Stock Treasure at the Bottom of the Ocean?

A while back I had mentioned a book I read called "Lost Gold of the Republic" by Priit J. Vesilind. The novel chronicles the search for and eventual recovery of the SS Republic, a steamship that was carrying a large shipment of gold and silver coins. This money was destined for the city of New Orleans after the Civil War to act as aid in reconstruction. The ship was lost off the coast of Georgia in a hurricane. The novel is great as it details not only the search for a long lost ship and all that entails, but it also sketches out the experience of many people that were on that fateful voyage.

Economic Disconnect focuses on the macro picture for the most part. I feel that if you have the tide figured correctly, finding stocks to buy is easier. I hardly ever disclose personal trades or ideas on particular stocks. I will this time so you can see how I think in a more short term sense.

The company I took a position in is called Odyssey Marine Expeditions, Inc. (OMEX). This firm is the company that found the SS Republic, and has located many other ships that may harbor valued salvage. If you read the book you can appreciate just how good these guys are. The stock itself trades at about $3 today, and shows a market cap of $158 million. The stock trades pretty thin with average volume of 242k shares daily. (All data from Yahoo Finance Ticker report).

As I see it, OMEX is a lottery ticket. The stock is one lawsuit gone wrong on a claim from going to zero. Ships that are located may have nothing recoverable. They could run out of money in short order. This stock is a speculative play at best. If you are still interested, read on.

OMEX does what many of us can only dream about. Bringing up gold and silver from long lost ships can only be termed "wild." The science behind their search methods and the methodical nature of their work is impressive. Those criteria make the stock interesting to me. As a catalyst for me to buy though, I look to this headline from December 11th:

Press Release Source: Discovery Channel
TREASURE QUEST Captures Thrill of High-Stakes Hunt for the Ocean's Greatest Lost Treasures
Thursday December 11, 4:39 pm ET
- World Premiere 11-Part Series Kicks Off Thursday, January 15 at 10PM ET/PT
SILVER SPRING, Md., Dec. 11 /PRNewswire/ -- TREASURE QUEST takes the meaning of "cold case" to a new level - it's not always what you find, but what you find out. Discovery Channel and Odyssey Marine Exploration, the world's only publicly-traded company dedicated to deep ocean shipwreck exploration, plunges viewers to the ocean floor as they track the unsolved mysteries of the deep sea in this 11-part world premiere series. The nonstop race against time, secret locations and international intrigue will make the viewer's pulse race and remind them of their childhood fantasies. For the Odyssey crew and the Discovery Channel production team, it is a dream job -- but not one without its major challenges. TREASURE QUEST premieres Thursdays at 10PM ET/PT, beginning January 15, 2009.

So here we will have an eleven episode show on Discovery channel that shows the company in action. While Discovery Channel is not a major network, the channel does have high viewership and it is certainly the kind of channel that inquisitive minds like mine enjoy. This kind of coverage will surely engender some interest.

I couple the show exposure with a thinly traded stock, and I see an opportunity to make a short term move. Like I said, at this point OMEX is more a lottery ticket as there are just too many unknowns. But if you are looking for a short term play that has some imagination, this stock jumped out at me. As I said and with full disclosure I now own a position in OMEX.

Automatic Earth Article
I read a great piece today on the blog The Automatic Earth (hat tip Some Assembly Required blog). The writer named Ilargi hits the nail dead on the head many times. I recommend the full read here.

Excerpt:

Yesterday’s rate cut by Bernanke's Fed is the clearest - though by no means the first - signal that the entire gamut of political action has run its course, and it hasn't helped one bit. The answer: double or nothing. When one idea fails, 3 of the same ideas will surely solve the issue. They are gambling with other people's money, and that is always easy. It’s your money though, and the chances of winning are miniscule. They just don’t know what else to do. Every politician is a mini-Bernie Madoff. Addicted to power, fame, money and attention. The combined stakes we see today are at least a 1000 bigger than Madoff's paltry $50 billion.

But this is not the only way to approach the failed system. They could simply let the failed banks fail. You don't, as they like to make you believe, need those banks. You need access to your money. Your government can give you that. Instead, it tries to use your money to save banks you don't need. And those banks are so deep in debt that I can guarantee you all of your money will be lost, and the banks will still in the end go under. How to solve this? For one, expose all the losing assets in the banks. Let the ones who have too many bad assets die.

