To OTC Journal Members: 

Legend Media (LEGE), one of my old followings, appears to be a hot China penny stock that wants to come up off the canvas. Before I get into that news, here's some thoughts on red hot Beacon Enterprises (BEAC)- another giant win for OTC Journal subscribers.
 

Beacon Enterprises (OTC BB: BEAC): I Love It When A Plan Comes Together

This is the way it is supposed to work. You learn about a company with upside. You take the risk of investing in the stock. You have trailing developments (i.e. whopping new contracts), and you take a position after having decided someone might want to buy the stock from you at a higher price in the future.

Then 4 months later- bang- the company delivers the strongest quarter in its history, lands another big contract, buyers overwhelm sellers, and OTC Journal subscribers who liked this idea, and acted early, enjoyed a net return of 63% on their invested capital if they acted when I first introduced the company. I love it when a plan comes together.

So, where to from here? My price target on this stock has been, and continues to be $2 in the near term. Multi year investors might be looking at much higher returns. After the recent run up in the stock price, I would expect some sort of backing and filling. The break through $1.35 takes a lot of upside resistance off the table, and now the stock just needs to wrestle with profit takers as new potential investors start to look at this compelling story.

Last week the company recapped their earlier conference call, stated they expected to deliver about $11 million in Q2 Revs ($1 million more than all of last year), and hired a world class CFO.

Seems to me there's still plenty of upside ahead here. I anticipate more new contract signings as the catalyst for higher levels. If you've taken a short term profit, great. You might want to re invest the capital if it pulls back. If you're looking for something more robust and longer term (long term capital gains- give less of your money to Uncle Sam), this one just might fit the bill.

In a perfect world they would all work this way. Unfortunately, the world's not quite perfect, but every now and then we get to witness perfection.
 

Legend Media: Coming Up Off the Canvas

This is not a new idea for me- It's a reincarnated idea. Sometimes companies simply need to go through some changes to get on track, and I believe Legend Media has morphed into a penny stock with some real upside right now.

It's China, and you know I love China. It's media, and media is exploding in China as growing businesses need to market to the largest emerging consumer class in the history of Planet Earth. The company has dealt with some growth issues, and is meeting the challenges.

Legend Media is in radio, with a slight tweak from a North American business model for radio. We're used to a model where the company owns the radio station, creates the programming, and sells advertising to generate a profit.

In China, most of the radio stations are owned by the Government, and the programming is a bit bland compared to what we're used to. However, as with anything government related, the operators tend towards the minimum effort, and there's no incentive to hustle advertising sales.

Enter LEGE. In a land grab, they have gone into government owned stations, and bought up their advertising inventory for pennies on the dollar. The company then turns around and sells the advertising minutes with very substantial mark ups.

So, as long as they are selling advertising, they might as well add some other outlets. The company also owns the advertising space in many airline magazines. They're on 11 airlines and in 13 airports. 250,000 magazine volumes are published monthly getting to 60 million readers.

In China, the focus has been on flat panel displays and online advertising. Radio has been largely overlooked. Advertisers are starting to gravitate towards radio and airline. The reasoning- simple. There's a small percentage of affluent consumers of the 1.3 billion Chinese.

Advertisers want to focus on their demographic. In China, the demographic is consumers with disposable income. Where are the advertisers going to find these consumers? Common sense- if you're flying in a plane, you're likely to have money. If you're driving a car, you are likely to have money.

Walking past a flat panel display doesn't mean you have money and more than seeing an online ad. The odds are greater you will have spend able money if you are flying in a plane or driving a car. Hence- airline magazines and car radios provide a better demographic.

However, these mediums have been a bit overlooked by advertisers, but the demand is now finally beginning to surface. Radio and airline is simply more cost effective, the first signs of recognition are poking up through the soil.

Evidence of this shift can be found in Legend's news release which just hit the tape. The company announced it landed a radio advertising contract for Agile Property Holdings, and Hong Kong based gigantic property management firm. Legend will be providing advertising time for Agile's Clear Water Bay Project- a coastal resort with 3 18 hole golf courses, 5 star hotels, and a yacht club.

The contract, valued at just over $300k US, is representative of the kind of advertisers looking for a better demographic and more cost effective use of their advertising dollars.

In their last quarterly filing, LEGE started to show signs of a rebirth after several quarters of refocusing. Hence, despite having introduced this company last summer and starting out with a bang, I've been waiting for them to get their house in order to really get engaged.

You should note I haven't written about this company since the end of June, and if you're a trader, it was certainly a nice short term ride. The stock traded huge volume over a couple of days, and ran from $.20 to $.55, only to do a quick round trip as it became evident LEGE needed to get its house in order.

A quick look at the recent quarterly filing for the end of December reveals LEGE has returned to the growth that was expected early on. It's just beginning, which is why I like the stock now. 

The top line for the quarter was $2.76 million, up from $2.65 million the same quarter in '08. That's only about 5% growth, but it's just the beginning. It's a pre profit company, and losses reported at $1 million. However, I can identify at least $750k of the loss that was non-cash, so their burn rate is down to nearly zero.

In addition and probably more importantly, their gross margins improved from 57% to 71%, demonstrating the company has tweaked its business model to make more money off the same revenues. 

The company is currently delivering about $11 million in annual revenues, and the market is valuing the company at $28 million. If the company can start delivering top line growth along with this rather eye opening margin improvement, I would expect continued upside opportunity- perhaps into the $.50 range. Ideally, you want to pay about $.25.

Here is what I hope will be the beginning of a series of news releases on this idea. If you would like to review the video we originally did on the company, just go to www.otcjournal.com and it will play. Jeff Dash, who is featured in the video, is no longer with the company:
 

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