Stock Gumshoe

You might have seen this one circulating lately — it’s an ad for Ann Sosnowski’s MicroCap Hotsheet (Ann still sits at the top of the Gumshoe spreadsheet with her Lynas pick … though if you average in her other teaser companies we’d probably be looking at something much more average).

It’s for a Chinese company that has something to do with the boom in fast food and protein in China — the argument goes that McDonald’s and Yum Brands and all those guys need lots of beef and chicken and pork, and dairy products, and that those are the things that the citizens of developing countries always aspire to as they begin to afford an upgraded diet. (I do agree with this argument in general — it’s why I invested in Sadia, the big Brazilian protein producer, last year, and why I continue to hold those shares after a near-double).

But this isn’t for a meat producer, or even a grain producer to feed all that livestock — this is a teaser for a hybrid seed company, taking us yet one more step down the chain. McDonald’s needs beef, so they have to raise more cows, and cows eat corn so they need to raise more corn, and you need lots of corn seed to up your corn production.

So that brings us to Sosnowski’s recommendation. She has teased this company before, several months ago, but I never really wrote it up and it was with a different ad … so on we go.

The seed business in China apparently used to be pretty much a government monopoly, but that changed in 2006, opening up the market that Ann describes as worth “$3.4 billion.”

So that sounds kind of worth looking into … these are a few of the clues for this company:

$25.7 million in sales in 2005.

Priced around $8, market cap a little shy of $200 million.

“On June 26, 2007 this company started trading on Nasdaq — meaning that it meets the most stringent listing standards in the world.”

They’ve started a $10 million stock buyback.

They have government funding of $1 million for a new R&D center.

And, finally, “On Friday, September 7, this company announced a brilliant acquisition that I expect could accelerate … gains to 103% in three months’ time.”

So what does the massive cognitationizing power of the Thinkolator 4000 reveal for us today?

This latest China push for MicroCap HotSheet is …

Origin Agritech (SEED)

We briefly mentioned this one when it was teased, also by Ann, as a “surefire agflation play” a few months back, and the shares haven’t done all that much moving since then. The clues all match perfectly, though, including the specific sales number for 2005, so I’m convinced that this is still our little seed friend.

And the big acquisition they just announced? That was for a fertilizer company, and I have no idea how it will work out for them but it’s certainly true that investing in any kind of fertilizer this year and last would have made us all wealthy. I can’t tell you that the company they’re acquiring, Guang Xi Fortuneland, will be the next Potash, or even the next Terra Nitrogen or Mosaic, but I can certainly see that there might be potential in pairing a hybrid seed company with a fertilizer company.

The big buyback? It is $10 million, but they’ve got another 15 months or so to of authorization for that, so it might provide a floor under the shares … or they might not actually buy anything back, no real way to know until they actually purchase shares and tell us.

And the Nasdaq date that she gives in her teaser is kind of sneaky — they didn’t exactly IPO on June 26 (they’ve traded in the US for a year or two, I think), but they did get an upgrade on that day from the Nasdaq Global Market to the Nasdaq Global Select Market, which is for, I can only presume, double secret extra super duper good companies.

What else about SEED? It’s got a fairly large insider ownership position above 30%, which I usually like. Wellington, Royce and Heartland all own significant chunks in their mutual funds, and they tend to be pretty smart. In addition to the fertilizer company, they just got permission to sell hybrid cotton seed in India and hybrid rice seed in Vietnam, so that could be significant someday.

The shares have been beat up a bit recently because they missed their earnings estimates because of a bunch of one time charges, delayed acquisitions, and “changes in the Chinese seed market,” and cut their guidance on sales by about 30% for the year ending this week. That last bit doesn’t make them really sound like they’re poised to take over this whole $3.4 billion business in the Middle Kingdom, but if you’re starting from sales this year of around $65 million I suppose there’s certainly potential to grow if they do things right. They do say that they expect a better pricing environment and that the stuff that dragged down 2007 revenues will “significantly benefit 2008.”

