HyperDynamics- Back To Where We Were and Looking Good

The big news came out Friday post close, and I’m very pleased to see the company is now positioned to move forward with the Guinea Concession.

When you think about it, all that has happened is that we are right back where we were about 6 months ago when the company announced it had been denied the permits to drill. The application was declined, and that’s when this saga began.

According to HDY’s press release, the new arrangement to begin drilling in the concession has been signed, and HDY is now free to begin the process under the new agreement. We haven’t seen the terms of the new agreement, and the company has promised disclosure through an 8K.

I am also informed by a third party close to the company that the agreement still needs to be ratified by their version of Parliament, and once it is law it cannot be changed even if there is a change in control of the government.

Several readers were quick to point out that I have been “wrong” about this situation. I beg to differ. In fact, I have been saying that I would rather be out waiting for the new deal to get signed. Once it did get signed, I knew I would have to pay more for the stock, but I was prepared to take the risk. If they couldn’t work it out, I wouldn’t be at risk. What’s wrong about that position?
It appears to have been worked out, and now it’s time to think about getting back in. I would image those that had the faith to stay in are a little disappointed in the price performance. It closed at $2.40 on Friday, made a high today of $3.20, and closed today at $2.80. That’s only a net gain of $.40 since Friday’s close, and about $1 off the recent lows.

I was asked a far more interesting question from another subscriber. This gentleman wanted to know where I thought it could go, and how long it might take.

I am not expert on offshore oil development, but common sense allows me to make some rational projections. I believe it will take some time to actually drill a well. All the drilling rigs in West Africa are in use, and they can’t just snap their fingers and get one to the site. There will be plenty of downtime and listless trading in this stock in the future. That will be the time to buy.

Where do I think it could go?- If there are 1 billion barrells of oil under the ocean’s floor in the concession, it could eventually go to $100, and anywhere in between.

I don’t feel the market will really embrace this situation until they prove the oil is there, which may take some time.

In the interim, the terms of the deal could be great, which would help the stock. They could still land a deep pockets drilling partner, which I believe would help the stock. They could also sell the rights to part of the concession if it is allowed under the terms of the new Agreement. Any of these events might keep the stock rolling.

Here’s the chart:

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As you can see, the stock tried to jump up to the level from which it had the big decline last April.

However, in my view, things have changed. I could be wrong, but I believe that when we see the September quarterly filing, we will learn their current financier has converted lots of shares and sold them into the market. You can assume their number of I&O shares will go up, and their debt levels will go down.

Since I don’t own the stock now, I am pleased the financier is in the stock- it gives me a chance to accumulate it at a reasonable price.

I don’t recommend this stock for short term investors. If you have a one to two year time horizon, it could be great. I believe it will take that long to prove there is oil under that ocean floor. In addition, the energy sector is falling apart. The 3 year run in commodity stocks is over.

This is now a great speculation for the long term. I no doubt will own some. Once they close in on drilling, it should help the stock immensely.

Comments and questions are welcome.

CPNE Retracement- Entry Level Perfect Short Term

I’ve been watching the small pullback in shares of CPNE of late, and technically the stock just couldn’t look much better.

For those of you who follow my technical analysis, you know I like both trend lines and 61.8% Fibonacci Retracements. Technical analysis is far from perfect. It should be viewed as simply an indicator to tip the odds in your favor.

First, decide if you like the company, the story, and the stock. Next, use a little bit of technical analysis to decide on entry and exit points.

Those of you who are following the situation know I am convinced CPNE is going to $2 in pretty short order. If you believe as well, you should be accumulating unless you feel you already own as much as you want.

The stock has been on a tear of late. It was at about $1 mid month. It hit the $1.40 mark last week, and has since taken a well deserved breather.

Here’s the current chart:

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Here’s what I like about the chart. I’ve drawn an uptrend line going back to when the stock starting trading back up in the Spring. In addition, I’ve put in the 61.8% retracement level for the move over the past two weeks.

Note that the 61.8% retracement level and the trend line come in almost at the same level (about $1.20). These are called “nodes”- prices where several technical indicators converge.

The stock bounced nicely off the $1.20 level today, and confims this was an excellent pull back to take advantage of. It also confirms the stock is still in an uptrend until further notice. If you are looking to add to or open a new position, now is the time.

Comments and questions are welcome.

HDY Takes Baby Step- Looks Promising

Hyperdynamics was out this AM with the first update in months on the progress of their negotiations for the right to drill in the Guinea Concession, and the news has put some legs under the stock for the first time in a while.

In short, HDY disclosed today that the minister of mines of the Republic of Guinea feels the arrangement is completed, and the process of getting it approved can now begin.

As I understand it, this could be a lengthy process or brief- my guess would be lengthy. After all, you are dealing with a third world African government- the beuracracy has to be a bit stiffling.

Nevertheless, the fact that progress is being made is a positive sign, and I now feel as if this stock might be worth the risk to own.

