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To
Find the 'Tops', Start at the Bottom |
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 Do
you know the difference between top-down and bottom-up? The
terms have a lot of meanings, each of which depends on the nature of the
context in which they're used. And as you may know, the investing world
has their own definitions of them as well.
Top-down investors
look at "big picture" things like the economy, then industrial sectors,
then stocks of specific companies within those sectors. A bottom-up approach
moves in the other direction - the investor focuses on a specific company
rather than the industry, thereby assuming individual companies can do
well even if an industry or economy isn't performing all that great.
While most investors
tend to follow the media's lead in atop-down search for new investment
ideas, there may be some inherent drawbacks to the approach. First, though
not necessarily foremost, small and micro caps may be ignored by television
and print news sources. Why? Lesser-known corporate names may not attract
the same kind of attention (ok, ratings) as household-name companies do.
Second, news-making events may seem important initially, but the associated
company may lack the kind of foundation needed to sustain the same
kind of interest in their stock.
With this in
mind, our research department sought out five micro cap names that may
not have been getting much (if any) media attention of late, but still
paint an impressive fundamental picture. The key search criteria we used?
Nothing particularly exotic. We wanted to find stocks with revenue growth
and earnings per share growth of 15% or better over the last twelve months.
The ROE had to be 15% or higher, while profit margins had to be 20% or
more. The P/E ratio over the prior twelve months needed to be 20 or less,
and the price/sales ratio was required to be 4.0 or less.
These are some
of the micro cap names satisfying all of those not-overly-difficult standards.
 BGI
Inc. (BGII.PK)
- Earnings grew at nearly 46% over the past twelve months for this pink
sheet stock. While the 'pinks' lack the same kind of market credibility
as bulletin board stocks, BGI is most likely a pink sheet for size reasons
rather than performance reasons....the market cap is only about $3 million.
BGI is a designer and marketer of sweepstakes and fund-raising products,
including bingo. The twelve-month ROE is 59%, and the P/E is 2.1.
Bodisen Biotech
Inc. (BBCZ.PK) -
Another pick sheet stock, Bodisen is also geographical enigma. The corporation
is registered as a Delaware company, while the stock also trades on the
London exchange. What do they do? They're a China-based, environmentally-friendly
fertilizer company. All the multi-national aspects aside, they probably
set up shop in the right place - China's fertilizer market is the biggest
in the world, worth $17 billion (US) per year.
Cimnet Inc.
(OTCBB: CIMK) -
The EPS growth rate over the last year was a phenomenal 95%. The ROE is
43%. The other numbers look pretty good too. Cimnet is a manufacturing
software company, and apparently a growing one. 2005's sales were 46% better
than 2004's, and 2006's revenues were 52% better than 2005's. And so far
for 2007, that growth trend looks like it's going to persist. Volume is
really thin here though.
Genesis Technology
Group Inc. (OTCBB: GTEC)
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This isn't a misprint......revenues have grown by more than 18,000% over
the last twelve months. Normally those kinds of increases are the results
of a very unusual windfall, and Genesis was not an exception to that rule
of thumb - the company did $6.7 million in sales during Q3 of last year,
versus just $3000 in Q2. However, a couple more 'unusual windfalls' like
that could mean big things for the stock. The company is certainly in the
right arena for that possibility, acting as a business development firm
for life and health science ventures in China.
Stellar Pharmaceuticals
(OTCBB: SLXCF)
- Revenues are up by 52% over the past year, while earnings grew by 781%.
Profit margins are 31%, and the P/E is 12.1. Stellar Pharmaceuticals is
a Canadian company with three products based on its core polysaccharide
technology...(1) NeoVisc, for the treatment of osteoarthritis, (2) Uracyst
and the Uracyst Test Kit, for the diagnosis and treatment of interstitial
cystitis, and (3) a proteomics-based diagnostic test for the diagnosis
and monitoring of bladder cancer.
So there you
go. More due diligence is possibly merited, but these five companies at
least passed the first wave of tests most professionals would apply. Without
any of these company stocks being hype-inflated right now, an interested
investor isn't necessarily going to have to pay a hefty premium for shares.
Just something to kick around.
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Cougar's
Running Away |
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| Apparently
investors welcome cougars to the bulletin board with open arms. Though
only a few weeks into its life as an OTC stock, Cougar Biotechnology (OTCBB:
CGRB) has already made a big splash, in addition to making some huge
gains for its earliest investors.
Its
first trade was at $9.75 back on February 8th. It raced to $20.00 almost
immediately before settling back in to close at $17.50 that same day. After
a brief revisit of the $12.95 level, this beast finally found a footing
and rampaged right up to the current level of $27.25. That's a 55% gain
from its first trading day's closing price, or a 179% gain for the lucky
stiff who managed to be the first one in when it was unleashed in early
February.
Regardless,
young or not, the stock is attracting some attention.
Cougar
Biotechnology's focus is on oncological drugs. They've got a prostate cancer
treatment currently in Phase II trials, and a non-Hodgkin's lymphoma treatment
in Phase I. There's also a solid tumor treatment in the works. The interim
Phase II results for the prostate cancer drug look promising.
Volume
is 'consistently erratic', though the momentum has been consistently consistent....at
least for a new micro cap. |
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GlobalSCAPE
Surges on Q2 News |
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| The
name GlobalSCAPE (OTCBB:
GSCP) first appeared on the Micro Cap Press site last week, on the
heels of some rather encouraging stock buy-back news. The company is back
in view again, but for a slightly different reason this time - Q2 guidance.
In
short, GlobalSCAPE anticipates quarter-over-quarter growth of 170% in the
second quarter of this year, which would mean sales of about $6.2 million
when it's all said and done. A big Department of Defense order was attributed
as the reason for the boon. Though the company doesn't expect every quarter
to be as productive, they don't necessarily feel that Q2's results are
going to be a one-time-only windfall.
Regardless,
the market liked what they heard, and sent shares up by 12% to the $3.00
level - an irony in light of last week's announcement.
How
so? The company has been trying to position its shares for an AMEX listing,
with the intent of getting the kind of attention they feel they can't garner
by being a bulletin board stock. To raise the share price, the company
was planning a stock buy-back of 6% of its shares. The maneuver would likely
push the stock's price up to the $3.00 threshold the AMEX prefers for its
listings.
After
today though, the stock may qualify for an AMEX listing without the buy-back.
All the same, we expect GlobalSCAPE to proceed with the repurchase plan
to get GSCP shares well past the minimum requirement. The Q2 guidance is
just an additional boost. |
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Updated: 8:15 pm PDT (03:15 GMT), November 2, 2010
