Seeking Alpha

Sharon Merkle's  Instablog

Sharon Merkle
Send Message
Sharon is a retired executive.
View Sharon Merkle's Instablogs on:
  • Natural Gas Alternative: NGS
    Natural Gas Services Group, Inc. is a $200 million (market cap) maker, assembler and supplier of small and mid-horsepower compression equipment to natural gas suppliers. It's price/book is 1.55, and is currently trading at a forward P/E of about 17.

    It is followed by two analysts (on Yahoo Finance) and has a mean rating of buy, with a low target of $18 and a high target of $25. It is trading today around the mid $17s.

    I've been following this stock for about six months, and every week I wish I would have bought at last week's price. While the commodity circled the drain all year, the price of NGS has gone from $6.72 on March 2nd to its current range on an easy, gradual slope averaging about 10% per month, smoothing over the nine-month term the June-July post-traumatic stress disorder event with the Bond market.

    The line of business is especially attractive because NGS sells its gear wether the wells are actually pumping or not. The compressors they prefer to sell are mostly for small and mid-size wells, which promise to be the majority of new wells tapped as the US discovers, by necessity or desire, its wealth of this cleaner, cheaper, easier-to-transition fuel.

    Although the stock does not pay a dividend, there has been one insider buy and no insider sales in 2009. Insiders may sell to pay a bill, take a vacation, or fund holiday gift buying, but they only buy for one reason: confidence.

    CEO Steven C. Taylor recently described their evolving business model to the Wall Street Transcript, where he described the popularity of compression rental among his customers, due to the predictability of flat monthly fees, and the reliability of NGS' fleet of field service technicians, which also provide NGS with equally reliable services income.

    NGS has carried a positive assets/liabilities ratio for at least each of the last three years, and as of the Q ending 9/30 drastically reduced long term debt by 61%, to $3,661,000, while increasing cash on hand to $17,732,000. They have booked positive net income for each of the last three years, and net income growth in double digits each of those. Their profit margin is currently 17%, on operating margins of 29%. 2009 has proved a setback on a YoY basis, and revenues are down 34%.

    The play on NGS is a long-term play on the US natural gas industry. If you believe that global market forces, declining super-giant oil fields, Saudi deceit, and economic dignity will eventually force the US to exploit to the maximum possible degree whatever sources of energy it has right now (what I like to call "energy sources, ex-hippie," i.e., domestic energy less solar, wind, and bio, none of which have a prayer of driving the US road fleet in the next ten years), then NGS is a reliable addition to a basket of equity proxies on the natural gas sub-epoch of the US fossil fuel era.

    Disclosure: the author, regretfully, holds no position in NGS. No content in this article constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any person. An investment in any security is subject to risks and this article does not contain a list or description of all relevant risk factors. You alone are solely responsible for determining whether any investment, security, or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation.
    Dec 15 3:45 PM | Link | Comment!
  • Drug spec: Burned by GTXI
    I have posted three instablogs about stock and ETF investment plays.

    My prediction for the S&P has proved substantially correct so far, as the melt up continued through my named range, and the current earnings season has produced some uncertain whipsawing action. My target for the Q12010 may prove too low, but three months out of nine is pretty good for an amateur, and sensible investors always revise based on new data.

    My oil scissors proved profitable as described, even through the break-out to $84, and except for the relative tax inefficiency of those instruments, I am happy with the outcome.

    Bluefire Ethanol (BFRE:OB) broke out on DOE news yesterday, also as predicted. I don't expect that spike to last more than a month, though, because it looks like a lot of short-term speculators are in there, similar to the spike in June. I remain long Bluefire, though, because my idea of speculation in their case is on the 3-5 year time window, and I believe that for 0.5% of a portfolio, a potential ten-bagger like Bluefire is an acceptable risk. Plus, the risk decreases for eacah major milestone the company demonstrably completes. Buy the brims of the witches hat after the day traders' attention wanders.

    For this entry, though, I'd like to tell the story of a failure. A dismal failure- of judgement (mine), analysis (mine and others'), and of emotional committment. The failure was my 2% portfolio investment in the cancer drug developer GTX, Inc (NASDAQ:GTXI).

