Email : info@otcjournal.com
URL : http://www.otcjournal.com
To
OTC Journal Members:
Volume- Volume is thinner
than Ally McBeal. This is a metaphor we have used in the past to
describe listless market conditions. Right now stocks are drifting as if
we were already in the heart of the summer doldrums. Mid and large cap
NASDAQ stocks are drifting up as sellers are scarce. Money managers
are afraid to be out when we start to see the first signs of an economic
turn around.
Microcap stocks are drifting down
as a small percentage of retail investors lose patience when their stocks
are not moving. This is the typical small investor mentality- buy when
there's news, the stock is moving up, and there's lots of volume- another
words- buy at the top. Sell at the bottom when nothing is happening. Experienced
investors know this environment is ideal for accumulating to position for
superior returns.
There was little economic data to
move the markets this week. Friday was the lightest volume day of the year,
spurred on by a technology failure at the NYSE which shut down 40% of stocks
for several hours. Nobody cared with the exception of the media because
it gave them something to report. It was 80 degrees and beautiful in New
York. The pros were off to the Hamptons for the weekend by mid morning.
This is the calm before the storm.
The eye of the hurricane. This is an aberration. We've all become conditioned
for volatility, and it will be back. The market is setting up for a big
move in one direction or another. Most likely down, as we are entering
the heart of "Earnings Pre-Warning Season", which was kicked off
yesterday by Juniper Networks (NASDAQ: JNPR), down 8.5% on a warning.
It took the whole networking sector down with it.
Don't expect the inevitable drop
on the NASDAQ to be more than two to four hundred points. Money managers
are waiting in the wings to pounce on bargains. They're betting the economy
will turn back up in the fourth quarter, and stocks will turn up as earnings
visibility returns.
Why shouldn't the economy turn back
up later this year? It took the Fed twelve interest rate increases to cool
off the sizzling economy of the 90s. The economic downturn didn't start
until six months after the last increase. We have now had five interest
rate decreases, but they're coming in 1/2 point increments which should
accelerate the process.
Conclusion- Accumulate now for the
fall. We are setting up to return to economic prosperity. Valuations are
reasonable and entry points are low risk.
We are working on a number of new
ideas. They will all have a common theme- dramatic increases in revenues
and earnings with no corresponding increase in stock price. We want our
members in ahead of the crowd. Be positioned for the next leg up.
Here is a quick review of the current
state of our four featured companies for Year 2001 in the order we originally
introduced them. Read our thoughts, and then determine if anything looks
good to you. Now is a great time to hunt for bargains:
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Envoy
Communications Group, Inc (NASDAQ: ECGI) |
|
Envoy continues to execute
its business plan flawlessly. This fiscal year (end of September) the company
should enjoy about $90 million (CDN) in revenues with $16 million
in pre-tax, cash profits. This is up from $57 million in fiscal 2000.
Net, actual cash profits in US dollars should be about $5 to $6 million
for fiscal 2001, or about $.25 per share. Non cash (depreciation and amortization)
expenses will be gone over the next two quarters. Therefore the company's
EPS will actually begin to be reflected in their financial statements.
The chart tells us the stock does
not want to trade below $2 in the worst of times, and it is currently
trading at its mid range support level. There is resistance at $2.80.
If broken, the next test for this stock would be the $3.20 range.
We are looking for an eventual return
to the former high of $10. The stock is clearly worth $5
today in our opinion. However, as the company is involved in the advertising
business, a positive perception of that group has to return for a meaningful
move in the stock. There is virtually no Wall Street following on this
company, and this is something management needs to correct.
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MedGrup
(OTC BB: CODX) |
 |
MedGrup is a unique market
niche company that is prospering as management of the health care industry
moves towards outsourcing to control costs. The company provides medical
chart coding for many hospitals.
MedGrup is on track to enjoy
$7
to $8 million in revenues in 2001, up from $4 million in 2000.
March quarter numbers were lackluster as the company was investing a lot
of capital on infrastructure to handle major new contracts. MedGrup
has demonstrated consistent profits and growth over the last three years.
The MACD indicator depicted below
the price chart indicates a high probability the stock will turn up in
the near future. We believe this stock could eventually trade at $6 if
management stays the course. It is virtually unknown with the exception
of OTC Journal members, but that should change in the future.
|
Energy
Power Systems, LTD (OTC BB: EYPSF) |
|
This stock is our microcap idea
in the energy sector which is experiencing a cyclical bonanza. Based on
a formula of price time book value, the stock would not be fully valued
until it reaches the $4.50 to $5.00 range.
The company is vertically integrating,
and focusing its expansion plans on cash flow producing properties and
its division which provides build out services in the oil rich Atlantic
Canada region.
Revenues are beginning to flow in
from Natural Gas Producing Properties, and their construction division
is gearing up for about $5.5 million in new contracts.
A quick look at this chart reveals
a no-brainer entry point. The stock is right at its support level, indicating
a perfect entry level. The company recently applied for a listing on the
American
Stock Exchange, and once granted there will be much greater visibility
to the investment community.
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XML
Global Technologies (OTC BB: XMLG) |
|
This is our riskiest, but possibly
our most exciting idea for the speculative end of your portfolio. XML
programming
language is in the news everywhere. Microsoft, Sun Microsystems, and Oracle
all are gearing up for this new standard.
XML Global has developed tools
for programmers, and commercial sales are just beginning. As depicted in
the chart, the stock got clobbered in the latter part of 2000, and is now
trying to struggle back up as the company makes positive announcements.
The chart tells us a low risk entry
point for this stock is the lower trading channel support line, which is
just under $.90. A high volume break above $1.20 would be very bullish.
If you like young software companies, this is one you should have in the
speculative end of your portfolio.
The stock tends to run up above $1
on good news, and then drift back down into the mid $.80 range. One of
these days the stock will run up above $1 and not come back down. We don't
believe the stock will ever see its low again unless the company fails.
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Special
Edition Monday and Other Coming Events |
|
We are publishing a special edition
on Monday which will cover fascinating developments at NetSol International
(NASDAQ: NTWK). We have reported on this stock a number of times, and
Monday's special edition will cover the anatomy of a hostile takeover.
You don't see this very often, and it will be exciting to learn how this
plays out in the stock price.
Wednesday will probably bring our
next Trading Alert. It should be a much more exciting week upcoming.
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