If you take their last quarter’s earnings, the run rate of 20 cents would give you a decent PE of about 10 (80 cents of earnings, $8 share price) … but that’s probably not smart, since I expect their business must be extremely seasonal and there’s not much of an earnings history for us to work from to give one faith.

I find this one intriguing, but haven’t been moved to buy shares. For full disclosure, I do own shares of Lynas and Sadia at the moment, but not any other company mentioned here.

This one is another ad for Sosnowski’s MicroCap HotSheet, and it came in from a reader (who also had a suggestion for the solution, thanks!). A close second for the key part of this teaser was the subject line of some of the more recent emails on this one, “Too Dangerous for NBC.”

The company teased is a cardiac monitoring product firm, they design innovative products that allow for better monitoring of the heart, primarily in mobile situations — they have a little card product that patients can carry to check and transmit their heart data, and the Cardio-Vest that they featured on the Today Show which can be work by race car drivers and, presumably, other athletes to constantly monitor the heart under stressful conditions.

The Today Show called it a “modern medical miracle.” (not sure how tough the Today Show’s criteria is for that classification)

And the “too dangerous” part was that the Today Show didn’t release the name of the company — perhaps, as the newsletter editor would have you believe, because it would have been too much attention for such a microcap stock.

So what does Ann Sosnowski tell us about this company as part of her newsletter sell?

“In the short term, based on the FDA approval and release of this cardio-vest technology, I believe this company will hit at least $10 and could go as high as $20 after that, handing you a 1042% gain in the process.”

Hmmm … that sounds nice.

They have “an agreement with Gold’s Gym, the ultra-popular nationwide fitness center chain, to begin in-house cardiac testing with their equipment at Gold’s original and largest location in Venice Beach, CA.”

And FDA approval is expected “within a few short months”.

And as to specific clues about the stock, she says it’s priced at $1,75, and “Their stock price has actually posted gains of over 100% since the beginning of 2007!”

Then comes my favorite part: The section on exclusivity, where the newsletter editor explains that only a select few will meet the qualifications to receive this information (I suspect the primary qualification is “has $995 to spend on the newsletter,” but perhaps I’m being uncharitable.)

“Only a handful of the folks who read this letter will be allowed to profit from the information I’m about to reveal. In fact, most people will be intentionally excluded so that a smaller private group can enjoy the full rewards.”

Sosnowski is certainly trying to stand behind this pick: “If we haven’t delivered at least 200% gains by the end of 2007, just say the word. I’ll refund every penny of your subscription.”

And she warns that those who don’t get in as early subscribers may have to pay the $4,500 that “her publisher” wants to charge. I love when newsletter editors invoke the threats of their publishers — it reminds me of when the car salesman says he has to go “talk to his manager.”

The Gumshoe, of course, will not stand behind this pick … but neither will I charge you a thousand clams for the name of the company. One of my readers, who wishes to remain anonymous, sent this one in with a suggested solution to the teaser, and he was right … the company that’s developing all of these “high-potential” cardiac monitoring products is …

Signalife (SGN)

And this one’s actually traded on the AMEX, so at least there’s no pink sheets or OTC smell to it.

To be fair, Ann Sosnowski’s MicroCap Hotsheet has one of the most successful short-term picks that I’ve sleuthed recently — she’s the one who pushed Lynas for its rare earth minerals mine, and she continues to tease it in her ads, now with a focus on the need for rare earth minerals in hybrid car batteries. That doesn’t mean this pick is a great one, too, but I felt it only fair to mention (you can see the tracking of all the stocks I’ve sleuthed out in my tracking spreadsheet, which is live, almost up to date, and linked from the sidebar to the right).

The Today Show episode where they featured the Cardio Vest was in November of last year if you want to confirm for yourself, and the card, vest and other monitoring products are exactly has described in the newsletter … and as a bonus for Gumshoe readers, I can tell you that this stock is now “ON SALE” — it has gone down since this email started circulating, so you could buy it today, if you so chose, for $1.50. It has traded at $1.75 several times in the last few months, and even gotten a bit over $2 a few times.

