week. If you were a patient owner of China Energy
Recovery (CGYV), then you're patience is wearing thin. Let's take a better
look at both.
 Last
Wednesday, SPKL surged from $0.155 to $0.19, and ended up closing at $0.22
yesterday. All told, that's a 42% gain in about a week. Not bad. The reason
for the bullishness, however, may merit even more upside once the dust
settles.
What prompted
the move? In simplest terms, a truckload
of convertible preferred shares were taken off the table, thus wiping
out a major dilution liability.
It was a win-win
for everybody, as it took the ceiling away for stock. It was a much
bigger
win for the common shareholders though, as the owners of the convertible
equity ended up selling their stakes back to the company at a deep, deep
discount. Still, the former convertible owners' bottom lines may benefit
more without the overhang.
All too often,
this kind of recapitalization effort is ballyhooed as the maneuver that
will save the company, only for investors to find out later there were
several other factors also dragging the stock down. In Spicy
Pickle's case though, there aren't any other hidden tripwires we could
find.
Oh, the franchising
business is still tough, but that's already baked into the share price.
Moreover, the company's Canadian 'Bread Garden' division is actually growing
quite briskly.
At the very
least we feel SPKL should be back on your radar, if not back in your portfolio.
As for China
Energy Recovery (CGYV), despite a much-improved second quarter, the
stock's not gotten a lot of traction. Instead, CGYV drifted from just under
$2.00 in May to just above $1.00 in recent weeks.
 The
slide lower was largely the result of Q1's results. The company - which
had pulled in revenues of $23 million last year (and earned $1.5 million)
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only generated sales of $1.5 million in the first quarter. Normally it
would be a cause for alarm, but in China Energy's case there's something
else investors should know but probably don't... the company books revenue
when the hardware ships out.
A few days after
Q1 ended, the company reported a $4.8 million piece of equipment had been
shipped. Had that been booked in Q1, nobody would have batted an eye.
Now fast forward
to Q2. Yes, that $4.8 million project was booked then. In fact, the company
generated $7.5 million in revenues during the second quarter, putting them
on an annual sales pace of $30 million. Those were the kinds of numbers
we were talking about a year ago when the
idea was first posted through our site.
So what's
different now that makes the stock worth so much less than it was then?
Perception.
Mood. Fear. Call it whatever you want - all of those burdens on the
share price are temporary though.
As always, decide
for yourself whether a stock is 'worth it' or not. Just make sure you have
the facts right. CGYV's numbers may be erratic, but they've grown exactly
as they said they would a year ago despite an economic implosion.
And by the way,
China Energy Recovery is one of the industrial companies that's likely
to benefit from the scenario we described in the September 18th edition
"A
Tale of Two Chinas... Consumers Versus Industry". .
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Making
Lemons Out of Lemonade |
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A couple of
news stories from Tuesday may have left a bad taste in investor's mouths,
so we want to take a little time today to add some much-needed perspective
on both matters.
The first was
the AP's story "Fed
will need to boost rates quickly". The crux of the story was simply
how investors shouldn't be surprised if the Fed bypasses the slow, incremental,
and methodical raising of interest rates when the time comes to do so.
Instead we should expect them to move 'swiftly'. It wasn't the first time
we'd heard the message from the Federal Reserve's leadership.
 The
unwritten implication was that this would happen soon, and it was posed
as if it was a foregone conclusion.
We applaud the
Fed's willingness to act swiftly and decisively, particularly when it comes
to staving off inflation (which has to be fought preemptively). However,
the story's angle was heavy on the alarm bell, and light
on the rest of the story.
There's no doubt
about it - the economy is ripe to foster inflation, Lots of dollars,
low interest rates, and glimmers of hope. We feel the Fed's missing one
key piece of the current puzzle though..... this recession was unlike
any this generation has ever seen. Even if every 'green shoot' sprouts
a flower, we're still months - if not years - away from demand for
any goods or services that could drive meaningful inflation. In other words,
this recession has likely done some fairly long-lasting damage to consumer
and corporate spending. Time heals all wounds, but the bigger the wound,
the more time needed to heal.
So, though we
do
expect a modest move higher for interest rates just to get them off the
floor and out of logistical trouble, rampant interest rate increases to
fight inflation are the least of our current worries.
 The
other story of interest focused on one of our favorite discussion points....
consumer confidence. The AP's "Drop
in consumer confidence weighs on stocks" article pointed out how the
Conference Board's confidence reading for September came in lower at 53.1
instead of the expected 57.
We're not disputing
the validity of the information, or the reason for the drop. Jobs and consumer
spending aren't improving, the sun is setting on real estate's stimulus,
and now (as stated above) we have the backdrop of fear of rising interest
rates.
However, September's
confidence figure - which is supposed to be an assessment of what the
next year will feel like - is nothing more than an assessment of what
the last month felt like. September didn't feel as good as good
to consumers as August did, so the confidence reading fell.
As we've said
about nine billion times though, the confidence measure has no meaning
from one month to the next. The only measurable and consistent value
it has is in pointing out the long-term confidence trend. And, as the nearby
table shows, the confidence trend is improving.
There are few
other market-coincidental indicators as consistently accurate as the confidence
reading. It's not day to day (or day trading) information though.
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Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
