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Friday, 05/18/2007 4:49:04 PM

Friday, May 18, 2007 4:49:04 PM

Post# of 1538
OK--picks are in, now it's time to put your mouth where your (paly) money is.

A while back I posed "the nsomniyak challenge", in which I asked PSL6 participants to post a real quick take on each of their 6 stocks, answering 2 basic questions:

--why I like this stock **AND**
--why I like this stock to go up over the PSL6 time frame (between now and _August 31)

I also promised to lead off this discussion with the rationale for my own picks. I have put in more detail than I expect you to.

First, a quick comment on my take on the mechanics of PSL contests. Although I have not won a PSL contest, I am always "in it to win it". I want to win, or barring that, get a top 10 finish. Len's data indicates that the average return of the winner is over 90%, and it takes a 40% return to have a good shot at being in the top 10. The AVERAGE return, across all contestants and all PSL contests to date, is over 20%. Think about that for a minute. Although many here target (and secure) much higher returns in their real portfolio, most financial planners would say that 20% ANNUALLY would be a great return, yet rising ONLY 20% in a PSL contest is likely to leave you trailing most of the field, and the contest in only 3 months long.

Rounding up a little, to be LIKELY to win, you have to AVERAGE 100% returns on your picks, and to be LIKELY to finish in the top ten, you need to AVERAGE 50% returns on your picks. The best individual stocks will go up 200-400%--without one of these it is really hard to have an average return in the triple digits. If your best stock only goes up 200%, the other 5 need to average 80% for you to hit 100% overall, or would have to average 20% to give an overall return of 50%. Clearly, in PSL you are looking for stocks that can make a sharp, immediate move. Although the VMC board and group do very well with set and forget, steady growth stocks, PSL contests are not won with them. That leads me to think about "what types of catalysts can trigger a sharp move?". This suggests that I need to be able to make a case for each pick to move 50% or 100%. If they can't, my other picks will need to carry that one for me to be LIKELY to reach my target finish.

I think that low market cap stocks are far more likely to double than higher market cap stocks. While you always need to get back to market cap, I do think that low PRICE stocks are more likely to double than higher price stocks, if for no other reason that there are price thresholds below which some investors won't even look. As a low price stock moves up initially, it hits the radar of more investors and becomes "buy-eligible" to them. An example of which would be a stock trading under .25 that moved up to .25 and became eligible for this contest. Len's data bears out the fact that stocks in the .25 to .50 range have done well, collectively, in PSL contests.

With apologies to Mr. Sheep, I don't want my picks to be sheepish. I am not trying to finish in the middle of the flock, I am trying to separate myself from it. A wildly successful very sheepish pick simply gets you into a 5 stock playoff with the others who have that stock in the contest. Therefore my bias is to try to consciously find some off-the-wall ideas. I also think the a conscious effort to be non-sheepish leads me into looking for NEW ideas (which is why I am part of the VMC community n the first place) and allows me to focus DD on more stocks that are likely to do something in the 3 month contest timeframe. Profitable pink sheet stocks are wonderful--they are generally under followed and offer one of the best catalysts for a potential double there is--uplisting from the pinks to the otcbb.

Here are my 6 picks


Why I like this stock--Basically, this is one where I have drank the Kool-Aid. I think their patent position is pretty strong, as evidenced by the 17 licensees to date. PTSC is my largest holding.

Why I like it over the PSL6 timeframe--Markman, Markman, Markman. The Markman hearing, a milestone in their patent case against the J3 (down from J5, which in itself is an endorsement of the patent position), will be issued this summer, probably within the PSL timeframe. That ruling, or anticipation of it, might precipitate a settlement. PTSC made a huge move a year ago and is on everyone's radar, if it moves upward the momo crowd will pile in big time. There is clearly the potential for a triple digit % move in PSL6. I would kick myself if PTSC (a stock I have followed closely for several years) did this and was not in my PSL picks.

Why I like this stock--I think they will have good demand for their wood chips as biofuels. Carbon credits market could potentially be bigger long term. Reasonable share structure--55MM o/s, CEO owns a majority of the shares and stands to win big if/as the share price rises. Company has been profitable for several years and has not diluted, and has filed a 15c211 to move off the pinks (eventually).

Why I like it over the PSL6 timeframe--While much of this potential is already in the stock price, I think we'll see a PR announcing shipments worth 10x last year's revenues. This will have an enormous WOW factor. They stand to book about $2.4MM in revenue for each wood chip shipment. 2 of these were delayed from 2006, but should go out shortly. 2006 annual revenues were just over $500K. In other words, a shipment would be more than 4x the total revenue for LAST YEAR, and they could well execute 2-3 of them in the next couple months. There is an outside chance they could move off the pinks during PSL6 as well. Also gets plus marks in PSL from me for being a profitable pink sheet stock and for being priced right near the .25 threshold for PSL eligibility. Given that kind of WOW PR, a move from .27 to over .50 seems very possible.