The whole thing is a great read.

Disclosure: I now own a position in OMEX.

Comments

[Gold Coins:]

Economic Disconnect,

I strongly disagree that OMEX is "one lawsuit gone wrong on a claim from going to zero." That statement is both facutally inaccurate and unsupportable. The company has an operating agreement with Discovery Channel, where Discovery pays a large percentage of Odyssey's operating expenses to operate the Explorer. The company has plenty of cash to operate through the summer of 2009 without having to raise any capital. Please read further to understand why I do not believe that Odyssey will ever have to raise more money.

I completely agree that Treasure Quest will be a massive catalyst for the stock. Read the "About Odyssey" section carefully on Discovery's website. dsc.discovery.com/tv/t...

"During 2008, Odyssey located and tentatively identified at least one of its targeted high-value shipwrecks in the “Atlas” search area and Discovery Channel’s cameras were there to capture every discovery."

Per the company, high-value targets are defined as those that are worth in excess of $500M.

I believe that millions of viewers of Treasure Quest will watch Odyssey find another high value target on the show. Given the company's current litigation with Spain, it is highly likely that the new find will not be a Spanish wreck, but one of either a country that Odyssey has partnered with or a purely commercial ship. Nevertheless, I would expect that the new find will not have any legal entanglements.

Assuming that I am correct, then I believe that you will see OMEX trade strongly higher to over $10 on the new discovery alone. Further, being a lawyer that has closely followed Odyssey's litigation with Spain, I strongly believe that Odyssey will prevail over Spain and that the Black Swan will be ruled to not be a sovereign immune ship. A victory over Spain is worth another $500M to Odyssey...and would add an additional $8 to the stock price.

I see a clear path to OMEX trading to over $18 on these 2 events alone....and this does not give any value to the numerous other ships that Odyssey has arrested.

Gold Coins

2008 Dec 19 09:23 AM

[Economic Di...:]

Gold Coins,
You are clearly very well informed about OMEX. I think it is an exciting stock and I cannot wait for the TV series to start. I used the language of "one lawsuit away from zero" to impress upon readers that this stock, by my definition, is a speculative play. Then again, what stock right now is not pure speculation! Thanks for reading and leaving a comment.

2008 Dec 19 10:30 AM

[jcw92025:]

Odessey Marine is a great buy and speculation,but more they already have found the treasure of the "Black Swan". They have an excellent management and have several projects on their plate. Also the Discovery series will be a boast for the Company and what they do best. I have a position i it and will add to it. Bullish on this one.

2008 Dec 19 02:45 PM

[Rokjok777:]

you might also like the book "Ship of Gold in the Deep Blue Sea" which is a fabulous account of the recovery of the "USS Central America" which was stuffed with gold bars from California

2008 Dec 19 04:29 PM

[Economic Di...:]

Rokjok777,
I just added your book to my Christmas list and should be able to get it by next week. Thanks for the recomendation!

2008 Dec 19 04:41 PM

[Jim Bond:]

To the author: When did you first own this stock, and how long have you held shares? Thanks in advance for your reply.

Jan 02 08:31 AM

[Economic Di...:]

I opened my position in OMEX on December 17th 2008 and still hold that position as of today.

Jan 02 10:09 AM

[Jim Bond:]

Thank you for the clarification. In my view here is the problem with OMEX.: They began on the basis that a well run, publicly held treasure hunt company, could depart from treasure hunt history and succeed as a long term business investment for shareholders. I understand the three pillars of this proposal were that 1. they could continually discover and recover new salvage with cutting edge technology, 2. they could successfully claim and market this salvage, and 3. they could be profitable and reward shareholders on a consistent basis over time, much like any well run corporation. This presumption has now been playing out for many years.

I believe you will agree that in respect to #1, they get an A+. They have found treasure and demonstrated they can recover it with cutting edge technology.

In respect to #2 and #3, if you have evaluated the results carefully, I believe that you will agree they have failed, quite emphatically.

