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RedChip’s Research Director: Young, Intelligent, and Often Right

|Includes:DMND, L&L Energy, Inc. (LLEN), LRN, NTWK, SGAS, TSL

Wall Street Pros Testify to Quality of RedChip Research

For large brokerage houses, equity research has long been a cost center propped up by investment banking revenues. Following the unprecedented wave of investment bank and brokerage mergers in 2008 and 2009, many sell-side firms have been forced to cut back on research and drastically reduce the number of companies under coverage. Small-cap companies have been particularly affected by the trend, as lower liquidity and investor interest provide less incentive for analysts to cover them. The void left by sell-side research in the small-cap space has made the role of independent research providers increasingly important to the continuing efficiency of the market.

Mr. Kantrowitz holds both a BBA in finance and an MBA from the University of Central Florida, has studied at the New York Society of Security Analysts, and has been quoted by well-known financial sources such as Investors’ Business Daily (IBD), Seeking Alpha, Barron’s, and Houston Business Journal. With an established track record of nearly four years at RedChip, producing and managing research reports that are carried on the major data providers and viewed by funds and institutions, Matt Kantrowitz can be considered a rising star in the world of small-cap research and analysis.

RedChip’s due diligence on new companies under coverage involves extensive analysis of SEC filings, industry and competitor research, discussion of questions and concerns with company management at regular intervals, and firsthand visits to company operations in China. Matt has personally visited the overseas facilities of many of the companies under RedChip coverage to observe their operations, speak with employees and managers, and compare filed financial results with actual daily production.

The analyst reports Mr. Kantrowitz oversees and publishes as Research Director, both sponsored and non-sponsored, easily match the research of many major brokerage firms and investment banks in terms of scope and depth of analysis. A typical RedChip initial report addresses investment highlights and thesis, company and industry-specific risks, company history, corporate structure, industry overview and outlook, product segment analysis, competitive strategy and environment, growth strategy analysis, macro environment and outlook, financial analysis (profitability trends, liquidity, cash flow health, debt load, etc.), management background, and valuation, which includes relative (peer comparison), takeover, and discounted cash flow valuation models as well as full pro forma projected financial statements.

Furthermore, Kantrowitz and his team publish quarterly updates analyzing each company’s performance over the latest reporting period, comparing actual financial results to the analyst’s estimates, and adjusting estimates and price targets as necessary. Much like the research of major sell-side firms, this practice not only keeps investors abreast of significant changes from quarter to quarter, but it encourages accurate projections and accountability with readers, who can easily weigh the quality and accuracy of the analyst’s predictions.

It is worth noting that RedChip’s sponsored research universe does naturally have a more positive rating distribution than its non-sponsored universe, not because of bias toward sponsoring issuers, but because RedChip is outspokenly selective in the client companies it chooses to represent.

As a hybrid investor relations and equity research business, RedChip naturally wants to be sure that it is representing profitable, high-quality clients with significant growth potential. Potential clients that don’t meet RedChip’s five criteria are regularly turned away, which skews the coverage universe toward higher-caliber companies. As with any major equity research provider, no part of the analysts’ compensation is directly or indirectly related to the specific recommendations or views contained in the research reports, and analysts are prohibited from holding shares in the securities they cover.

100% accuracy is a myth in financial markets and stock selection, but RedChip has a history of covering companies that have made sustained gains in line with RedChip estimates and have outperformed the broader market. Here are a few examples of Matt’s successful non-sponsored stock picks in his role as RedChip’s research director:

Ticker Coverage Initiated Initial Price Initial Target Price Recent Price % Return
CHBU July 2010 $0.43 $1.50 $1.50 +249%
DMND March 2009 $22.23 $28.00 $52.43 +136%
DRRX December 2009 $2.20 $3.42 $3.36 +53%
HOOK July 2010 $4.94 $5.50 $7.97 +61%
LRN March 2009 $14.64 $21.00 $33.84 +131%
SMED February 2008 $2.45 $6.30 $5.72 +133%
TSL June 2009 $24.85 $17.00 $29.59 +19.1%

Sponsored research under Matt’s direction has also yielded a number of top-performing stocks, including:

Ticker Coverage Initiated Initial Price Initial Target Price Recent Price % Return
CECX July 2010 $2.35 $6.00 $5.01 +113%
CWS September 2009 $1.36 $3.50 $4.25 +213%
LLEN April 2009 $0.97 $5.55 $7.78 +702%
NTWK June 2010 $0.76 $3.00 $2.01 +165%
SGAS September 2010 $0.30 $1.70 $0.44 +47%

The quality of the research products produced under Matt Kantrowitz’s leadership, both sponsored and independent, has also been supported by numerous experienced financial players and Wall Street pros. Examples of feedback the company has received include:

“RedChip is by far the top small-cap research firm in the emerging markets sector. I read their company-sponsored research and follow their stocks because of the quality and integrity of their work and the companies they represent.”

