Fortifying Your Portfolio *** Surprise: Small-Cap Security Companies Plunge Irwin Greenstein reports from Baltimore, where Camden Yards is home of the best ballpark weenies in the USA... *** With the tragic London bombings yesterday, the mainstream business press was abuzz with stock jumps in security-related small-cap firms. MarketWatch, Forbes.com and the Associated Press could hardly contain themselves at this sudden opportunity in small caps. Indeed, the stocks jumped in the blast's aftermath and did merit coverage. But what we're not hearing this morning from the herd is how many of these companies have dropped since the opening bell. After identifying the companies that were most prominent in yesterday's news, we compiled a screen with the criteria of a stock drop of at least 1.5% since market open. The results were mind-boggling... Verint Systems down 1.91%, Identix down 2.19%, Viisage Technology down 1.73%, IPIX down 5.79%, Digital Recorders down 10.92% and Mace Security Intl. down 4.22%. Unless you're a rabid day trader, it's important to avoid the flavor of the day as touted by big media. Remember, the beauty of small-cap investing is finding great companies that are ignored by the Wall Street establishment. While the companies on our screen may prove excellent long-term investments, the wise Penny Sleuther should know never to buy on hype. In contrast to hype, real, sustained demand will continue to drive up stock prices. Specifically, Kevin Kerr, of Resource Trader Alert, looks at oil... *** "The small-cap sector has been doing so well that even though some of the small-cap funds for resources may have taken a hit, the energy sector has not. The small-cap resource funds got hit a bit due mainly to the fact that resource funds do not just include energy stocks; they also include textiles, lumber, metals, etc. And these commodities have been pulling back a bit off of historic highs, so in turn, the small-cap funds have been taking a bit of a breather. "The energy small caps have backed off a bit in some cases, so there are many unpolished gems ready for grabbing. A few I am interested in are Southwestern Energy Co., which showed an annual return of 171.6%; Hydril Co., which showed a 126.7% one-year return; and last, but certainly not least, Vintage Petroleum, Inc., which showed a 106.5% one-year return. Not too shabby. All of these stocks are dipping a bit, providing a good buying opportunity. Thanks, Kevin. And it's just this out-of-the-box thinking that has made Kevin one of the most successful commodity traders on the planet. In fact, Kevin had a string of 16 consecutive trades that had double-digit profits. Find out more about Kevin here: http://www.agora-inc.com/reports/RTA/WRTAF107. *** For the past six months, Penny Sleuth has discussed the damaging impact of the anti-fraud Sarbanes-Oxley law of 2002. The small-cap market suffered a major hit as the cost of initial and ongoing compliance took a huge bite out of the bottom line -- a cost that was proportionally much larger for small caps than large caps. The bill was passed after the collapse of WorldCom -- to prevent public companies of any size from destroying a lifetime of shareholders' savings. When it was finally passed, small public companies began to see that, in fact, they were the ones being destroyed. Well, the Financial Times reported this morning on a news conference with one of the bill's architects, Congressman Michael Oxley, in London. Oxley admitted that the legislation "was not a perfect document." And speaking privately to the newspaper, he went even further: "If I had another crack at it, I would have provided a bit more flexibility for small- and medium-sized companies." If only Washington had treated small caps like Wall Street does: Ignore them. Because we'd all be making a lot more money. *** In the spirit of making money, Angela Roberts reports on her favorite offbeat Two independent studies revealed how a 100-year-old trading system can actually BEAT "buy-and-hold" returns by nearly 7-to-1... with much less time spent holding stocks... and just one-third the risk of index funds. It used to be impossible to time markets like this. Now it's easier and more precise than ever before. Here's all you need to know to get started. http://www.agora-inc.com/reports/CPT/WCPTF707 ______________________________________________________ Fortifying Your Portfolio Baltimore isn't exactly famous for its high-quality wine, but last Saturday, I toured a small winery just north of the city. As I sipped a glass of cabernet and roamed past casks of fermenting grapes, it occurred to me that