Wave Systems Corp. (fka WAVXQ)

[Countryboy]

Taglich.

Stocks With Only One Direction to Go

EBERHARD SCHÖNEBURG knows just how miserable life can be for a company that is on the Pink Sheets, the bargain basement of the stock market, and he knows how hard it is to move a company upstairs, where investors are more likely to notice it.
After the dot-com bust, his company, Artificial Life, a onetime Nasdaq high flier, found itself trading as low as a nickel a share on the Pink Sheets, an electronic quotation system for closely held, occasionally traded companies that do not meet the listing standards for the stock exchanges and often lack audited financial statements.

But Mr. Schöneburg successfully redirected his company into the development of virtual reality games for mobile phones, and by late last month, Artificial Life’s shares reached $3.20, though they have dropped recently.

It now trades over the counter, on the more respectable Bulletin Board, the first step toward Mr. Schöneburg’s goal of getting back on the Nasdaq exchange.

“It’s only recently that we’ve started to speak with investors,” he said. “It’s easy to knock on the door of the analysts when the stock starts to move.”

Attracting investors is a problem for all small companies, but especially for those, like Artificial Life, with a market value less than $250 million. Wall Street analysts do not deal with Pink Sheet outfits, and few cover Bulletin Board companies or even small Nasdaq concerns. Brokers usually cannot recommend these shares to retail clients because the stock prices are too low, and institutional investors are not interested in companies with small numbers of shares outstanding. For a small company to find investors, it must perform superbly and market that performance tirelessly.

“It’s a lot of work,” said Doug Burkett, the chairman, president and chief executive of Zila, a diagnostic company that sells an oral cancer detection aid. “You have got to do a good job of telling a strong story, and then you’ve go to go do it.”

To get the story out, you need help from firms specializing in investor relations; you also need research and analysis.
The role of the investor relations firm is to foster media interest in your company, get you ready for prime time and introduce you to investors. The firm will write news releases, create a press kit, focus your Web site and organize presentations.

Properly marketed, “boring companies with good numbers are not boring companies,” said Richard L. Stern, of Stern & Company, an investor relations company in New York.

Thomas Laughran of Fleishman-Hillard, which does public relations and investor relations, explained: “What we do is help you articulate your value proposition and put you in front of the right people who might be interested in it. And I’ll make sure you repeat that message every time you open your mouth in newspaper articles, press releases and investor conferences.”

There is a lot of mystery surrounding the supposedly proprietary lists of investors kept by investor relations firms. You could try to find these investors yourself, but the professionals have worked at cultivating them on clients’ behalf.

“There are 73,000 fund managers in our base of contacts,” said Dian Griesel of the Investor Relations Group. “We’re calling them all the time, asking what do you like these days and what are you passing on. Knowing the audiences and thinking carefully about how to target your client are essential.”
You will pay a lot for these services, at least $5,000 to $8,000 a month depending on your size and what you want done. You have to give a firm at least six months to start generating results, and you should reach agreement on measuring success. “What we want to see as a result of our work is some liquidity in the stock, so that people are trading it; sponsorship from institutions; and some analytic coverage,” said Marty Tullio of McCloud Communications.

Getting investors interested in your stock is literally a year-in, year-out process of talking to them. It’s not very likely that an analyst or portfolio manager will dash out of the room after your presentation and put in a big buy order — although that did happen to Brad Thompson, the chief executive of Oncolytics Biotech, a Canadian company that uses viruses to develop treatments for cancer.

Mr. Thompson was in the middle of an initial presentation to a portfolio manager when, he recalled, the manager said, “Stop.” Then he clicked a few keys on his laptop, looked up and said, “O.K., keep talking.” He had just put in a million-share order. “I said to myself, ‘That will never happen again,’ ” he recalled.

You can ask other people for referrals to investor relations firms or contact the National Investor Relations Institute in Vienna, Va., to find someone in your area. Interview members of the firm, ask for references and be sure to check them. You should meet the person who will be working on your account and understand exactly what the fees cover. No reputable firm will promise to get your stock price up, so be wary of one that does.

Your investor relations firm should be able to get you in to talk to the analysts who cover your industry. “It takes about nine months from the first meeting where they get the story before analysts will pick up coverage,” said Mr. Burkett of Zila. “They watch our execution and they do more due diligence on the company, ask more questions of management, and gradually the interest accelerates and you know that sooner or later they’ll come.”

Until then, there is another kind of coverage: company-sponsored or company-paid research reports. Wall Street denigrates these reports, but there are some legitimate providers. Two years ago, for example, Nasdaq formed a joint venture with Reuters, the news agency, and called it the Independent Research Network. It couples companies with analysts who have no vested interests in them; the analysts prepare four reports a year, timed to quarterly earnings releases. There is no guarantee that the coverage will be favorable. In fact, two analysts working through the network issued hold ratings — a Wall Street euphemism for “sell” — for a biotech company last summer. The cost of a two- or three-year contract is about $100,000 annually, but what you get is widespread distribution of the reports through Reuters, which has 425,000 subscribers.

Some brokerage firms also offer company-paid research. One is Taglich Brothers; it is highly ranked by Investars, which measures the performance of all research providers based on the success of their positive and negative recommendations. Taglich came in first over the last four years among research firms covering 100 to 500 stocks.

The firm charges clients $1,750 a month and agrees to write something every quarter and every time there is a material piece of news about the company. Again, there are no guarantees that the coverage will be favorable, and the company is not allowed to see Taglich’s earnings estimates and ratings before they are published.

“Taglich was the first to write research about us,” said Eric M. Reuter, former chief executive of Laserscope, a manufacturer of laser systems for surgery. “We used that report to market ourselves to investors. They also helped us to get to know the big investment banks.”

About six years ago, when Mr. Reuter became the chief executive, Laserscope was nearly bankrupt and selling at 66 cents a share. Last June, he sold the company to American Medical Systems for $31 a share, or $715 million.

Laserscope would have gone nowhere without superior products and performance, but there is a famous saying on Wall Street: stocks aren’t bought, they’re sold.

http://www.nytimes.com/2007/02/20/business/smallbusiness/20SHARES.html?pagewanted=print