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Matthew Finston
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I approach investing as a social theorist and a cultural historian. As a result, I am a contrarian. Studying the history of financialization, I have to agree with value investors like Seth Klarman, George Soros, and John Quiggin that markets are ultimately inefficient. However, I am not an... More
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  • Using Tip Ranks To Revise Consensus: A Dose Of Pessimism

    Caveat Emptor

    If you never have made an impulsive decision in your life, this article is not for you.

    If you are an extremely impulsive investor, then please do not make any investment decision based on the information in this article. This is for informational purposes only.

    To The Restrained Impulsive Investor

    For those of you impulsive investors, ever had that moment of buying an unknown small-cap (or any cap for that matter) on bullish news/analyst upgrade only to never realize profits, or even worse, take a loss? How about setting a profit-exit bracket based on analysts' consensus price target, only to have the stock never hit the analysts' target price?

    Professional advisors who run asset-managed funds could care less if 'Joe-Schmo Analyst, at Random Elite White Guy & Co' issued a sell, buy, or hold on a stock. The real purpose of analysts' upgrades and downgrades is to generate liquidity for a stock. Sure, there are plenty of other reasons for analysts to issue price targets, but price targets tend to have a psychological impact that encourages investors to be more active in the market.

    When analysts initiate coverage on small-cap, high-risk, illiquid securities, it is a rule of thumb to take their views with a grain a salt, especially if they are their are the sole analyst covering the stock.

    But what the analyst has a impeccable track record? But how would you know that? Thanks to TipRanks.com, a little more transparency in the market has been created. Tip Ranks has quickly become one of my go-to-sources for stock research. I was once that guy that held a stock and miss gains because of Joe -Schmo the analyst said it was work "x%" amount more.

    I've discovered that analysts tend to be more reactive than proactive and change price targets on a whim. For instance, when Salix Pharmaceuticals (NASDAQ:SLXP) lost nearly (40%) of its value, dropping from $140 a share to as low as $85 a share, most analysts were quick to reduce their price targets. Goldman Sachs reduced its price target from $147 to $102 only to raise it back up again to its current $111 target after SLXP mysteriously rallied from the lows.

    So when I saw that a $0.15 had a consensus price target with a 1067% premium, I was skeptical but curious.

    The Penny Stock Pumpers

    Based out of Irvine California, Ener-Core (OTCQB:ENCR) has a patented system called the, "Ener-Core Gradual Oxidizer," which uses using oxidation technology to convert gas into heat and power relatively lower emissions. The company also developed the technology to transform methane gas, especially from landfills, coal mines, oil fields and other low quality methane sources into clean electricity with near-zero emissions.

    (click to enlarge)

    Analyst from Chardan Capital sets ENCR at a buy with a $1 price target:

    (click to enlarge)

    Roth Capital is more bullish, with a $2.50 price target:

    (click to enlarge)

    Ener-Core sounds promising and the analysts are bullish but should you trust them? Well first let's take a look at the balance sheet:

    BALANCE SHEET, Quarterly  
    USD in thousands except per share data.2013-092013-122014-032014-062014-09
    Assets     
    Current assets    
    Cash     
    Cash and cash equivalents76312011924464031
    Total current assets11802143116830704281
    Non-current assets    
    Total non-current assets853833815755713
    Total assets20332976198338254994
    Liabilities and stockholders' equity   
    Liabilities     
    Current liabilities    
    Total current liabilities5111494166116441273
    Non-current liabilities    
    Total non-current liabilities435633158398
    Total liabilities5151529172448021671
    Stockholders' equity    
    Common stock70m70m70m70m113.68M
    Additional paid-in capital6529894597361146818586
    Retained earnings-5018-7505-9484-12452-15274
    Total stockholders' equity15181447259-9773,323
    Total liabilities and stockholders' equity20332976198338254994

    So at 0.15, ENCR is trading at a price/book premium 5:1.

    Cash flows? Not a pretty picture:

    USD in thousands except per share data.2013-092013-122014-032014-062014-09TTM
    Cash Flows From Operating Activities    
    Net income$(2,020)$(2,488)$(1,979)$(2,968)$(2,823)$(10,258)
    Debt issued   $3,757 $4,591
    Debt repayment $(2)$(4)$(1,886)$(2,442)
    Common stock issued   3,895 
    Other financing activities$3,162$1,374   $4,985
    Net cash provided by (used for) financing activities$3,162$1,374$(2)$3,753$2,009$7,134
    Net change in cash$548$438$(1,009)$254$3,585$3,268
    Cash at beginning of period$216$763$1,201$192$446$763
    Cash at end of period$763$1,201$192$446$4,031$4,031
    Free Cash Flow     
    Operating cash flow$(2,596)$(904)$(994)$(1,211)$(698)$(3,807)
    Capital expenditure$(19)$(32)$(13) $(14)$(59)
    Free cash flow$(2,615)$(936)$(1,007)$(1,211)$(712)$(3,866)

    So this can clearly be classified as a high risk stock. The technology sounds promising and the consensus says it is a buy. Well should you? And if so, at what price should you take profits, if there are profits to be made?

