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American Contrarian Investments, LLC is a boutique investment firm with a focus on US listed companies operating in emerging markets and commodity futures.
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  • 5 Reasons You Should Own Artificial Life, Inc.

    If you have any interest in new technology, or a pulse for that matter, then you’re surely well aware that we’ve entered the early stages of a mobile Internet boom. And like the PC or dot-com booms of years past, this emergence of revolutionary technology offers numerous opportunities for investors to capitalize on small, fast growing companies poised to dominate their respective industries for years to come. We believe one such opportunity lies in the mobile software application market. The company currently trades on the OTCBB under the symbol ALIF. And its name is Artificial-Life, Inc.

     

    So without further ado, here are five reasons we believe Artificial Life presents an attractive opportunity to investors:

     

    1.     Proven success in the app market.

    ALIF’s iPhone download stats are as follows:

    -20 (or 95%) of their games have made it to the Top 100 most downloaded

    -17 games have achieved a Top 50 rank

    -15 have make it to the Top 10

    -11 games have made it to the Top 5 or higher

    -Best selling game was downloaded 1.8 million times

    -Second best selling game was downloaded 1.4 million times

    -More than 5 million iPhone games downloads in 2009 alone. 

    We could go into more detail about their past success, but with more than 50% of their games making it to the Top 5 most downloaded, we’ll assume we’ve made our point.

     

    2.      A global presence.

    Artificial Life is headquartered in Los Angeles, with its production center in Hong Kong and offices in Berlin and Tokyo. They are one of the few developers well positioned to capitalize on the emerging global app market. Their best games have already reached Top 10 download rankings in 56 countries (ie. 73% of all countries in which the iPhone is officially sold).  And on January 14 they signed a partnership with China Unicom to “launch a wide selection of Java mobile games.” Last we checked there were a lot of people in China. Moving on.

     

    3.      Genre diversification from games to business to medical apps and more.

    While ALIF has had tremendous success with their games, there’s more to the story. They have successfully developed software applications for mobile television, real estate and diabetes glucose monitoring. Not to mention application delivery/distribution software and cutting-edge augmented reality software. In fact, their 2010 strategy calls for even more emphasis in these largely untapped arenas. And reason number #4 may help explain this shift in focus.

     

    4.      Equity investment from 3M/Strategic Alliance Agreement.

    On October 26, 2009 3M purchased 6,447,491 shares of common stock at $1 per share representing a 10% equity interest. And the President of 3M New Ventures Stefan Gabriel had this to say: “We are looking forward to collaborating with Artificial Life on a number of exciting technology applications in these fast growing markets all across the wide range of 3M businesses.” Enough said.

     

    5.      A/R difficulty keeping shares low.

    Recently the company has had some difficulty collecting on their accounts receivables. However, management has stated they assume collectability of the receivables. We believe them and assume that this will be a very temporary problem (please do your own DD). However, it has helped keep share prices low, and ALIF currently trades at a PE of just over 6. This for a company who experienced 32% period over period revenue growth, not to mention a major equity investment with tremendous potential for new business opportunities.

     

    So there you have it. One of the fastest growing tech companies, in one of the hottest sectors, for dirt-cheap. What more can you ask for? 



    Disclosure: We currently hold a position in ALIF.OB. This article is not intended to be investment advice. Please consult a qualified investment professional before making any investment decisions.
    Jan 17 6:14 PM | Link | 4 Comments
  • Why the OTCBB is safer than the S&P

    As the S&P hovers just above a PE of 20, we thought it might be a good time to explain why we feel some US listed small caps operating in China may be safer investments than traditional American Blue Chips. It’s hard to fathom a world where companies trading on the OTCBB could provide more security than those  on the NYSE, but in many cases we feel this is absolutely correct.

     

    First, we’d like to point out that our strategy seeks capital gains through stock price appreciation. Thus, we determine risk by the price paid for any given equity relative to the potential for price appreciation/depreciation. The lower the valuation, the less risk we assume and vice-versa.  

     

    With that philosophy in mind, here's why we believe some companies on the OTCBB may present less risk than those in the S&P:

     

    First, the valuations in the S&P are fair at best. However, our goal isn't to pay fair price. It's to play below fair price.  Right now we see some US listed Chinese companies trading at a tremendous discount to their American counterparts. Why buy a company with modest growth potential trading at 20x's earnings, when you could buy a company with significantly more growth potential trading at 5x's earnings? It's just common sense. 

     

    The second reason we believe Chinese companies on the OTCBB present an attractive opportunity is the Chinese economy itself is growing at a much faster rate than the American economy. However, much like mainstream investors fear smaller exchanges, most fear companies that operate in China. They commonly cite reasons like “lack of regulation," "companies cook their books," and  "China's blown a bubble." Need we remind investors that Enron traded on the NYSE, Bernie Madoff is the former chairman of the NASDAQ and China's stimulus was less than ours (and they've already taken steps to raise rates)? If they're bad, then what are we?

