Email : info@otcjournal.com
URL : http://www.otcjournal.com
To
OTC Journal Members:
It's been an exciting week with several
of the OTC Journal's featured companies trading extremely well on
great corporate news and the FED's 1/2 point interest rate cut propelling
the market higher. Analysts are talking about the Bull Market coming
back, pointing out the carnage in the NASDAQ happened before we
knew about the many earnings disappointments, layoffs, and announcements
concerning bleak future prospects in the technology sector. Therefore,
stocks should come back strongly before we know about an improving business
environment. Markets trade based on perception of where companies will
be six months out, and the old adages "Don't Fight the FED"
and "The Market Climbs a Wall of Worry" are back in vogue
on Wall Street.
This weekend's edition contains very
interesting stories on two of the stocks we follow. The struggle for control
of NetSol International (NASDAQ: NTWK) heated up this week, and
MedGrup (OTC BB: CODX) appears to be positioned for a spectacular
year.
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NetSol
International (NASDAQ: NTWK) |
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Long term members know this stock
was a huge winner for the OTC Journal. We implemented coverage in
January of 1999 at $3.88, and we have since seen a high of $75
(1835% return) achieved in March of 2000. The testimonial
section found on the home page of our web site contains endorsements
from numerous members who profited greatly. One member was able to purchase
the new BMW she always dreamed from her profits in NetSol.
In recent editions we have reported
news concerning the struggle for control of the company. A group of shareholders
dissatisfied with management is in the process of attempting a hostile
takeover of the Board of Directors in order to move the company in a new
direction. Here is an excerpt from an SEC filing this week:
| The Group is not satisfied
with the existing management or Board of the Company. It believes that
the losses announced by the Company on May 14 and May 15, 2001, demonstrate
that the Company is not maximizing the value of its assets, and has not
adequately pursued market opportunities. The Group believes that the decline
in the Company's stock price from $75.00 per share in March 2000 to the
current price of under $5.00 per share demonstrates that the investment
community lacks confidence in both the Company and its management. The
Group believes that it is in the best interest of all of the Stockholders
to increase the size of the Board and to add the Nominees as the New Directors,
who are committed to maximizing the share price and forging a clear direction
for the Company. ACCORDINGLY, THE GROUP IS SOLICITING PROXIES AND CONSENTS
IN FAVOR OF AMENDING THE COMPANY'S BYLAWS SO AS TO INCREASE THE SIZE OF
THE BOARD OF DIRECTORS FROM EIGHT (8) DIRECTORS TO FIFTEEN (15) DIRECTORS
AND TO ELECT THE NEW DIRECTORS PROPOSED BY THE GROUP. |
The editors of the OTC Journal
believe existing management will be ousted within two weeks, and the new
group has exciting plans in place for the company.
There are rumors in chat rooms all
over the Internet speculating on a potential short squeeze in this stock.
Approximately 4 million shares are in the public float. Recent SEC filings
indicate approximately 3 million are held by one fund manager and two individuals.
The reported short position is 600,000 shares, but additional rumors speculate
the unreported illegal short position could be as high as 2 million shares.
The company's corporate performance make it a good candidate for short
sellers.
Short sellers have been unable to
close out their positions as the publicly traded stock is tightly held.
Keep this one on your radar screen- Events unfolding over
the next several weeks could propel this stock much higher.
In the interest of full disclosure
we inform you one of our editors owns 2500 shares of NetSol International
at $1.325. This should be viewed as a potential conflict of interest.
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MedGrup (OTC
BB: CODX) Reports 1st Quarter Results |
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In the microcap arena MedGrup
is one of our primary choices. Prior to the recent bear market we felt
the stock was worth $6 per share based on growth rate and profitability.
Even in this environment of stingy values we still feel the stock is worth
$4 per share today. Having closed at 2.45 on Friday, investors
at these levels would enjoy a 57% return on invested capital if we prove
to be right.
MedGrup is
a unique market niche company and a leader in their field. MedGrup
provides outsourced Coding services to hospitals and clinics. There is
a chart created for every patient that gets health care regardless of whether
the services are at a hospital, clinic, or doctor's office.
After any health care services are
rendered the patient's chart ends up in the hands of a professional "CODER"
who assigns a specific code associated with the treatment. The Code is
the basis for reimbursement from Medicare, Medicaid, or the Insurance Provider.
A practice referred to as UpCoding
has been the source of hundreds of fines and prosecutions levied on health
care providers by the HFCA. The fines have been so extensive and
painful to the health care providers that the practice of DownCoding is
now commonplace in order to avoid any hint impropriety. MedGrup
provides impartial third party coding, thereby mitigating some of the liability
health care providers face and enhancing their revenues.
MedGrup has been profitable since
1997 and has doubled in size every year since it opened it doors.
Year 2000 revenues were $3.9 million, and their 100% annual growth rate
could accelerate in 2001. They recently brought in new management, new
infrastructure, and new technology.
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BlockBuster
Year on the Horizon |
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MedGrup announced its 1st
Quarter financial results this past Wednesday. Sales were up 36% over the
same quarter in 2000 ($1.2 million) and earnings were up 6.8% ($166,362).
On Thursday we had the opportunity
to speak directly with Terry Holmes, the President of MedGrup. Based
on the conversation we believe MedGrup's sales and earnings will
accelerate rapidly in the 2nd half of the year, and investors with patience
should be rewarded with outstanding stock performance.
In the last two months MedGrup
has hired and is now training 25 new Coders to meet demand
for services. They have begun to implement the largest contracts in the
company's history. The contract with two facilities operated by Memorial
Hermann in Houston is nearly three times as large as any previous individual
contract.
Each Coder will generate an average
of $162,500 in revenues for the company annually. Therefore, 25 full time
Coders translates to over $4 million in annual sales. In 2000, MedGrup
experienced $3.9 million for the entire year. These 25 Coders
represent the opportunity to double in size.
The company is also experiencing
increasing business from existing customers. The horrifying flu epidemic
of this past winter brought in hundreds of charts from emergency rooms.
Mr. Holmes
informs the OTC Journal of the following goals for MedGrup
over the remainder of the year:
-
Continue on-going debt reduction to
strengthen balance sheet.
-
Build up cash reserves.
-
Fund the current infrastructure build
out to service the highest growth rate in the company's history out of
current cash flow.
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Conclusion |
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This stock has a small but loyal
following. It is a niche company with little competition. We believe they
are the best at what they do. The use of outsourcing services by large
companies is a mega trend which will continue.
The company has doubled in size every
year for the last three, and continues to maintain profitability while
funding the growth internally. In the second half of the year corporate
performance should be outstanding. Put this one in the "Forget About
It" portion of your portfolio and revisit when and if it gets above
$4. Also, look for a stronger flow of corporate news over the next several
months.
Caution: MedGrup
is a very thinly traded stock and subject to volatile swings on high volume
days. If you are considering opening a new position in this stock, or adding
to an existing one, please review the section on Trading Strategies in
the Rules for Successful
MicroCap Investing Section found on the left hand menu bar at www.otcjournal.com.
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