Value Microcaps Pick Six Lotto 07

[Knowledge is King]

Nsom Challenge...Pt. 1


Glad to see the increased participation in the current Challenge. I guess that $100 carrot at the end of the stick is temptation enough to get my fellow VMCers to quantify their thoughts on their picks...good show! As for me, while a little tardy, I too have thought through my reasons and here they are. I've ordered them from least likely to be in the green at the end of PSL7 to most likely (IMO of course):


CXTIE China Expert ($.50): In my actual portfolio, I bought a chunk of this piece of toxic waste at $.52 on 9/14 and sold it at $.23 on 9/19. I'm pretty sure I had the investing process backwards on those transactions :( My thinking for picking it for PSL7 was that it offered an attractive upside/downside proposition. I think that if CXTIE's filings are brought up to date during the contest period, no matter what kind of write-offs/charges there are, the stock would at least double (from the $.50 starting price). That being said, I would now put the likelihood of that happening around 5%. The downside in the stock is of course is zero, however in the limited time of the contest I would put that likelihood at less than 1%. What really convinced me to ignore all the red flags with this one is their balance sheet. However, if the company is a fraud run by crooks, I'm sure the balance sheet isn't worth the paper it's written on either. Bottom line, CXTIE is a crap-shoot sub-$.30 and I regret picking it for PSL7.


PRLS Peerless Systems ($2.12): I keep waiting for jaybird/whyme/que777/schizo to post on this one; it sure fits his profile of past "investments"...I think the post would look something like this. PRLS LOW-FLOAT TECH MONSTER Q2 EPS $.07 EXPECTS SECOND HALF EPS OF $.19-.22 STOCK WILL EXPLODE Unlike most of the schizo picks, this one warrants real investment in my view. The second half forecast, as detailed in the company's 8/30 PR, suggests a great Q3 comp (perhaps $.10) vs nil EPS last year. I think the stock will run when those numbers are PRd and I'll be able to freeze PRLS up 50% or more. A wildcard in the PRLS story is that there are activist shareholders in the background and management has stated that they (management) "will continue to consider all opportunities to enhance the value of the company, including aggressive marketing of new technologies, development of new market opportunities, raising additional capital, mergers and/or acquisitions."


FBOD First Bank of Delaware ($2.55): I'm surprised this one has gone south since an impressive Q2 earnings report on 7/17. FBOD made $.16 vs $.05 in the quarter, net income was up 342%. First half EPS were $.26 vs $.22, with net income up 75%. Book value is $2.53. EPS in the past five quarters have progressed nicely: $.05, $.07, $.08, $.10, $.16; P/E is a little over 6. Holding the stock down in my opinion is real or imagined subprime exposure, and "discussions with the FDIC regarding concerns raised by the FDIC in connection with certain of the Bank's credit card and lending programs." I think FBOD deserves at least a ten P/E, suggesting about 60% upside potential.


CGL-A Cagle's ($9.55): I thought sure I'd be the only one to pick this obscure stock, however one other brilliant picker also has Cagle's. CGL produces and markets poultry products. As with FBOD, Q1 (June) results were impressive: Sales surged 32% to $72M and EPS came in at $.33 vs a loss of $.37. From my experience these poultry company earnings are quite streaky, so I'm looking for more of the same in Q2. Specifically the earnings PR detailed the ballooning poultry pricing situation. "Overall revenue per pound for the Company's poultry products for the first quarter of fiscal 2008 was $.78 as compared to $.67 for the same period of fiscal 2007. Market prices for all products for the first quarter of fiscal 2008 versus the same period last year increased substantially as follows: boneless breast increased 37%, breast tenders increased 68%, wings increased 65%, drums increased 95%, and leg quarters were 80% higher." CGL also features a book value of almost $10 and over $50/share in annual revenues