Of course, there are a couple of major negatives. The supply side on this stock as it relates to the $6 million financing helps defray any urgency. Here’s the chart from today about 1 hour before the close:

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The huge surge on volume is not holding very well. This is likely because the financier is dumping stock as fast as they can print it. We won’t be able to tell how much was converted until the calender Q3 10Q is filed.

I looked back at the last couple of million share plus days. On March 10th the stock traded over a million shares and ran from $2.10 to $2.80 and closed near the high end of its range. Today, it ran from $1.69 to $2.70 and is now below $2.20. Clearly, the surge brought major sellers out of the closet.

Secondly, today’s news gives us no indication of how long this process will take. I believe there are at least four steps at different levels of government, including a vote by the National Assembly. On the surface, this would appear to be a lengthy process.

In light of today’s news, I believe this stock is worth a few speculative dollars. I will not be a buyer right now. I believe I will wait for the volume to quiet down and the stock to trade a bit lower. The excitement will probably be over for a while.

A little patience may pay off here. Comments and questions are welcome.

CPNE- Busts Major Technical Level

Shares of CPNE look just fantastic today. The stock eclipsed a major technical level, and my guess is higher levels are just a matter of time.

Let’s get right to the chart so you can see what I am seeing:

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We have to go all the way back to the June of ’05 when the stock collapsed. This was the first big move down as the market started to realize some of their 2005 programs were not working.

The stock craters from about $2 all the way to about $1.20 in a matter of a few days during July of ’05.

Today, a full 14 months later, CPNE has finally broken back above the level where it settled out at the first phase of the stock’s demise.

This is extremely bullish, and provides evidence to bolster my belief that the company is going to deliver absolutely block buster earnings in Q3- they will probably come out around Nov 1.

The stock can now start eating into the levels it precipitously fell through during the fateful summer of ’05.

Climbing into this area where no one wanted to own shares before is very bullish. There are never any guaranttees in the stock market, but I would be this stock is certainly headed back to $2, it’s previous all time high. Why shouldn’t it? – they have paid off all their debt and the company is generating tons of cash. The company is in the best shape it has ever been. Leadership is changing from resource back to technology. Unless the numbers turn back, there is no reason why this stock shouldn’t make a new all time high this year.

Comments and questions are welcome. Your comment won’t appear on the site when you submit. It will take a day for me to respond.

Advanced Cell Could Generate Revenues Sooner Than Later

News was out on ACTC yesterday post close, and the market doesn’t quite no what to make of it.

ACTC announced it had come to an agreement in principle with WiCell- a subsidiary of the University of Wisconsin’s alumni research foundation.

The WiCell Research Institute is the national stem cell bank for the fetal stem cell line which President Bush so generously allowed to continue to exist when he set his precedent for federal funding of stem cell research back in 2001. I believe there were 11 fetal stem cell lines in existence at that time.

The press release states the following: “Provided that the federal government is willing to fund future human embryonic stem cell research where it can be demonstrated that the embryo was not harmed, we will do our part in scaling up many new lines under Good Manufacturing Processes (GMP) guidelines and making such lines available,” stated William M. Caldwell, IV., Chief Executive Officer of Advanced Cell Technology.”

Of course, there’s the rub. That statement is interesting. The company is saying it will work towards proving out that their technique for creating fetal stem cells falls under President Bush’s guidelines. If interpreted verbatim, it means the company needs to deliver a study showing it can remove one cell from an eight cell entity, and that cell can become an egg from which a healthy baby can be born.

Even if they prove this to be true there will be ultra conservative detractors who believe that removal of that one cell alters life.

If ACTC can demonstrate it has the technology, the door will open. They announced today they have teamed up with the stem cell bank that all researchers currently use for fetal stem cells.

If they can jump through this hoop, they could be generating very significant revenues from selling fetal stem cell lines to other research bodies long before any therapies are available to US citizens.

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What strikes me about this chart is the volume decline. Albeit off a huge number, the volume has been quieting down significantly over the last two weeks.

What does this mean to investors?- it means the stock has finally found a level it likes, and you can now accumulate the stock without worrying about the downside.
Accumulate while it is quiet. That’s the key to being a good microcap investor. Wait for the next event to push the stock higher. That’s the key.

Comments and questions are welcome. Remember, your comments won’t show up until I respond.

US Energy Flops- Stock Swimming In Supply

Revised 9/14
I was optimistic after reading the revelation this weekend out of USEI. Frankly, it doesn’t get any better for a microcap situation. A company with a revolutionary new fuel saving technology and annual revenues in the $1 million range inks a $54 million contract to have their technology installed on 50,000 buses in the Far East. This is a microcap investors dream. Those who took the risk and bought before they inked the contract should be seeing green on the screen.

However, investors were treated to a disappointment as massive as the size of the contract- an absolutely pathetic showing by the stock on the highest volume day in the stock’s history. The stock actually closed a penny lower than the opening price- technically this is atrocious. It suggests lower levels are imminent.

