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JD400

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Monday, 10/18/2010 1:23:09 PM

Monday, October 18, 2010 1:23:09 PM

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JD400 · 2010-10-18T17:23:09.4730000Z

Today's newsletter bulletin from APTD newsletter@alphatrade.com Mina Mar Marketing Group presents our weekly "Monday Analysis" series, with analysis provided by experienced OTC trader John Lux. Good morning, traders. Last week I promised that we would talk about market capitalization. When we are looking at stocks in general and reverse merger stocks in particular, we want to look at market capitalization. Market cap is simply: the number of shares outstanding multiplied by the price = what total dollar amount would buy all the stock at this price. Now there is one warning here. Many of us go to the Pink Sheets website to do research. I do and it can be a good place to start, but there are many things there I may not use. For example, I do not rely on the market capitalization provided if I am serious about the stock. The reason for this is that quite often the number given is not right. For example, it may not be calculated assuming the conversion of any convertible preferred stock outstanding. That having been said, market capitalization is key to any serious investor because you want to know the price of the company just as you would want to know the price of the house or a car you will buy with your stock profits. Stocks are valued in relation to earnings and/or assets, in general. So all other things being equal, if the company has no sales, is losing their shirt, and has a negative net worth, but has a market cap of $100 million, it is bait for finding short sellers and should be avoided. If it has $3 per share of cash, is even mildly profitable and sells for $1 per share, call me, I want in. The only question here will probably be how to accumulate the most stock without disturbing the market. Reverse merger stocks are valued for different characteristics than operating companies. First, the fact that the stock is trading at all, not in the grey market, will be worth something. It takes time and expense to get a new stock listed for trading. If the stock is on the OTCBB, so much the better, more value. Second, the size of the shareholder list can be an asset. If there are 1,000 shareholders, for example, that gives the company a pool of already interested investors. Third, the volume of trading is important. A company is merging with a reverse merger shell primarily to raise money. The investors who will buy stock privately will look at the public market as their exit strategy. If there is no volume, it is not much of an exit. With volume, more money can be raised and the shell is therefore more valuable. Fourth, the buyer will naturally look inside the company at the assets and liabilities, including potential liabilities. There are of course many other factors, too many to list here, that give value to reverse merger shells. The point today is that a relatively clean shell that is already trading, with a decent shareholder list and volume is worth money, even though it is just a shell. For your edification, we give the Pink Sheets market cap, number of shareholders, and the daily average volume for the stocks we have been following: end Next week the topic will be "Stock Bashing" should be interesting

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