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How Do You Spell
Reversal? US Energy (OTC BB: USEI) |
|
It's a similar headline to yesterday's
BLOG
on US Energy, but a little different. Investing in microcap stocks
can be frustrating. There are tough markets, out of favor groups, and companies
that simply don't deliver the goods. However, stocks like
USEI create
the highest level of frustration imaginable- why? because the company is
knocking the cover off the ball while the stock is getting killed. There's
no nice way to say it. It just doesn't make any sense.
Here's a quote from my last BLOG
entry
on this stock (9/13). This was published a couple days after the stock
traded so poorly on the heels of the announcement of a $54 million contract
over 5 years:
| “Here's what I can tell you with
certainty. This stock will begin to trade well when you least expect it.
When the frustration reaches maximum threshold- when you don't believe
the stock can ever go up- when you see several other stocks trading much
better and wishing you had your capital elsewhere- you will sell out of
frustration, and it will be much higher one week later.
You see this time and time again
in the microcap sector. Investors who have been disappointed in a situation
over time sell their shares the moment they see daylight. The stock is
providing them an exit strategy because the company is finally performing.
They sell, and before they know it, the stock turns around and rockets
to much higher levels.” |
In that same BLOG I suggested
the stock should be accumulated under $.20- for long term investors only.
Because of what felt like an unlimited supply of stock at that time made
USEI
a poor candidate for a swing trade.
I'm changing my view. Today, right
now, I believe USEI is perfectly positioned for a rebound. The market
always over reacts and overdoes it to either the upside or the downside.
USEI
is way oversold, and I believe both swing traders and long term investors
should get very aggressive at these levels ($.12 to $.15).
Like recent ideas PHCHF, NIHK,
and CPNE, USEI is, in my view, going to rebound at
least 30% in the near term- anywhere from a few days to a month. From this
level, it could easily be more in the range of a 50% short term return-
much greater for long term investors. Now is the time for traders and investors
of all kinds to pile into this stock- I'm calling it- right now.
Sometimes it can be helpful to go
back and review what it is we liked about the company in the first place.
This image contains pictures of vehicles that have been converted using
USEI's
hybrid technology. They all burn a combination of regular gas and natural
gas, which gives provides significant fuel cost savings and much lower
emissions with no loss of power.
This year alone, the company has
announced numerous small domestic contracts: NY State has a conversion
program, General Motors has adopted their technology for pick up trucks
in the Far East, and a $54 million contract to convert 10,000 buses
in Thailand over the next 5 years beginning in 2007 was inked.
The one ton GM Colorado pick up truck
you see pictured in the middle of the frame is going to be shown at an
exposition in Thailand in November. The US Energy technology will
be offered for this truck through 85 dealers in Thailand. Customers will
be able to order the dual fuel capability as an option.
I am firmly convinced US Energy
will begin a period of accelerating revenue growth in Q4 of this year,
and it will continue for a period of several years at least. If the bus
conversions roll out according to schedule, the company will turn profitable
in '07.
So, with all these outstanding corporate
events, why is the stock such a mess? I believe a number of factors have
greatly impacted the stock all at the same time, which has created a cascade
effect.
-
First- The stock traded so poorly on
the $54 million announcement that it spooked a lot of investors. As I stated
in the 9/13 BLOG entry- despite moving up as beautifully as it did in the
early going that morning and trading huge volume, the stock actually closed
lower than it opened- that was a major technical negative.
-
Second- There have been many filings
from old shareholders to sell their stock- these shares were issued more
than 2 years ago- this means they file under 144k- you don't see these
filings. These old shareholders predate the current management, and have
been consistent sellers.
-
Third- They have engaged in a convertible
debt financing. However, the debt holder doesn't appear to be a very aggressive
seller.
-
Fourth- The company recently filed a
proxy statement with the SEC. They are requesting shareholder approval
to reverse split their stock. This is generally viewed as a negative by
microcap investors, but in this case I believe it could end up being very
positive for investors. The company is ready to be looked at by another
level of investor.
-
Fifth- The company currently has 132
million shares I&O, a Preferred A which converts into 222,000 shares
of common stock, and a Preferred B which converts into 2.1 million shares
of common stock. These legacy preferred holders recently put in for conversion
to common stock- which has created an excess supply to further hurt the
market.
All of these factors taken individually
are not enough to do the damage that has been done to this stock. However,
taken as a whole working against the stock price, they have resulted in
the major damage the stock has suffered over the last month.
Today, the company put out an update
and investors took heart. They realized the story is just too good for
the stock to continue to trade so poorly. Today was capitulation and reversal
day. Today was the day the bottom was put in, and all the sellers were
cleaned out.
It's a reversal of what happened
in early September when USEI made its big announcement. On that
day the stock opened a little higher, gained momentum during the trading
day, reached a peak of about $.25, and then turned around and closed lower
than where it opened.
Today, the stock started down as
the selling continued, reversed course mid day as the sellers became exhausted,
and ended closing higher than where it opened - the opposite of the big
day in September.
I believe the market has been absorbing
the shares from the Preferred conversion for the last week. It was over
2 million shares. Why investors would convert at this point in the company's
history I have no idea. Maybe they need the money for some other project.
I believe we are now at a major technical
reversal point for this stock, and now is the time for both traders and
long term investors to back up the trailer and load up. Technically, the
tide turned today. At the current level, you are picking up the stock at
a $19 million market valuation. The company could easily achieve that number
in revenues in 2007 and turn profitable.
USEI put out a news release
this AM highlighting the company's recent achievements. You can read it
by clicking
here. You might want to review the current state of this company.
For traders: Set your SSL at $.115.
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