    During the summer, I was researching small-cap spec plays. I believed the rally was intact and the liquidity from the FED was safely declared to be in place through March of 2010, so I wanted to have some fun while my large-cap/dividend heavy picks melted up.

    I found Bluefire, whose story I believe in, and whose industry I understand from study and experience. I also found GTXI, whose industry I don't really understand, but whose story was compelling.

    GTXI had submitted their drug/dose toremifene citrate 80mg to the FDA for approval in the treatment of certain kinds of bone fractures in prostate cancer patients. The same drug is working through a phase III clinical trial due to wrap in Q1 2010 at a 20mg dose for prevention of certain kinds of prostate tumors. The 80mg action date from FDA was October 30.

    Sell-side analysts like S&P had valued GTXI at around $9-15 a share, based on a reported favorable/moderate disposition toward the drug from FDA, and noted that the same compound had already been on the market for 20 years treating post-menopausal breast cancer in women. Buy side analysts feared a black box warning would hurt sales post-approval, and valued the company at around $12. Notice both camps took approval for granted.

    During September, I watched what I correctly believed to be a speculative ramp come and go, from a $9 handle the first week, up to the mid-$12s mid-month, and settling back to a low $10 handle first week of Oct.

    Thinking to myself, "These guys have done this before. They know what they are doing. The drug has twenty years of track record. Analysts on both buy and sell sides think this is favorable for approval (maybe with a black box warning for certain groups), cancer drug makers do the work of humanity, and GTXI looks like a winner," I bought at $10.17.

    Trick or treat?

    Trick.

    The FDA did not approve. They asked for two more trials. The CEO on the special conference call said that would take 5 years and $35 million. He had no idea what had happened. He said the FDA betrayed prior understandings about the application for approval. He said FDA "moved the goalposts." He said he "was surprised," and "bigger surprised," by the FDA response. In all, he used the word "surprised" six times. These are the worst words investors could hear.

    In short, he appeared to have no idea what he was doing. His response was to blame FDA. The expedited meeting for clarification he urgently said he urgently requested with FDA has not yet happened six weeks later (or if it has, no one at GTXI or FDA is talking about it).

    I don't blame the CEO of GTXI for appearing naive to the point of incompetent about his own company's basic pipeline process. I blame myself for not discovering his naivety before I bought the stock at $10. I blame myself for over-weighting analyst opinion, especially on the sell-side. I blame myself for letting the humane benefits of the POTENTIAL success to influence my patience on pulling the trigger. After the special conference call on November 2, the stock closed at $4.56, a loss for me of nearly 60% on the position. Completely my fault.

    The practical death knell for toremifene citrate 80mg also throws a death shroud over the prospects for toremifene citrate 20mg next year. If GTXI had no clue what data they needed to get the larger dose approved for bone fractures, then there is no reason to believe they have any idea what is required to get the lower dose approved for tumor prevention. Since they have provided ample evidence that their relationship with FDA is detached from reality, there is no reason to believe that their SARM program will produce a saleable drug in the next five years.

    When asked if GTXI planned to do the necessary studies FDA requires in the CR letter, the CEO said, "I dont know," and "it would a 5-year, $35 million study." The FDA asked for two studies in their letter. He also did not rule out abandoning toremifene citrate altogether. The company operates at a net loss and had $45 million in cash on hand at the end of September. They can't afford two more studies for toremifene citrate.

    Even if the Type A meeting happens in Q12010, and even if FDA says effectively, "we made a mistake, toremifene citrate is approved at 80mg," (both unlikely) my confidence in the company's management is shot. I suspect I am not alone. I feel safe predicting that GTXI will not see $10 again short of 2012. That's past my window for that portfolio allotment, so I realized the loss and took away these key reminders:

    The story of a failed investment: emotion, sell-side cheerleading, insufficient knowledge of management.

    Disclosure: the author is long a small, speculative position in BFRE:OB. No content in this article constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any person. An investment in any security is subject to risks and this article does not contain a list or description of all relevant risk factors. You alone are solely responsible for determining whether any investment, security, or strategy, or any other product or service, is appropriate or suitable for you based on your investment objectives and personal and financial situation.