     

    There's also the issue of "sovereign fraud." That China misrepresents their growth, and thus the companies over there aren't worth investing in. Again we believe this fear is totally unfounded as all economies “cook their books” to some degree. Just look at how the US reports unemployment. There’s absolutely no proof that the Chinese fudge numbers any more than their American or European counterparts. And while it’s important to do your homework and look for signs of fraud, it’s foolish to write off every business that operates in a given country because that country may or may not accurately represent macroeconomic figures.

     

    The final reason we find OTCBB stocks so attractive is they all have the potential to uplist. And when they do, a nice increase in stock price usually follows. Nothing fundamentally has to change with the company. They don’t have to increase sales or improve margins. Their stock is simply traded on a different exchange and the investors with the guts to back them from the beginning get rewarded handsomely. Keep in mind, stocks on the NYSE only have one place to go, and that’s down.

     

    Thus, it is our opinion that feelings of exchange and economy based "safety" or "risk" are pure delusions. Only the underlying companies themselves should provide those feelings. However, these common misconceptions have afforded us a tremendous opportunity, as many fundamentally sound, fast growing and honest companies on the OTCBB trade at an extreme discount to their larger counterparts simply because of where they trade and/or operate. Companies like ALIF.ob, CNOA.ob and BSPM.ob have all reported consistently solid earnings, boast fantastic growth potential, and trade with PEs that are a fraction of the S&P aggregate. And given our strategy, this gives us far more comfort than Mary Schapiro, or any other bureaucrat ever could.



    Disclosure: We hold positions in BSPM.OB, CNOA.OB, and ALIF.OB as well as a portfolio of US listed companies operating in China that trade on the OTCBB. The statements made in this article are not intended to be investment advice. Please consult a qualified investment advisor before making any investment decision.
    Tags: BSPM, CNOA, ALIF, China, OTCBB
    Jan 16 6:37 PM | Link | 1 Comment
  • China’s Blowing, We’re Buying: The Great China Bubble Debate
     Noted contrarian Jim Chanos recently made some statements that have the investment community (not to mention fellow contrarian and China Bull Jim Rogers) buzzing about whether China is on the verge of popping a massive economic bubble. Such a pop would surely send catastrophic shockwaves across the fragile global economy.  But is China really on the verge of financial Armageddon?

     

    Before we answer that question, we’d like to start by clarifying our position on China. First, we do believe there is a real estate bubble in China.  One need only look at the empty city of Ordos in Inner Mongolia, to find proof of that. This fact comes as no surprise, as central economic planning and loose monetary policy almost always lead to speculative bubbles across all asset classes.

     

    However, we do not believe a deflationary “pop” is imminent - at least not in China.

     

    Here’s why:

     

    According to the World Factbook, China’s total external debt at the end of 2007 was $363B USD, while their debt to GDP ratio was only 5%. That’s a mere fraction of the United States’ current $13T debt which accounts for 95% of annual GDP, or the UK’s $9T debt which accounts for 365% of their annual GDP, not to mention other European basket cases like Ireland whose roughly $2T debt is nearly 1,000% of GDP. Thus, when the sovereign dominoes begin to fall, we feel China will be among the last to topple as they have the most reserves, not to mention a massive commodity stockpile and an undervalued currency ripe for debasement.

     

    Another reason we feel the China bubble has time on its side, is that government intervention in the form of economic stimulus is perfectly acceptable in the PRC. Remember, the Chinese are communist. The government is SUPPOSED to provide for the well being of the people. So while “Cash for Clunkers” gets everyone up in arms here in the States, it’s received with open arms in the PRC. If current policy continues, we feel this widely accepted policy of government subsidization will ultimately allow the Chinese to inflate the kind of bubble the American government can only dream of.

     

    So why invest in a country that’s inflating the biggest bubble in the history of history? Because the early stages of an economic bubble are highly profitable. Think of the US economy in 2004-2006. It was a great. Fortunes were made. Everyone was happy. Only when the “pop” comes do bubbles get a bad name. If we could find a way to perpetually inflate an economic bubble without ever realizing the pop (which is exactly what all major governments are attempting to do as we speak) we’d all be millionaires. But until then, we must simply identify what stage of the bubble cycle a given economy is in, and invest accordingly. And try not to look too far in the future. Because if you look far enough, we’re all dead anyway.  



    Disclosure: American Contrarian holds a portfolio of US listed companies operating in China.
    Tags: China, Bubble
    Jan 11 7:22 PM | Link | Comment!
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