Why I like this stock--low outstanding shares (10MM) and low float (6.6MM). Has invested in manufacturing efficiencies, has a blue-chip customer list. Recently announced monthly orders = 50% of last year's total revenue. This indicates strong demand for their new products.

Why I like it over the PSL6 timeframe--ALMJ is very near its highs. If it breaks out, really is in blue sky territory, where run could be fueled by low float. Sometime during the PSL6 timeframe those record orders WILL translate to record revenues, and, likely, record earnings. I see it as very likely that we get an earnings catalyst that triggers a nice run.

Why I like this stock--very profitable, nice demand outside of just tar sands, very reasonable capital structure
Why I like it over the PSL6 timeframe--there is some buzz here, and despite this likely being a sheepish pick, and already having had a big run, I think INRB can generate news and further appreciation in the near term. Basically, this is my me-too pick.

Why I like this stock--Despite having PTSC and FORG here in PSL6 (and in real life, along with BRST) I am not a patent troll wanna-be. I think the game changes when big companies start to settle with little companies who have brought patent suits. Was selling for cash value until today's rise.
Why I like it over the PSL6 timeframe--thee are court links that inidicate FORG has settled with DirectTV, but no PR as yet. maybe it is not quite final, but FORG would not have walked away from their suit unless they were happy. A plaintiff almost never gives up on these suits. Hopefully, we'll see a PR with news of a settlement, then earnings on 5/30 where maybe, if lucky, we'll see royalties and not just one-time payments. I like the chances of FORG rising on good news in the first month of the contest.

Now for the wildcard pick, which I think is critical. Although Len has published statistics indicating the VMC stocks have performed slightly better, on average, than wildcards, I am of the strong opinion that your wildcard pick is by far the most important pick. You can have 5 VMC-eligible picks (or even 6, if you elect not to pick a wildcard) and only 1 wildcard. In other words, your wild card pick only needs to be better than your 6th best VMC-eligible stock (or else you would pick that stock instead of a wildcard). If you can't find one stock from the much wider universe of ZCC stocks that has more potential over the next 3 months than your 6th best VMC-eligible candidate has, you aren't trying very hard.

I think it is really critical to leverage your chance at the relaxed qualification criteria. As noted above, I look for the various potential catalysts that might trigger a sharp upward move in a stock over the next 3 months. There are several, most of which are possible for both vmc and zcc (wildcard) stocks, but at least one such catalyst, moving from red to black ink FOR THE FIRST TIME, is something that can ONLY happen to a wildcard, not a VMC stock. In terms pertinent to the VMC community--this would be a stock graduating from the zip code changers board to the main VMC board, which has far more activity, more eyes on it, better posts and more back and forth dialog around individual stocks, and, frankly, a higher signal to noise ratio. In many ways the ZCC board is the "farm system" for the VMC board. Another such catalyst, among the most powerful imho, is uplisting from the pinks to otcbb. This can happen to either but will happen to many more non-earners than VMC stocks. In general I think that wildcard stocks are more news-driven than VMC stocks, and more likely to generate the news that would serve as a price catalyst during the 3 month PSL timeframe.

For me personally the wildcard is critical because I always have LOTS of wildcard ideas, but often struggle to identify the last couple VMC stocks I think have really strong near term potential. In past PSL contests I usually had several interesting potential wildcard candidates, but was generally fishing around for my last couple true VMC-eligible picks. Going into this selection process, I made a conscious effort to identify "possibles" in the VMC world, and had 18 VMC-eligible stocks in my initial candidate pool to cut to the 5 selected above, and I had 10 potential wildcard picks in my initial candidate pool with only 1 spot to fill. In real life I buy a disproportionate number of zip-code-changer stocks, and spend a good portion of my DD time effort on them, so it is not surprising to me that I find selecting the one wildcard pick more difficult.

I considered 3 stocks seriously here, and ended up picking one I had not heard of until today!

DIGF.PK - what?
Why I like this stock--11MM shares out, 7MM float, just received DoD contract for $118MM over 5 years (vs. annual revenue of $25MM). The big downside is that they fly low under the radar, having (I think) delisted within the last year to avoid SOX costs, and that volume was almost non-existent before today (today's volume alone easily gives them well more than $5000/day over the last 3 months even if there were NO trades during that period!).

Why I like it over the PSL6 timeframe--this is a gamble, as there are at least3 wildcard stocks I am much more comfortable holding through the contest. However, I think I can snag a quick pop here and then trade into one of them later. There was some message board buzz today, and the stock went up nearly 50%, but no PR. DIGF has not yet hit the radar. I think that news could be explosive on a stock with 7MM shares in the float. Let me put it this way--early next week DIGF is going to announce a contract whose first year revenue exceeds the value of the float, even after today's 50% rise. DIGF will show on a lot of screens this weekend. Those that dig will see compelling numbers.

I wish I had more wild card picks, as I had several other wild card stocks I would have picked over a couple of my other 5 VMC picks.