Below are this week's readers' smallcap stock picks. Let's analyze them and see which will work.
Patriot Scientific Corporation (OTCQB:PTSC) –This company seems to be just a shell that makes money by licensing patents. It appears to me that they don’t do anything or provide any value. So what if they have a dividend. If you are looking for dividend yield, you might focus on a larger, financially stable company with the potential to create new products. There are plenty of those in the S&P. Once PTSC’s patents run out or its technology is superseded, what happens to the dividend?
NewMarket Technology, Inc. (NMKT.OB) –I have been watching this stock on and off for a year now, and despite the solid financials, I’ve yet to be compelled to make an investment. The CEO would do well to read Jason Zweig’s commentary on page 307 of The Intelligent Investor: “Executives should spend most of their time managing their company in private, not promoting it to the investment public.” The daily press release makes me think this is just an attempt at a pump job so that the management can sell shares. Plus, the lack of focus in the business (they are scattered anywhere and everywhere) makes it very difficult for any analyst to come up with forecasts for the future. You could just take the company’s word for it, but management doesn’t seem to have earned that honor yet.
Provectus Pharmaceuticals, Inc. (NYSEMKT:PVCT) –A biotech without revenues. As I’ve said before on the site, I have no medical/chemistry/biology background, and therefore, I am not in a good position to evaluate a company’s pipeline or its claims. I would imagine most investors are in the same boat, so unprofitable biotech is probably not an area I would recommend. If you want to devote your time to becoming a specialist in biotech, go for it, but I am smart enough to know what I don’t know, and therefore I stay away.
Javos Beverage Company, Inc. (OTC:JAVO) –The balance sheet is not good enough, and the revenues are very volatile and do not permit an investor to create a trend analysis. Price to sales of 16 seems very expensive for a company that sells coffee. It’s not like there is a moat around that business.
Integral Technologies, Inc. (OTCQB:ITKG) –I don’t really see anything to like. They have almost no historical revenues, consistently lose money, and their recent licensing agreements don’t provide any visibility as to how much revenue might be expected from such agreements in the future.
WorldWater & Power Corp. (OTC:WWAT.OB) –I touched on this one back on March 4th in my Sunday reader picks. My criticisms are still valid: “gross margins are awful. Nice guidance for 2007, but the ’seasonality’ of earnings might just be the CEO’s way of hyping expectations and making excuses for the coming quarter so he can sell at a better price. I want to see gross margins come up before investing.”
Galaxy Nutritional Foods, Inc. (OTC:GXYF) –This is probably the one that interests me the most. Just glancing at the income statements, it appears (from the declining revs and the non-recurring charges, as well as the chart) that the company is going through some restructuring and would be a turnaround play. The last two quarters have been profitable, which is a step in the right direction. The balance sheet is still pretty bad (as expected of a turnaround), so there is still a lot of risk in a play like this. I have not read the SEC filings in detail, and would not even think of investing in it until I have covered the last 3 years worth of filings. In a turnaround, understanding the historical evolution of the business is critical. That being said, it might be an interesting place to spend some of my research time.