    Tip Ranks: Creating Transparency

    Using Tip Ranks data aggregating technology to evaluate stock analysts, I have attempted to determine whether or not we should hold our breath for ENCR or whether we should pass.

     Chardan CapitalRoth CapitalConsensusNotes
    Total Analysts#3525#3525#3,525According to Tip Ranks
    Rank out of 3525#3265#3184#3,225Low rankings suggest PT unrealistic
    Initial PT$1.00$2.50$1.75A 1067% premium
    Accuracy33%36%35%65% chance you'll lose money
    Gain/(loss) 1 Year-8.60%-3.10%-6%Average loss could be devastating
    Percentile Rank Amongst Experts7%10%9%100% would be top and 1% would be the bottom.
    PT Rank adj$0.07$0.24$0.16Revised (91%) below PT consensus
    Pt Accuracy Adj0.330.90$0.62Revised (65%) PT
    Rank 40% weighted$0.03$0.10$0.06Arbitrary. Is rank more important or accuracy?
    Accuracy 60% weighted$0.13$0.36$0.25Again, arbitrary.
    Revised PT$0.16$0.46$0.31This is 18% of the consensus PT
    Consensus adj for Gain/(Loss)$0.1476$0.4426$0.30That ENCR will hit 0.30, I give it 3:1 odds

    Based on current valuation, $0.30 represents a 95% premium. At a 3:1 odds that's not very attractive and is in fact below the fixed-odds conversion rate:

    In the same vein, a 1000% return suggests 10/1 odds.

    Conclusion

    Based on this research, I ended up placing a small bet. I'm risking about half as much as I initially considered and do not plan holding a full position after if it hits my $0.30 revised PT. I don't think this is a great company. But, I decided to take a risk anyway.

    The technology seems costly and it is a tough time to get involved with energy but I would not discount the environmentalist bent to the bull thesis. Environmentalists are having a perceptible impact, for example, on oil consumption. The recent Oil Crisis instigated in part due to deceleration in demand growth can be attributed to the decline in oil consumption in developed nations such as North America and Europe, as individuals demonstrate preference for alternative energy solutions to reduce carbon footprint (see my article here). This type of technology could attract businesses seeking to bolster their image and their balance sheet as they capitalize on tax-benefits for reducing carbon emissions as well as attracting consumers who prefer to give business to energy efficient companies.

    There is a possible near-term catalyst that caught my eye. The company announced last month that it would present at "CleanEquity Monaco 2015" on the 5th and 6th of this month. The conference attracted, "financial and strategic cleantech investors, policy makers, legislators, end users and media." There has yet to be an update and one could be bullish. Possibly we will hear some news about this event in the coming weeks/months?

    Bottom line: Do not discount the risks involved with this company. And more importantly, don't assume because 'Joe-Schmo Analyst' or random no one cares blogger (me) said it is going to double, that it will double. Based on my own methodology, this stock may be worth only $0.122, which is (-20%) lower than it is currently priced or at best $0.18, a 20% premium.

    Total Bloggers4269
    Rank#2577
    Initial PT$0.31
    Accuracy58%
    Gain/(loss)+0.80%
    Adjustment for Rank40%
    PT Rank adj$0.12
    Pt Accuracy Adj0.18
    Rank 40% weighted$0.05
    Accuracy 60% weighted$0.07
    Revised PT$0.12
    Consensus adj for Gain/(Loss)$0.1220

    Perhaps I should have not weighted 'rank' so heavily.

    Tags: SLXP, ENCR, long-ideas
    Mar 10 12:24 PM | Link | 2 Comments
  • Hemp Et. Al. 144s

    (click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)(click to enlarge)

    Tags: HEMP, NSCT, VSYM
    Mar 09 12:57 AM | Link | Comment!
  • Investor Protection Clinics: In Case You Were Scammed

    Benjamin N. Cardozo

    School of Law

    Securities Arbitration Clinic

    55 Fifth Avenue

    New York, NY 10003

    (212) 790-0200, x6646

    (212) 790-0256 (fax)

     

    Brooklyn Law School

    Securities Arbitration Clinic

    One Boerum Place

    Brooklyn, NY 11201

    (718) 780-7994

    clinics@brooklaw.edu

    • Each request will be considered on an individual basis to see if the law school can help.

    Cornell University Law School

    Securities Law Clinic

    Myron Taylor Hall

    Ithaca, NY 14853-4901

    (607) 254-8270

    • Investors should contact the clinic to see whether they fall within the clinic's eligibility guidelines.