You are correct that this an interesting stock to trade, but as a long investment, the track record is very poor. As far as the management is concerned, the founders came straight out of the old treasure hunt
"business" and all that implies, and now there is only one founder left.
It seems to me this is going to take in all likelihood, a great deal more time to move from a day trading opportunity to a serious long term prospect, if ever. And, after all, what is the succession plan for that remaining founder?

I agree with you, money can be made trading this penny stock if that is your strategy. However, getting to profitability and for that matter ever becoming the next fortune 500 opportunity is a considerable stretch.

Nobody in charge of a serious company ever wants it to trade under $5.00. Nevertheless, with all the gold and silver, entertainment strategy, management "expertise", and business plan, that is where this stock is trading today (and was before the credit crisis ever hit Wall Street).


On Jan 02 10:09 AM Economic Disconnect wrote:

> I opened my position in OMEX on December 17th 2008 and still hold
> that position as of today.

Jan 02 08:06 PM

[fool's gold:]

Can someone please explain how you are putting a $500 million value on the Black Swan discovery? What math did you use to arrive at that number?




On Dec 19 09:23 AM Gold Coins wrote:

> Economic Disconnect,
>
> I strongly disagree that OMEX is "one lawsuit gone wrong on a claim
> from going to zero." That statement is both facutally inaccurate
> and unsupportable. The company has an operating agreement with Discovery
> Channel, where Discovery pays a large percentage of Odyssey's operating
> expenses to operate the Explorer. The company has plenty of cash
> to operate through the summer of 2009 without having to raise any
> capital. Please read further to understand why I do not believe that
> Odyssey will ever have to raise more money.
>
> I completely agree that Treasure Quest will be a massive catalyst
> for the stock. Read the "About Odyssey" section carefully on Discovery's
> website. dsc.discovery.com/tv/t...
>
> "During 2008, Odyssey located and tentatively identified at least
> one of its targeted high-value shipwrecks in the “Atlas” search area
> and Discovery Channel’s cameras were there to capture every discovery."
>
>
> Per the company, high-value targets are defined as those that are
> worth in excess of $500M.
>
> I believe that millions of viewers of Treasure Quest will watch Odyssey
> find another high value target on the show. Given the company's current
> litigation with Spain, it is highly likely that the new find will
> not be a Spanish wreck, but one of either a country that Odyssey
> has partnered with or a purely commercial ship. Nevertheless, I would
> expect that the new find will not have any legal entanglements.
>
>
> Assuming that I am correct, then I believe that you will see OMEX
> trade strongly higher to over $10 on the new discovery alone. Further,
> being a lawyer that has closely followed Odyssey's litigation with
> Spain, I strongly believe that Odyssey will prevail over Spain and
> that the Black Swan will be ruled to not be a sovereign immune ship.
> A victory over Spain is worth another $500M to Odyssey...and would
> add an additional $8 to the stock price.
>
> I see a clear path to OMEX trading to over $18 on these 2 events
> alone....and this does not give any value to the numerous other ships
> that Odyssey has arrested.
>
> Gold Coins

Jan 07 04:31 PM

[HeckSpawn:]

I liked it just a couple weeks ago from a chartist standpoint. I like it even better now...

Feb 05 09:48 PM

[Borisbatt:]

Well less then a week ago it was announced the Odyssey found the KING of all Ships, the mother load, the HMS Victory. Two cannons they brought up confirmed that it was the Victory Lost in 1744. They say a fortune in coins was on ship...as much as 1 billon $$$ in silver and gold alone. It was already contracted with the BK that if the worth was up to $500 million that it would be a 50-50 split. If over $500 million it would be a 40-60 split. Its been approved by the BK to continue research this season. That should make the stock fly...just one coin $$$$$$$$

Feb 08 12:26 AM

[Tao Man:]

What a hyped stock. Good luck to all long-term die-hards because you'll clearly need it.

Apr 09 07:44 PM

[Ralph F:]

OMEX's stock is down 50% on the news that a US magistrate has recommended returning the Black Swan coins to Spain. Do you have any view of that, or of OMEX's response here shipwreck.net/pr181.php ? Thanks.

Jun 09 10:50 AM

[Economic Di...:]

Ralph,
I had a write up on the OMEX news here:
tinyurl.com/n6xjhy

under the section "Odyssey Marine Exploration Torpedoed"

Jun 09 11:30 AM