Kyle Wool, head of Asia Wealth Management for Oppenheimer

“My clients and I always read RedChip research; we have made some great investments buying RedChip recommendations during the last three years. I strongly recommend their company and their research.”

David Sheridan, stock broker for Boenning & Scattergood

“I’ve been making markets and buying stocks for twenty years. I have nothing but praise for RedChip’s research. Their organization is the best at what they do: represent profitable, fast-growing companies that need more coverage in the markets.”

Clarke Johnson, Alpine Securities

Supporting Kantrowitz and RedChip’s research platform are a team of experienced analysts, many of whom hold the Chartered Financial Analyst (NASDAQ:CFA) designation. RedChip’s analysts bring extensive experience from respected firms such as Deloitte, Fidelity, Deutsche Bank, Exxon Chemical, Bank of NY Mellon, Merrill Lynch, and the New York Mercantile Exchange, as well as educational backgrounds from Harvard, Columbia, Wharton (UPenn), LSU, Loyola, and other prestigious universities. RedChip’s analysts include:

Aditya Khandekar, CFAResearch Analyst Team Leader

  • More than 13 years of experience in corporate finance and M&A
  • Has served as financial analyst, global controller and CFO in several companies
  • Has led research teams writing equity and sector reports in the U.S. and European markets covering sectors such as technology, infrastructure, healthcare, financial and industrial goods and services
  • MBA, Iowa State University

Clay Mahaffey, CFAResearch Analyst

  • Conducted merger and acquisition services for The Sterling Group
  • Led LBO program targeting segment of the specialty chemical industry for a Boston-based financial service firm
  • “Five Star” rating from Yahoo Finance for performance results covering independent oil refiners.
  • BS in Chemical Engineering, LSU; MBA, Wharton School of Business (UPenn)

Michael Schmidt, CFA – Analyst & Contributor

  • 20 years experience as an analyst, portfolio manager and institutional investment consultant with various firms, including Bank of NY Mellon, Evergreen Investments, Mercer Consulting, INDATA and Coastal Asset Management.
  • Specialties in value and quantitative equity styles and multiple fixed income strategies
  • Arbitrator and chairperson on FINRA’s Dispute Resolution Board, has testified as expert witness in arbitrations and security litigation in over 40 cases.
  • Contributes to CFA Institute as part of the Educational Advisory Board, has been part of the annual grading team since 2001.
  • MBA, Loyola University of Chicago


James Altenbach, CFA – Research Analyst

  • Over 13 years of sales, financial advisory, institutional relationship, research, and general management expertise
  • Has worked for research firms such as H.C. Wainwright & Co. Economics, Altimus Capital, and First Allied Securities.
  • Bachelor’s from California State University, Los Angeles


Mahesh Joshi, CFA – Research Analyst

  • Over 12 years experience in the areas of equity research, credit research and investment banking, including as a buy side and sell side analyst and fund manager in the U.S. and India.
  • Specializes in commodities, energy, oil & gas and capital goods across both developed markets (US and Europe) and emerging economies including Asia and the Middle East.

Bill Matson, CFA, CPA – Research Analyst

  • Over 30 years experience, including positions as a portfolio manager, author, analyst, and consultant with firms including Dean Witter and Merrill Lynch
  • Provided independent equity research services from 1993 to 1997, then transitioned to IT consulting with Myers Holum, Inc., where he managed accounting and reporting systems projects for Fortune 100 clients.
  • Co-authored Data Driven Investing, a book that analyzes 52 years of returns for 19 different strategies.
  • Currently portfolio manager at Cognition Capital Management, LLC, focusing on small and micro cap value equities since 2005.
  • MBA, Harvard Business School

Ryan Kuyawa CFA – Research Analyst

  • Over 10 years of research experience in finance industry and capital markets
  • Registered investment advisor as both general analyst and equity and fixed income trader, responsible for generating equity and fixed income investment ideas across all sectors for  $150M large-cap equity strategy and $60M core fixed income strategy
  • BBA, University of Michigan-Flint

For nearly 20 years, RedChip Research has been a staple of the small-cap investing community, and its quality under Research Director Matthew Kantrowitz has been attested by individual and institutional investors alike. With a strong educational background in finance and backed by a team of highly experienced CFA analysts, Kantrowitz has continued the RedChip tradition of providing high-quality, objective research on small, undiscovered companies to the investing public and is well on his way to becoming a star in the small-cap analysis space.