good things can come from unsuspecting places. In fact, if I weren't a Baltimore resident, I'm sure I would never have heard of this vineyard -- it's not in Napa or Sonoma, or the Finger Lakes for that matter. It's in Maryland. Nonetheless, the wine was decent, the atmosphere was quaint and the little-known winery was packed with customers. I decided to look for other small, off-the-beaten-path gems that have – because of their diminutive size and unsuspecting location -- thus far escaped the radar of the investment herd. What I found was a successful purveyor of fine spirits halfway around the globe. And its products are not the only things that are intoxicating. Central European Distribution Corp. is an importer and distributor of beer, spirits, wine, soft drinks and cigars in Poland. CEDC distributes approximately 770 brands to approximately 37,260 outlets throughout Poland, including gas stations, duty-free stores, supermarkets, bars, nightclubs, hotels and restaurants. With a market cap of $624.59 million, CEDC's net sales reached $580 million in 2004, up 35% from 2003. And at $1.32, earnings per share for 2004 are up the same percentage from the previous year. Net income for 2004 was up 45%, to $21.8 million. Overall, the company has a compounded average growth rate of 45% for net sales and 90% for earnings per share over the last five years. And its debt is low – its debt-to-equity ratio is 0.03, and its assets are 1.7 times its liabilities. Seems liquor distribution in Poland pays off. Over the past two years, CEDC's stock has risen steadily, more than doubling from around $15 a share to just under $40. And with its plans for the future, that pace shouldn't slow. On June 27, CEDC signed an agreement to acquire Poland's third largest distiller for $270 million. On July 5, the company reached an agreement with union workers at Polmos Bialystok, a Polish distillery, of whose stock CEDC just agreed to purchase 61%. And because big-name institutions such as Barclays, Fidelity and JPMorgan Chase own this stock, it leaves CEDC with few outstanding shares. In fact, it only has about 17 million available, keeping it out of the running for a Penny Stock Fortunes recommendation. Yet its financials are great, its future is promising and its products are popular. About 66% of the company's business comes from distribution of its brews, with the remainder coming from its operation of five restaurants. Though the company isn't yet profitable -- with a net income of negative $2.9 million -- its sales are steadily increasing as it builds its brew business. Year over year, sales are increasing, and 2004 saw a 16% hike in sales compared to the year before. And quarter-over-quarter sales are on the rise as well. First-quarter sales were 25% On the opposite coast, The Boston Beer Co., Inc. is chugging away too. The company has no debt, sales of $221 million, income of $15 million and a net profit margin of just under 7%. The company produces beer, hard tea and hard cider under the Sam Adams, Twisted Tea and HardCore Cider names. The Boston Beer Co. has a market cap of around $320 million and 14 million shares outstanding. It also has a share price that has been on a steady rise, giving investors a 50% return over two years by rising from $15 a share to its current $22.50. Last, but not least, back on the West Coast is a small brewery called Redhook Ale Brewery, Inc., in Woodinville, Wash. It has breweries in Woodinville and Portsmouth, N.H., both of which sell nine styles of Redhook beer; operate eateries and sell retail merchandise. While sales were over $33 million last year, income is negative, and the company is not yet profitable. Having opened in 1981, the company is still tiny -- it has a market cap of only $25 million, with a mere 8 million shares outstanding. But the gains aren't tiny...over two years, the stock has risen 62%, from $2 a share to around $3.25. Your taste buds may prefer beer to wine or wine to beer, but your pocketbook is the final judge. And if you aren't the drinking type, small-cap wineries, breweries and distributors still offer great investment opportunities and another alternative for fortifying your portfolio. Best regards, Double Your Money 12 Times or More This Year -- Or You'll Get Your Money Back Why are we making the boldest, most amazing offer in America? Because we can deliver the goods! Over the past five years, our option recommendations have racked up over $1 million in gains. So stop settling for Wall Street's puny returns -- and sign up for your chance to make 209% in six days... 167% in four days... even 898% in 31 days. |