To OTC Journal Members:
 

2003 Wrap Up

The year end wrap up edition contains a brief comment of every one of the companies I covered in 2003. There are 19 companies mentioned, and this is the 129th edition of the year. Use this edition to make any adjustments you might wish to make in the speculative end of your portfolio prior to year's end. Microcaps tend to drift down on very light volume during the holiday, so some stocks may be artificially depressed. For the first time in three years, there is some tax selling, as many investors need to lock in some losses to offset their gains.
 

2004 Outlook

I believe 2004 will be an excellent year in the stock market. All the doom and gloom naysayers who believe the economy is "over leveraged" and that we have "mortgaged our future", and "PE Ratios never got low enough" are simply suffering from a painful bear market hangover. Wake up- it's a new day, and economic expansion is back. Bear markets of that magnitude only come along once every fifty years. Review the December 11th edition if you want an overview of the bullish and bearish argument for 2004.

For the week ending December 21st, the consensus estimate for forward 52-Week operating EPS on the S&P 500 rose by another $0.15 to $61.33, up at a 15.3% annualized rate over the past 3 months. Trailing 52W operating EPS rose $0.19 to $53.87. Companies are becoming more profitable and stocks are going up. DUH!!!

Microcaps had an especially good year. The Russell 2000 charged ahead of the other major equity indexes. Microcaps should do well in 2004, but probably won't outperform the other major indexes as prolifically. Institutions were forced to liquidate small stocks excessively as they dropped below price thresholds during the bear market. Therefore, it was easier for this category to rebound as buyers resurfaced.

I believe the market could easily complete a 50% retracement of the drubbing it took during the bear market (which I believe began at about 4300 in October '00), which would put us in the 2700 range on the COMP. 

Following is a comment on all of the stocks I covered in 2003, divided into three categories, and in the chronological order I published. If I've forgotten any, simply email me at editor@otcjournal.com for a comment.
 

Stocks I Love for 2004

• eResearch Technologies (NASDAQ: ERES):A superstar for the OTC Journal. I first published on the company December 2, 2002 at $14.87. Two splits later, your adjusted cost basis would be about $5. The stock is currently trading at $25, yielding a whopping 400% return. This was a big momentum stock in 2003, and the wind has come out its sails recently, down from a high of $33. The company just keeps getting better all the time. Look for the momentum players to come back into the stock next year. I believe this company could be on the front end of a multi year growth phase.
• Irvine Sensors (NASDAQ: IRSN): I published a very aggressive edition on this company on December 17, 2002 at $1.70. I stated I believed the company could become a "10 bagger" over the next three to five years. The stock made me look like an idiot for 11 months, then  rocketed up the charts. Currently trading at $3.40, there's a solid double on your money, or better if you picked any up after several lower priced trading alerts. Irvine Sensors has excellent technology in the new class of stacked memory known as "BGA". Several companies in this space have become darlings on Wall Street, and Irvine Sensors is along for the ride. If the company can deliver new wins in the BGA space, look for further upside in the stock. They could easily achieve over $20 million in revenues this fiscal year, up from a lackluster $13 million last year. The company is only sporting a $45 million market cap, and it could find its way to a $100 million valuation (about $8).
• Cam Commerce Solutions (NASDAQ: CADA): Another big win for the OTC Journal. I reported on this one on February 28th at $4.30. The stock is currently trading at about $7 (62% gain). The company reported earnings last quarter, has tons of cash, and no debt. Huge customer base. The stock is thinly traded, but that could change at any time. I am looking for this stock to trade into the $10 to $12 range in 2004.
• VirTra Systems (OTC BB: VTSI): A big win in the penny stock arena. I kicked this one off at $.10 on July 15th. The stock has since seen a high of $.47, and is currently trading at about $.34. That's a 250% gain: nothing to sneeze at. This company reinvented itself at the beginning of 2003, and their bet paid off. Their virtual reality "Judgmental Use Of Force" training simulators are taking the market by storm. They recruited the top salesman from a competitor with inferior technology. That competitor was enjoying about $40 million in annual sales. The stock has taken a well deserved breather for the last couple of months. Look for multi unit sales to both our government and foreign governments in 2004 to get the stock rolling again. If they deliver, I believe $1 is in the cards for 2004. If you believe government secruity agencies all over the world are going to be training personnel for terrorist attacks, you need to own this stock. 
• Network Installation (OTC BB: NWIS): Another big win in 2003. I kicked this one off at an absurdly low $.80 on August 2nd, but no one was able to buy the stock under $1.70. Currently trading at $3.60, early buyers have a cool 111% return in the bag. The company has a massive customer base in Southern California, and will benefit greatly from the huge wireless internet access infrastructure build out which is currently underway. Look for Network's revenues to at least double in size in 2004, and possibly more. The stock should continue to trade well with great growth in an exciting industry group. I believe we could easily see $7 next year.
• HyperDynamics Corp (OTC BB: HYPD):Probably the most exciting risk/reward stock I am currently covering. First covered on September 20th at $1.76, the stock has since seen a high of $2.25. It's given back a lot of ground since filling its September quarterly financial statement, wherein investors learned the company was woefully undercapitalized. The have completed the 2D seismic readings in the massive concession they own off the coast of West Africa, where there is already extensive oil drilling development underway. The company is extremely optimistic about the prospects for major hydrocarbon finds in their concession. If they deliver, the current market cap could end up being a joke vs. the upside potential. The company needs to announce they have the funding in place to complete the seismic studies, and investors will come pouring back into the stock. This stock could see $8 to $10 in 2004 if they can complete the seismic studies in the concession, identify locations for the first test wells, and bring in a major oil company partner. Lots of "ifs", but plenty of upside to make the risk worth the reward. A great speculation at the current $1.50 price level.
• Project Group (OTC BB: PJTG): I kicked this one off on November 22nd at $.17, and the stock has since seen a high of $.28. It is currently trading at about $.21. I believe this one is destined for higher levels and significant growth in 2004. This company will ride the coattails of Microsoft into the fast growing Enterprise Software market. The company has publicly stated it sees revenues in excess of $6 million in 2004, a 275% increase over 2003. Look for new contract signings to provide evidence these numbers have a basis in reality. I believe the stock could eclipse the $.30 level in January or February.

