To OTC Journal Members:
 

Year End Wrap Ups in December

Today's edition features one of the stocks I won't be covering in 2005 unless something dramatic changes. I publish these year end reviews so you have the opportunity to lock in a tax loss for 2004 if you choose to go that way.

This stock has been a big loser in 2004. Successful microcap investors recognize that you are going to have losers from time to time. Don't dwell on them and try to figure out what we did wrong. Just accept the fact that this idea did not work out, and hopefully match it against a big winner.
 

Nutech Digital (OTC BB: NTDL)- Dropped From Coverage

Unfortunately for those who chose to participate, NTDL turned out to be one of my worse losing ideas of 2004. This is one of those situations where the stock is doing much worse than the company, but that fact does little to mitigate the pain for shareholders when a stock is trading very near its all time low.

The foundation for the idea was sound. I am a big believer in the future of the digital entertainment revolution. Digital satellite radio stocks have gone crazy in the last several months (SIRI and XMSR). The Seinfeld, Friends, and Sex in the City DVD's are being swallowed up by holiday shoppers. Plasma TV sales are going through the roof. Apple Computer is trading at multi year highs- not from computer sales but from I-Pod sales. 

As the TV series DVD's and the emergence of satellite radio prove, the phrase "Content is King" still applies. You put out digital entertainment that people want, and it will sell.

That's why I felt a small company in the digital content delivery business might put us in position to enjoy substantial gains.

However, as you can readily see from the chart of NTDL throughout the course of 2004, the stock price has been a disaster. On the plus side, the company finally began to execute on its concert DVD series in the 3rd and 4th quarters, and the company is ridiculously undervalued based on its market capitalization vs. corporate performance. NTDL is only trading at a market valuation of $4.4 million. It is on track to deliver somewhere in the $4.5 to $5 million in revenues in 2004. They have always operated in a cash flow positive status, so they are not generating any cash losses.

The negative here has consistently been the enormous excess supply of stock. The company raised capital through a $.40 private placement early in the year. When those share became free trading the investors were ruthless in their sell tactics. They obliterated the stock price, and it has never recovered.

The stock could easily rebound from its oversold condition, but there is one more long term problem looming. In conjunction with the private placement, the company issued 13 million warrants at $.75. Those warrants are held by the same investors that decimated the stock. Therefore, it is safe to assume any move over $.75 would be greeted with massive selling. Unless the stock trades significantly greater volumes than it ever has, there is a ceiling in place that will take some serious force to break through. This will dampen the enthusiasm of new buyers if and when the stock ever works its way back into the $.50 range. If you want to buy it at $.20 to sell it at $.50, someone has to be willing to buy it from you.

Sometimes you just have to throw in the towel and move on. If this stock starts to behave better in 2005 we can always have another look. The stock is probably trading near its all time low as a result of tax selling. Look for a rebound after the first of the year, but I won't be writing any more features on this one until further notice.

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