To OTC Journal Members:
 

The Absence That Makes The Heart Grow Fonder

I know there have been an absence of publications of late. I have been traveling, and only covering the most basic of events. It hasn't been too important to keep everyone abreast of developments as there haven't been many other than watching the slow demise of microcap stock values as there are always a few sellers, and buyers are no where to be found. The combination of the slow summer months, geopolitical headlines, and a declining market always lead it into this environment.

August is now upon us. No more trips are planned. The sell off seems to be waning. The FED is nearing the end of the tightening cycle. Big Pharma stocks are trading great (check out Pfizer- PFE)- this is a precursor to a resurgence in biotech, which is also starting to happen. The SOX index, is looking so washed out there is nowhere to go but up. Earnings are coming in strong. My power bill has gone through the roof thanks to a murderous heat wave (according to our President, there is no such thing as global warming).

My May 21st edition entitled "Don't Say You Weren't Warned" proved prophetic. I warned everyone to sell their stocks at the SSL (suggest stop loss) levels if they weren't prepared to hold through the nasty summer doldrums. We are in the heart of it now. 

Here's another quote from that edition: "I'll be looking for absurdly oversold opportunities in August." A couple of absurdly oversold situations are starting to take shape. 

If you heeded my warning in May, it is time to heed my current thoughts as well. August and September are the best months of the year to go bottom fishing. Over the next couple of weeks I plan to update everyone on all the situations we are currently covering. It is time for the small stocks to start reporting Q2 earnings, and I plan to provide complete updates with each one.

Today we're starting with Commerce Planet (OTC BB: CPNE). The company reported blow away numbers today post close, and the stock is one of the few trading at a new multi month high. I believe Medistem (OTC BB: MDSM) will be featured over the weekend, and US Energy (OTC BB: USEI) should come next week. Don't worry- I haven't forgotten about Bad Toys, Network, or any of the others. All in good time. 

Here's your August kick off- and what a way to get started:
 

Commerce Planet (OTC BB: CPNE); Profits Goes Into Orbit

Commerce Planet released Q2 earnings after the close- one word comes to mind: Breathtaking. Outstanding performance. If you think ecommerce companies that deliver the goods don't get noticed by investors, just check out today's action in Blue Nile (NASDAQ: NILE). It's an online jeweler that reported blow away earnings- stock was up 32% today on their quarterly numbers.

CPNE also delivered the goods in a major way today. Here's a recap:

• Revenues rose to $7,086,818 from $1,258,616 for the quarter ended June 30, 2005, a 460% increase. 
• Profits rose to $1,460,117 from a net loss of ($1,986,382) for the quarter ended June 30, 2005.
• The company also announced it has paid down $2.2 million of its long term debt this year directly out of cash flow. Since CPNE started the year with about $3 million in long term debt, we can assume there is about $800k remaining. The balance sheet is firming rapidly. With all the cash this company is generating, they should be able to pay off the debt in short order.

Let's look at earnings: the $1.5 million in profits translates to about $.035 per share in earnings. Assuming no growth- this would equate to $.14 per share over the next for quarters. $.14 at $.70 equates to a PE Ratio of 5- with a 400% growth rate; very undervalued as well.

This is a very impressive and breathtaking turn around after floundering in 2005. Investors with patience in this one are being rewarded after a tough year. As of the market close on Wednesday, the stock was trading at the highest level it had seen since November of 2005.

Here's a look at the chart. Let's take a little longer term look- going back a year:

In my view, the tide turned for this stock back in late May with the huge volume surge you see circled. It traded about 4 million shares back on that day. That was the inflection point- the turning point at which investors started to understand this company was growing rapidly and turning very profitable.

I also believe there is another very interesting aspect to this chart. Note the blue horizontal line I have drawn across the chart. Today's closing price for CPNE was $.66. This corresponds almost exactly with the level the stock was at when it completely collapsed last November. 

By eclipsing its former capitulation level, the rebound is confirmed and well underway. If you are wondering whether the stock has moved up too far too fast, just look at the left side of the chart. That gives you an idea where it could go. Also- consider that the stock is only trading at a PE of 5 and about one times annual revenues. Lot's of upside remains, particularly if profits continue to grow.

I have not had an opportunity to go through the 10Q filing yet, but will this evening. Tomorrow I will share some observations about what I glean from the 10Q and how the stock is trading in a BLOG I plan to publish sometime between 30 and 45 minutes into the trading day.

In the meantime, here is today's press release for your review:
 

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