Given the fact that I have expressed some pessimism about the current state of the market, I thought it would be useful to take a look at what I see as the biggest risks for my holdings. I was aware of the risks when I entered my positions, but reviewing them never hurts. In particular, I feel that risks have increased for ABAT, although I was aware of the potential for such risks when I purchased the stock, and therefore made it a small part of my holdings.
NutraCea (NTRZ.OB) – Given that dilution is already behind us, I see the biggest risks going forward behind 1) hurricane damage in LA; and 2) a failure to expand capacity within a reasonable time frame. Some will claim that the time frame is not important, but given the current P/E, I would argue that the time frame for expansion is critical. The stock can’t go higher until it grows into its multiple.
Optionable (OTCPK:OPBL) – If I had to highlight the biggest problem with this company, it is the excessive CEO compensation and the inability of shareholders to do anything about it since NYMEX and insiders own the majority of the company. I don’t really understand why the CEO received about $1 million in CASH compensation, and another $400k in stock compensation, for a company with a net income of just over $6 million for 2006. OPBL is committed to returning money to insiders rather than shareholders at present. True, the growth rate is impressive, but it will inevitably slow, and when it starts to slow, that executive compensation is going to start looking a bit excessive. Maybe we should think about tying his pay to net income rather than to revenues? The only way to change this fact is to rally the shareholders and clamor for change, and I hope that shareholders will take a good hard look at the proxy statement this year and express their thoughts on the matter.
Advanced Battery Technologies (OTCPK:ABAT) – The fact that ABAT has delayed its 10K is quite worrying. Then again, there is a reason why the stock represents a minute part of my overall portfolio. The reason is that I have very little trust in the management, and I realize that it is completely possible that the company has been lying to us. I should have taken some off the table at $2, but barring that, I am not against taking a small loss here and cutting back my risk. In a market like this, paring back risk is essential, even if it means taking a small loss.
Paladin Resources (OTCPK:PALAF) – The stock has been a real anchor of my portfolio, and the price of uranium continues to rise (to $95/lb this past week). The biggest risks I see here are the potential of paying too much for Summit, as well as any development problems in Malawi. However, given the history of uranium prices during inflation and the current supply/demand situation, Paladin is probably the holding that I feel most confident in.