    Dec 05 1:07 PM | Link | Comment!
  • Scan Your Next Article for These Symptoms
    According to Medicinenet, Post-traumatic stress disorder is:

    ... an emotional illness that usually develops as a result of a terribly frightening, life-threatening, or otherwise highly unsafe experience. PTSD sufferers re-experience the traumatic event or events in some way, tend to avoid places, people, or other things that remind them of the event (avoidance), and are exquisitely sensitive to normal life experiences (hyperarousal).

    I can't think of a better, more concise description of 50% of the content on S/A since last September. Here is a collection of headlines, since March:

    Charlie Gasparino: Another Crash 'Has to Happen Again' -- Seeking ...
    Five Reasons the Market Could Crash This Fall -- Seeking Alpha
    Will the Market Crash? -- Seeking Alpha
    Ten Reasons for an Imminent Stock Market Crash -- Seeking Alpha
    Can a Market Crash Save Us from Hyperinflation? -- Seeking Alpha
    Why the Stock Market Should Crash -- Seeking Alpha
    Could China Crash the US Dollar on a Whim? -- Seeking Alpha
    The Roots of the Coming Crash -- Seeking Alpha
    Is a Crash Impending? -- Seeking Alpha
    Why Apple's Laptop Business will Crash in 18 Months - Hedged In ...
    Is October the Month that Markets Crash? -- Seeking Alpha
    The Next Big Crash Will Be in the JGB Market - Mad Hedge Fund ...
    The Economy's Next Move: 'Sugar High' Followed by Dollar Crash ...
    The Age of Turbulence: Preparing for the Crash -- Seeking Alpha
    Another Market Crash Coming - Got Gold? -- Seeking Alpha
    Is a Crash Impending? - RiskAverseAlert -- Seeking AlphaMassive Stock Market Crash Imminent According to BAM Model - JG ...

    That last one predicted an "imminent" crash over a month ago. The one above that predicted the apocalypse two months ago. A "contributor" posts one of these things at least once a day.

    Again, from Medicinenet:

    "The first group of symptoms required for a PTSD diagnosis are recurrent re-experiencing of the trauma (for example, troublesome memories, flashbacks that are usually caused by reminders of the traumatic events, recurring nightmares about the trauma and/or dissociative reliving of the trauma)."

    Here is a very, very small sampling of the results of a search of the words "disaster"

    Does Disaster Loom from Dollar Funded Carry Trades? -- Seeking Alpha
    Health Care Bill: Prescription for Disaster -- Seeking Alpha
    Marc Faber: 'It Will All End in Disaster' -- Seeking Alpha
    Housing Is Moving Towards Disaster -- Seeking Alpha
    Cash for Clunkers: A Man-Made Disaster -- Seeking Alpha
    Commercial Bank Derivatives: A Disaster Waiting to Happen ...
    Deferring Financial Disaster - James West -- Seeking Alpha
    FHA: The Next Disaster? -- Seeking Alpha
    Is Disaster Looming for Wireless Carriers? -- Seeking Alpha
    Speculative Disaster: Market Extremely Overvalued -- Seeking Alpha

    "apocalypse"

    Seven Stocks for an Impending Apocalypse -- Seeking Alpha
    Dollar and Precious Metals: Apocalypse Not Yet? -- Seeking Alpha
    Bank Preferreds: Betting at the Apocalypse Casino -- Seeking Alpha


    "catastrophe"

    Is an Autumn Swoon in the Cards? -- Seeking Alpha

    Looming Financial Catastrophe: A Real Inconvenient Truth ...
    Commercial Catastrophe: The MIT/CRE Commercial Property Index (Q2 ...
    Voting (and Spending) Our Way to Catastrophe -- Seeking Alpha
    Is Financial Catastrophe Imminent? -- Seeking Alpha
    Gold Continues to Climb as Economic Catastrophe Looms -- Seeking Alpha

    "kill"

    Why Christmas Will Kill Retail -- Seeking Alpha
    Energy Costs Could Kill Christmas -- Seeking Alpha
    Tough Comps Kill Video Game Sales Growth - Michael Comeau ...

    and this list of synonyms for pain could go on and on. The second symptom group is:

    "avoidance to the point of having a phobia of places, people, and experiences that remind the sufferer of the trauma and a general numbing of emotional responsiveness"

    As in:

    "I wouldn't believe the government spending numbers at all. This author is either banking on more lying stats or he is quite naive. "

    "I have more outrage than I can put to this page."

