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Getting Spicy

August is setting up to be a far better month for the microcap world, and especially our little menu of ideas. There was huge news today on this year's weirdest idea. This one was the stock that wouldn't trade. In 23 years of trading stocks, I'd never seen what happened back on May 12th.

The enigma known as Midas Medici was the first stock I have ever seen where there was demand to buy, and no one would sell a single share. Fortunately I coached everyone to stay away from market orders as you might have paid $20 for a stock you can probably now pick up for $1.50.

There do seem to be a few shares around one can accumulate at this point in time, but the stock has not begun to trade in earnest- yet.

However, yesterdays's monster acquisition which, according to their press release, adds the $84 million in revenues their acquisition achieved in 2010 with its 200 employees in one of the hottest markets on Planet Earth. More below......

In other news, new idea Auri Shoes (OTC BB: AURI) was a little stingy on the profit side in the first week of coverage. Since the featured price of $.60 for Monday's trading, the stock has made a high of $.70 for a net return at the high of 16.6%. The stock is now $.67, and my price target of $1 holds.

While this is nothing too terribly exciting so far, it's only been a couple of days, and some of these ideas have a history of taking a week or two to really get rolling.

I absolutely love AURI, and plan to visit the company in the next two weeks. If for no other reason, I'll be looking for some new shoes. 

Midas Medici (OTC BB: MMED)

If you take the time to read my May 11 edition on completely unknown MMED, you will note I described this company as the value of a lifetime, but also one of the weirdest and most under followed stocks I've ever run into.

I suggested only trading it with a limit order, and only if you were planning to be longer term. Volumeless stocks are simply not good candidates for trading. You have to take your position and wait for the stock to be discovered.

This company was originally financed by a boutique Wall Street brokerage first at $5 per share. Only $1.5 million was raised.

As of this week, MMED was delivering at least $30 million in annual revenues, and there were only 7.5 million shares I&O- I've never seen a cap structure quite this stingy.

Yesterday, after the market closed MMED made a blockbuster announced when it disclosed it had acquired Brazilian IT firm CIMCORP. According to the press release, CIMCORP boasts 200 employees and delivered $84 million in revenues in 2010.

The company operates in Brazil and Latin America. As the press release notes, Brazil not only gets the World Cup in 2014, but it also gets the Olympics in 2016.

The combined companies acquired by Midas now equate to somewhere in the range of $120 to $130 million in annual revenues.

There was some interesting components to this particular transaction. The first closing happens this month. You have to read the SEC filings to get how this works, but you have me to do that.

MMED is buying the first 60% of the company for 9 Million Brazilian Rias and 1.3 million shares of stock in MMED. That equates to about $12 million US dollars, which begs the question where will MMED get the money?

Last quarter, MMED had about $11 million in cash and receivables. If they invested it all, it would wipe out their cash position, so I'm sure there will be some subsequent news on how they plan to finance the transaction, especially with it closing in the next week.

MMED will also pony up 1.3 million shares of stock to complete the transaction. There will still be less than 10 million shares I&O- an absurdly cheap cap structure.

Now- here's the really interesting part of this transaction. MMED has a clause in the agreement that states the stock must be over $4.50 per share six months from now, or they have to give the former shareholders of CIMCORP additional shares.

Clearly, the management of MMED has some plans to increase the price, volume, and exposure of their stock, which is all they need.

As I write today's edition, there have been a few shares traded in this stock in the $1.50 range. Consider at that price, investors are only paying about a $15 million valuation for a company likely to be delivering $130 million plus in annual revenues.

That valuation makes the word ridiculous seem ridiculous. I can't even describe how absurd it is.

I want to provide a lot more information on this transaction. After all- it's $84 million- it's Brazil- it's the next World Cup and the next Olympics. It's important.

This is a great quiet idea for mid summer. If you're the type of investor who likes to fish early in the most popular spot in the stream, you have to get there before everyone else does.

This stock will find some very serious fans before too long.

Anything under $2 is an absolute steal, but not for traders.

More soon.

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