I’m sure many of you are wondering how this is possible. How could the company deliver such huge news and the stock end up lower? The answer is rooted in the company’s history.

If you read USEI’s bio, you will note the company was formed in 1996. It’s 10 years old. According to the SEC filings, the company has burned through $20 million in funding over that time period, and to this date still carries about $5.5 million in debt. There is negative shareholders equity of nearly $2 million.

Shareholders are now paying the piper for the survival of the company over the past failed years. Companies do what they have to do to keep the doors open. The float of USEI is clearly polluted with cheap stock, no doubt issued at deep discounts to the current market value. If you look through the SEC filings, you will see numerous registration statements, and several classes of preferred stock which no doubt have a conversion feature with a discount to the market. One year ago there were 83 million shares I&O- today there are 123 million, and I’ll bet that number will climb.

Monday’s trading action in the stock was pathetic. I was very encouraged in the early going as the stock did not have a huge gap at the open. It only opened 10% higher than Friday’s close, then started trading up for the first hour. It made a high of $.26 about an hour into the trading day, then simply started cratering.

Here’s the way I see it. I can’t identify who the sellers are in this stock, but I can tell you they are selling “stupid”. They sabotaged their own value with their greed. Once the stock started down, instead of curtailing their selling they no doubt kept hitting the bids. As the stock started to collapse, traders with a short term outlook who had probably bought that day began to sell as well. This created momentum to the downside, and resulted in a terrible close. With a lighter hand, they could probably all be selling a few shares every day at $.28 right now, instead of a lot of shares in one day.

With the damage done, where to from here? Let’s look at the positive side of the equation- the numbers. The company has formally provided a forecast of $1.6 million in revs in Q4. This equates to annual revs of $6.4 million. Looking out to 2007, based on announced contracts, I would expect no less than $17 million with no further new sales. I am assuming the 5 year contract for 50,000 buses is divided up equally. It should equate to $10.4 million per year in high margin business plus the current $6.4 million.

This will also equate to a 750% top line growth rate. With their margins, the company should be able to generate gross profits of $8.5 million, which should translate into at least $2 million in positive cash flow in 2007. Companies with this kind of growth rate and black ink can easily trade at a very conservative 5 times sales- $87.5 million market value. Assuming the company finds its way to 150 million I&O by then, you are looking at a minumum $.60 stock.

10 times sales could also be a reasonable target if the stock can get some momentum and the company delivers more contracts. Therefore, a reasonable 2007 target price is somewhere in the $.60 to $1.20 range.

Here’s a look at the chart.

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All this stock needs is more big volume days to clean out the excess supply created by 10 years of ongoing losses.

The stock will then break out, and investors who had the patience to stick it out will be rewarded with superior returns.

So, how much volume will it take and when will it happen? I don’t know. I don’t have enough information from the company to quantify the number of shares that could be for sale, or how long it will take to eat through them. I do know we need more high volume days like Monday to get there.

Here’s what I can tell you with certainty. This stock will begin to trade well when you least expect it. When the frustration reaches maximum threshold- when you don’t believe the stock can ever go up- when you see several other stocks trading much better and wishing you had your capital elsewhere- you will sell out of frustration, and it will be much higher one week later.

You see this time and time again in the microcap sector. Investors who have been disappointed in a situation over time sell their shares the moment they see daylight. The stock is providing them and exit strategy because the company is finally performing. They sell, and before they know it, the stock turns around and rockets to much higher levels.

In conclusion, here are my thoughts. With the corporate developments, higher levels in the future are a fait accompli. However, this stock is not for traders looking for a short term pop. There are too many sellers at this time, and they are selling stupid.
If you view yourself as a longer term investor with a 6 to 12 month time horizon, this is a great microcap speculation.

There appears to be unlimited supply north of $.20 for the time being, so I would be an aggressive accumulator of the stock below or around $.20. If you bought between $.22 and $.25 over the weekend as I suggested, you can sell at the next surge if you want out. Or, just hang in there if you are longer term. This might take some time, or it might be ready to take off. I just don’t know.

Comments and questions are welcome. They will not show on the web site until I respond. Give it 24 hours.

USEI Cranking- Great Open On News

On the strength of the huge news release which came out over the weekend, USEI has opened with a very favorable trading pattern for investors. Here’s the chart.

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Here’s what I like about this chart. There is no huge gap. The stock closed Friday at $.18- a very oversold level. It reopened today at $.20, and is now powering higher on much higher volumes.

10 minutes into the trading day, the stock is now at $.24, and has traded 1.3 million shares. I like the fact that people were able to act early and get it before it started to climb.

A break above the July high in the $.25 would be bullish. I’m sticking with my guns from the weekend edition- picking this stock up in the $.22 to $.25 leaves plenty of upside, even if it wants to back and fill a little.

It’s a good thing there is stock for sale in this issue. It gives you a chance to own it while it is still at a reasonable level. If the stock can manage 5 million shares plus today, it will go a long ways towards cleaning up this mess.

Comments and questions are welcome.