Paulson Capital (PLCC)

[Bobwins]

PLCC is a regional brokerage. They have several offices around the country with retail brokerage clients. They generate income from retail brokerage as well as underwriting microcap companies and bringing them public. The underwriting activities are necessary for PLCC to show profits. A third component of their income is the market performance of their warrant/stock portfolio. As underwriter, PLCC gets warrants/stock as part of their compensation. Some of the stock/warrants are restricted and PLCC typically has a fairly large portfolio of their own investments. The performance of these longer term investments is added or subtracted from the P&L each qtr. This adds volatility and can significantly impact PLCC results.

I used to own PLCC but found the volatility created too much uncertainty amongst investor. They could not forecast profits consistently due to the huge impact of both the underwriting fees and the portfolio performance on the stock. This kept the p/e very low. Also since it is a retail broker, PLCC maintains a high cash position that is partly their clients funds clearing. I sold out last year after several up and down qtrs with no appreciation in the stock. Bobwins