Underachievers With A Positive Outlook for 2004

• Family Room Entertainment (OTC BB: FMLY): Family Room is the only microcap movie production company with real potentially profitable projects in their pipeline. After four years of producing "straight to cable" movies, the company hit its stride with its first theatrical releases in 2003. The stock ramped up dramatically when there was Oscar buzz surrounding gritty cop drama NARC. The stock sold off when the film failed to garner an Oscar nod, and has never recovered. They have enough new movies going into production to nearly double last year's revenues in the first half of 2004, and some potential serious money makers. The mere $4 million market cap on this stock is ridiculous compared to their intrinsic value. This company is like a biotech stock without the high development costs. Sooner or later they will make millions off a hit, and long term shareholders will enjoy a major score. I like this one for $.25 before the end of June.
• Amnis Systems (OTC BB: AMNM): I was right on this one for the first thirty days, but it's been a struggle ever since. I projected $.15 per share on June 3rd from a starting point of $.08. The stock hunted out $.15 on July 11th right on cue. and it's been downhill ever since.  This company has outstanding video streaming technology, and sales have been increasing rapidly. They were mismanaged and nearly closed their doors early in the year. New management is now at the helm. The excessive weight of toxic financings have hurt the stock price badly. Watch for a complete reversal of fortune between now and the end of January. I still believe the turnaround will be completed, and this company will prosper. It's a great speculation under $.03. The story will unfold after the Christmas Holiday.
• Titan General (OTC BB: TTGH): This one was a short term trading alert back on August 26th at $1.20. When it became evident there was a substantial excess supply of stock, far in excess of what I was led to believe, I published an edition setting a $1.20 stop loss for all short term traders. The company fabricates prototype circuit boards for major electronics manufacturers, and revenues are improving nicely. They completed a significant financing with very reasonable terms. Rumor has it the company is doing well, but it is hard to decipher from their recent 10K filing. The first quarter of real operations should be reported by mid January, and we will get a real look at corporate performance then. The stock is probably oversold and due to rebound after investors get a look at hard numbers if they are in line with expectations.
• ActionView (OTC BB: AVWI): This company has developed a revolutionary new point-of-purchase advertising sign technology, and has big plans for the future. I first covered it at $.92 on October 16th. The stock traded up into the $1.20 range in short order, but has since drifted down in conjunction with a general lack of news out of the company. They have test projects going on worldwide with several large chain stores, and early returns suggest these signs effectively drive sales at the point of purchase. The company has a publicly stated goal of 1200 installations by September of next year. If they deliver, they will enjoy a huge recurring revenue stream, and the stock will no doubt trade much higher. Look for the stock to recover in January, especially if they land their first major chain store sale.
• Level III Communications (NASDAQ: LVLT): The premier collocation and IT solutions company in the world. The stock got hot earlier this year when Warren Buffet's Berkshire Hathaway converted its debt to equity. Investors fled the stock when they learned Buffet took his 40% profit and got out. Nevertheless, I believe this company is tops in it's industry, and is a great long term hold. The high debt load is hurting earnings. Growth should return in 2004, and I believe the stock could do very well. Look for them to continue restructuring their debt under more favorable terms.