    "So when does the govt or people wake up and do something about it?
    Why are we controlled by the needs of the few rich while the majority are poor and essentially slaves ? Time for big change ."

    "
    They use your ignorance to grab even more power to "regulate" in favor of their friends.By definition, a falsley manipulated market is not a free market. WISE UP!!"

    " Laissez- faire capitalism is a sham and is a cover for those who will stop at no ends to enrich themselves"

    "
    I stopped reading after you claim they ratcheted up oil prices from $40 to $80 this year."

    "
    If 50 million people stopped paying taxes, what could the gov't do but capitulate? "

    "
    If we as Americans could stop sending $25-35 Billion a month to oil producing countries that are not our friends, then we could rebuild out economy"

    "
    MAYBE NOT TODAY, OR EVEN NEXT YEAR, BUT WITHIN 4 YEARS, THIS IS THE ONLY SOLUTION TO THE BIGGEST PROBLEM OUR COUNTRY FACES SINCE 1929! GOD HELP US!"


    Accuse me of cherry picking comments for hysteria or delusional paranoia (PTSD in disguise), then go find me three thoughtful, polite comments in a row on any article in the current Most Popular list that say anything more than "great" or "thanks."

    The third symptom is chronic physical signs of hyperarousal, including sleep problems, trouble concentrating, irritability, anger, poor concentration, blackouts or difficulty remembering things, increased tendency and reaction to being startled, and hypervigilance to threat.

    Hmmmm. Hypervigilance to threat. Gee. That doesn't sound familiar at all:

    Trade Deficit Threatens Double-Dip Recession -- Seeking Alpha
    Trade Deficit Threatens Recovery, Destroys Jobs -- Seeking Alpha
    Meredith Whitney Threatens Severe Deflation For Your Portfolio ...
    Latvia's Collapse Threatens Europe -- Seeking Alpha
    Safe Haven Investments: Imminent Danger and Opportunities ...
    Danger
    In The Markets? Part I - Ted Kavadas -- Seeking Alpha
    Danger
    : Stock Market Crash - Recession - Depression Ahead ...
    Are Stocks Making a Major Top? -- Seeking Alpha
    Is the Local Top in Precious Metals Stocks Already Behind Us ...
    Doug Kass Calls a 2009 Market Top on Overly Bullish Psychology ...
    Is the U.S. Dollar Finished? -- Seeking Alpha
    Why This Rally Is Unsustainable -- Seeking Alpha
    Sucker's Rally Approaching an End -- Seeking Alpha
    Is the Second Great Depression Imminent? -- Seeking Alpha
    The Imminent Collapse of Municipal Bonds -- Seeking Alpha


    Consider helping these poor souls. In addition to disclosing security positions, how about disclosing recent loses and acts of irrationaltiy? Something like this:

    Author is short shares of AIG, long shares of F. Author has lost $80k in the last month day trading VG and C. Author recently threw a promotional puff-foam Viagra diamond at his teenage kid for "all that incessant breathing."

    or maybe,

    Author is long MRT, PIR, UAUA, and SCSS. He has broken dead even since the March lows, but is down the amount of his commissions. He secretly wishes small furry animals harm.

    or

    Author is long gold, bottled water, canned goods, and ammo. He has realized no gain or loss because his assets are buried under an undisclosed location. He believes everyone will be wearing tin foil soon, and is also long PKG, just in case.

    or

    Author is short SPY, TLT, and GLD. Long muskets, dried tea leaves, and live cattle. He doesn't care if he goes broke, because the Fed WILL crumble at the hands of Congressman Ron Paul. He traded his wife a block of homemade cheese for two pints of whale oil this morning.

    or

    Author has no positions, because he is a paid shill of someone with enough money and computers to ramp and dump just about anything on a one-day timeline. His job is to keep the shorts plugging their money into his employers' accounts, and encourage copy-cat hysteria.
             
    Nov 17 4:14 PM | Link | Comment!
Full index of posts »
Latest Followers
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.