    Securities Law Clinic Contact Form

    District of Columbia Law Clinics

    Howard University School of Law

    Investor Justice & Education Clinic

    2900 Van Ness Street, NW

    Room G15, Notre Dame Hall

    Washington, DC 20008

    (202) 806-8082

    • Each investor request for assistance will be considered on a case-by-case basis to determine if the Investor Justice & Education Clinic can be of assistance to the investor

    Fordham University

    School of Law

    Securities Arbitration Clinic

    33 West 60th Street

    3rd Floor

    New York, NY 10023

    (212) 636-6934

    • Each request will be considered on an individual basis to see if the law school can help.

    Georgia State University College of Law, Investor Advocacy Clinic

    Investor Advocacy Clinic Urban Life Building

    140 Decatur Street, Suite 326

    Atlanta, GA 30303

    404.413.9270

    404.413.9272 (facsimile)

    InvestorAdvocacy@gsu.edu

    http://law.gsu.edu/investoradvocacy

    • Claim should generally not exceed $100,000;

    • Investor should not have any major assets other than primary residence, car and investments that led to the claim for which representation is sought;

    • Georgia resident (currently or at time of claim); and

    • Investor has not been successful in obtaining legal representation.

    The Clinic may represent investors who do not meet all of these criteria from time to time based upon the individual facts of the investor's case.

    Hofstra School of Law

    Securities Arbitration Clinic

    108 Hofstra University

    Hempstead, NY 11549-1080

    (516) 463-5934

    • Claimant's annual income should not exceed $75,000.

    • The claim should not exceed $100,000.

    • Claimant should have no other assets than a house and car.

    • Claimant must have sought out representation from an attorney in private practice.

    Michigan State University College of Law

    Investor Advocacy Clinic

    Legal Clinics

    610 Abbot Rd.

    East Lansing, MI 48823

    517-336-8088 (ext. 6)

    securities.clinic@law.msu.edu

    • Each request will be considered on an individual basis to see if the clinic can help.

    New York Law School

    c/o Securities Arbitration Clinic

    185 W. Broadway

    New York, NY 10013

    (212) 431-2338

    http://www.securitiesclinic.org/

    • Each request will be considered on an individual basis to see if the law school can help.

    Northwestern University School of Law

    Investor Protection Center

    Bluhm Legal Clinic

    357 E. Chicago Avenue

    Chicago, Illinois 60611

    (312) 503-0210

    Investor-Protection@law.northwestern.edu

    • Client's household annual income generally cannot exceed $100,000.

    • Client's claim generally cannot exceed $100,000.

    Pace University School of Law

    Investor Rights Clinic

    78 North Broadway

    Preston 404

    White Plains, NY 10603

    (914) 422-4333

    Investor Rights Clinic Brochure

    Investor Rights Clinic Eligibility Standards and Questionnaire

    Seton Hall University School of Law

    Investor Advocacy Project

    One Newark Center, Room 429

    Newark, NJ 07102

    (973) 642-8084

    investoradvocacy@shu.edu

    • Prospective clients must meet the following eligibility criteria:

    • New Jersey residency;

    • Combined annual household income of no greater than $100,000; and

    • Claimed losses no greater than $100,000.

    • The Seton Hall Investor Advocacy Project will evaluate each prospective representation on a case-by-case basis.

    St. John's University School of Law

    Securities Arbitration Clinic

    8000 Utopia Parkway

    Jamaica, NY 11439

    Phone: (718) 990-6930

    Fax: 718-990-6931

    securities@stjohns.edu

     

    Syracuse University College of Law

    Securities Arbitration Clinic

    P.O. Box 6543

    Syracuse, NY 13217-6543

    (315) 443-4628

    • Each request for representation will be considered individually to determine eligibility in terms of household income and amount of claim. Clinic may waive eligibility guidelines if investor cannot obtain legal representation.

    University of Miami School of Law

    Investor Rights Clinic

    3000 Biscayne Boulevard, Suite 100

    Miami, Florida 33137

    (305) 284-8234

    InvestorRights@law.miami.edu

    • The Clinic has established general claim eligibility guidelines. Specifically, the prospective client's losses should not exceed $100,000. In addition, the Clinic has established household income and asset eligibility requirements. In some cases, the Clinic may waive one or more of its requirements if the prospective client is unable to obtain legal representation.

    The University of Pittsburgh School of Law

    The Securities Arbitration Clinic

    Professor Alice L. Stewart

    Sennott Square

    Room 5220

    210 South Bouquet Street

    Pittsburgh, PA 15260

    (412) 648-1300

    • Investors should contact the clinic to see whether they fall within the clinic's eligibility guidelines.

    University of San Francisco School of Law

    Investor Justice Clinic

    2130 Fulton Street, KN 211

    San Francisco, CA 94117-1080

    (415) 422-5326

    investorjusticeclinic@usfca.edu

    • The claim cannot exceed $35,000.

    • Household income cannot exceed $50,000.

    • Claim amount and household income limits may be waived if an investor cannot get a lawyer to take the case.

    • Focus is on resolving cases through mediation, but will also represent claimants through simplified arbitration proceedings.

    Feb 15 10:18 PM | Link | Comment!
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