Hybrid Fuel Systems Inc (fka HYFS)

[ohiobuckkeye]

To OTC Journal Members:

On to a new and timely idea. In the April 8th edition I mentioned that I would be looking for new ideas in small companies that could generate attention from national media. I like those big, streaky runs when stocks get noticed. They make for great profit opportunities. Here's the first of two new ideas positioned to generate some serious attention. With oil spiking to new all time highs at $70 plus, it's very timely. I'll let CNBC do the talking for me and you be the judge.

US Energy Initiatives (OTC BB: HYFS)
(Former Name: Hybrid Fuel):

The Right Idea At the Right Time

Anybody thinking about rising fuel costs these days? It would appear $3 plus gas at the pump is here to stay.US Energy of Tampa, Florida is offering a fuel and money saving solution. In order to avoid confusion, you should know the company recently changed names to US Energy Initiatives Corp, but still shows as Hybrid Fuel at many quote sites.

I was going to publish on this stock Tuesday after the close, but a 30% surge in price that day on big volume held me back. I am emphatic about helping you trade smart. Accumulating these stocks on the 61.8% retracements is a must. HYFS hit the number today- time to grab the pullback.

HYFS manufactures and markets retrofit systems that allow engines to run on two different types of fuel simultaneously. This is known as "Dual Fuel Technology".

The company is focusing its sales efforts today on the diesel engine market, but has other applications with its core technology.

In short, you take a diesel engine, invest about $4,500 with HYFS, retrofit it with their system, and then burn diesel fuel and natural gas or liquefied natural gas simultaneously.

Net return to owner in fuel savings: complete return on investment of initial cash lay out in 8 to 12 months, depending on the engine and its usage.

Consider the chart. This chart depicts the price of Crude Oil vs Natural Gas in BOE (barrel of oil equivalents). Both peaked simultaneously in December. However, since then, oil has charged to new highs, while natural gas has cratered despite dire predictions to the contrary.

Personally, I don't buy into the concept that skyrocketing oil prices are the result of supply/demand imbalances- I believe geopolitical risk is a major component in the pricing. Note that in the last month the price of oil has spiked to a new high as Iran threatened to become a nuclear power and the war in Iraq drags on. Natural gas has remained low because it is harvested regionally, and therefore not subject to international market speculation.

Once installed, the HYFS system not only reduces fuel consumption considerably without sacrificing performance, it also reduces pollutants dramatically.

"There's even a way to harness the power of hybrid without replacing the entire truck"
Melissa Lee from Going Green Report Aired 3/30/06 on CNBC

Looking for an idea in a low priced stock with lots of upside that could get considerable media coverage? I'll let CNBC do the talking for me. Here's a video clip from a special report aired on CNBC included Hybrid Fuel Systems as an up and comer in the fuel savings arena:

Simply Click Here to view the video. Your video player- either Windows Media, Real Time, or QuikTime should automatically open and play the video. If you don't have a media player or speakers, you will not be able to view the presentation. It runs 3 minutes 26 seconds. If this company starts delivering major sales contracts, it could be the best 3 minute 26 seconds you ever invested in your life, provided you own the stock.
Here's the url for those tech saavy individuals: http://www.otcjournal.com/news_images/hybrid.wmv

Here's a couple of pictures of a retrofitted vehicle. This is the Trash Hauler shown in the CNBC video clip. The system is bolted in the engine compartment. It requires two technicians and one day's work.

Throughout the remainder of 2006 I expect the company to gain considerable sales traction- especially in the Far East. As Melissa Lee points out in the video clip, the price of diesel in the Far East runs as much as seven times the price in North America. In addition, there is a great concentration of heavy equipment doing a lot of work in China and other regions of the Far East-the market is enormous for their products, and the equipment is only out of service for one day to complete the retrofit process.

HYFS recently filed it's year end numbers for 2005. On paper, the company lost $3.26 million on $652K in sales. Sales were up 470% over the previous year, but still at an anemic number. I expect the top line to improve considerably in 2006 by a much greater margin.

As of March 24th, HYFS had about 105 million shares issued and outstanding, yielding a total market value of about $28.5 million. Clearly, the stock is not trading on its trailing numbers. The market has great expectations for this company.

Sticking with our discipline of accumulating on retracements, the chart tells me one should be accumulating this stock between $.27 and $.33
(between the 61.8% and .382% levels).

What's our upside? I believe it is simply a function of sales announcements. The larger the sales, and the more high profile the customer, the better the stock will trade. I would not be embarking on coverage of this company if they didn't have a full pipeline. Not all sales will come to fruition. However, after extensive conversations with management, I like our chances. Certainly, with oil making new all time highs, this stock will catch the attention of the market if and when they deliver.

Moreover, retrofitting is not the only avenue they are pursuing. They are in discussions with several OEMs (Original Equipment Manufacturers) to include the system on new equipment.

If the market decides to sell off due to fears of inflation on the heels of skyrocketing oil and gold, this stock will serve as an excellent hedge against a correction in other sectors.

As sales are delivered, I believe we have a good opportunity for main stream media coverage. You can see what happened on the chart from the CNBC coverage- a 4 million share day and a new multi month high. I see this kind of spike happening again in the future.

After all, consider the following. In Lee's report she mentions UPS, Fedex, Eaton Corp (ETN), and US Energy Initiatives (HYFS). Of the four, only two have actually developed technology, making them investment candidates. The other two are consumers of the technology. Of the two in which you can invest, one is much riskier, but has far more upside from where it stands today. You do the math.

Accumulate between $.27 and $.33 for the next event driven surge. This level should just be the beginning. This one is sure to have tradable surges. Longer term upside: If the company can deliver on some of the opportunities in its pipeline, I could see it(HYFS) at $1.00 down the high oil/lower natural gas cost road.