Problem Children and Miscellaneous

• XML Global Technologies (OTC BB: XMLG): XML Global was a software company which didn't fare well in during the bear market. IT spending collapsed, and so did the stock. The company sold its technology, and is now a corporate entity with cash and securities, no debt, and no business. There is a value play here, as the stock is trading at about $.04, but has about $.08 per share is cash and cash equivalents. This is dead money until they find a new company to roll into the corporate structure. The stock has begun trading up on fairly high volume, suggesting an acquisition could be in the offing. It will be dropped from our scrolling ticker until I have something to report.
• Shep Technologies (OTC BB: STLOF): This company has very exciting technology in the automotive sector. They have developed HLA (hydraulic launch assist) technology which recaptures the kinetic energy lost in braking, and recycles it back to the engine at the point in time when it is most needed - accelerating from a dead stop. The technology has proven to increase brake life, reduce emissions, improve power, and save fuel. Since kicking them off last February, the company has yet to announce a single tangible positive corporate development with a potential customer. Nothing has changed from my original presentation on February 21st at $1.75. I recommended 2.5% of your high risk capital with a two year window in time. I knew it would be a long term idea. I did suggest lightening up when the stock hit $3 in June. Management has not returned my last three phone calls, so I can't give you a fact based update. I have invited them to participate in an audio interview. They probably will when they have something to say. At this time, I would rate it a hold.
• Teco Energy (NYSE: TE): This Tampa based utility and energy supplier was my growth and income idea on March 22nd at $10.95. They had recently lowered their dividend, and I knew the stock was oversold. I suggested a sale at $14.50 for a nice short term gain of 32% plus the dividend. I believe this one will continue to trade sideways for quite some time.
• Lending Tree (NASDAQ: TREE): I published a trading alert on Lending Tree on April 5th at $11.75. The company was subsequently bought out by Barry Diller's USA Interactive at about $23. I made a nice short term score in my own account and I hope you did too. A big win in a very short period of time.
• QT5 (OTC BB: QTFV):I loved the product but have since come to realize the management of this company is inept. They have a smoking replacement beverage called "NICO Water", and its introduction garnered major nationwide publicity. As they began to market their product, they were attacked on all fronts, including a legal struggle over ownership of the formula. If you didn't get stopped out on this one already, take the tax loss in my opinion.
• Barnes & Noble.com (NASDAQ: BNBN): The stock rocketed from my June 14th entry level of $2.08 to a high of $3 in short order as the third Harry Potter book became the fastest selling book in history. In then dropped back to about $2.20, and has since rebounded to $2.70. I don't believe there is much more upside in this stock as the company will go private in a buy out from parent Barnes & Noble at its current price.
• Imaging Technologies (OTC BB: IMTO): I believed this penny stock would be a strong turn around candidate as the company evolved from failed technology business model to a player in the growing PEO (Professional Employee Organization) space. I have since come to believe that management is totally inept. Their SEC filings were extremely late, and they nearly lost their listing. They have announced massive new business wins, but I have no idea how they plan to fulfill the contractual obligations with the infrastructure in disarray. Perhaps they can turn it around, but based on historical performance I believe the outlook is gloomy. If something happens to change my view, I will notify members. This one will also be dropped from the scrolling ticker.

Coming Events

I have lots of great stuff planned for 2004. I believe I have uncovered an exciting undiscovered gem in the biotech sector, and should begin reporting on the company sometime in January.

I definitely missed the boat on junior mining stocks in 2003 as the price of gold rocketed. I have never understood the mining business, so I have been reluctant to report on the sector. 

Rather than start reporting on mining stocks, I am going to introduce everyone to an outstanding resource for junior mining ideas early next month. It will be an online newsletter just like the OTC Journal, entirely devoted to small gold exploration and development companies. I believe the bull market for gold could last another year, and there is a lot more money to be made in this sector.

Your readership and loyalty to the OTC Journal is greatly appreciated. I hope the New Year finds you and your family happy and prosperous.

I have plans to improve on 2003's performance in 2004, and we can all have a lot of fun in the process. Look for my next edition in 2004.

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