I have no idea if the FDA will approve this, or if that will impact the shares as positively as Sosnowski believes … I also don’t know anything about the company’s financials, so you’re on your own for reading those filings. I do know that medical devices certainly have a much easier and shorter FDA approval process than drugs, with a much lower bar to leap over, so I would give the benefit of the doubt to this one more than I would to a biotech drug in the approval process.

Best of luck to you — and as always, if you have any info to share about the Cardio Vest, Signalife, or anything else, comment away or send an email to ilovestockspam@gmail.com. Happy investing!

I’ve seen this ad in a few different variations, for a couple different related newsletters. The most detailed one was from Ann Sosnowski for the MicroCap HotSheet, which would like you to sign up for a subscription at around $1750 a year.

And of course, even if you want to pay that much, they want you to promise to keep a secret:
“You must be able to keep a secret. No blabbermouths. Sharing MicroCap HotSheet stock picks with people who are not within our private group is strictly prohibited.”

Thankfully, the Stock Gumshoe is not a subscriber … so I have no problem sleuthing out the company she’s talking about, and sharing it with my lovely readers.

The ad opens with many claims of past successes in microcap investing, including some that the author “would have” recommended to her other newsletter readers back when they were tiny, like Force Protection (a previous Gumshoe article sleuthing out FRPT is here, FYI), but couldn’t because of their size (thankfully, she doesn’t note any of the microcap flops and bankruptcies she would have recommended, too, or I would have fainted from the stench of honesty). And now, this new newsletter product means this advisor can finally tell you about all these hot microcaps.

The pitch for this one is thus:

China has a near-lock on “Rare Earth Elements”, which are a set of obscure fellas from the periodic table that are rare or difficult to find, but which are in significant demand for very particular products — like hybrid car batteries and lots of other electronic stuff.

If you’re like me, you’ve probably heard of “rare earth magnets” … but didn’t know much about all this other stuff.

So many things are dependent on rare earth minerals and elements that the author argues this is a national security issue — guided missiles and other defense technologies are particularly dependent on these elements.

And most of these elements are currently mined and produced in China, which strategically moved to slash prices and drive other producers out of the market in the past decade … and has taken steps to choke off export to the US. (again, according to the newsletter ad — there may be more to this story, I don’t know the politics)

Now, the ad says, there’s an Australian rare earth elements miner that’s just about to start digging — and the prices might shoot up incredibly fast.

The headline promises a move from .35 cents to five dollars … but later on, the sell gets sweeter:

“This tiny 35-cent company is hands down the single most lucrative investment I’ve seen in the last three years … I wouldn’t be surprised if it went all the way to $6.50 or even $7 per share.”

Here are the clues we get about this little Australian company:

They bought the mine site in 2001, and it is the only non-Chinese commercially viable rare earth element mine in the world.

“J.P. Morgan, Goldman Sachs and RAB have started building positions in the stock.”

She also supplied a chart, not sure if it’s in US or Aussie dollars, that shows the date she’s working from for the 35 cent price is December (I’ve seen more recent ads on this, too, but without specific prices it was harder to confirm from just those ads).

So … would you like to join the “exclusive” limited community of the MicroCap HotSheet? Or do you just want to know the name of the company so you can do your own research?

I thought so.

So your friendly Stock Gumshoe entered the researchitron chamber and came out with the knowledge that this particular Australian miner is …

Lynas Corp. (LYC on the Australian Exchange, LYSCF.PK on the US Pink Sheets)

Lynas was trading at just about 35 cents (US — closer to 45 cents AU) when this email was initially sent out. They have a mine in Australia called Mt. Weld, which they bought in 2001 from Anaconda Nickel. Their promotional materials claim that Mount Weld has “without a doubt the world’s richest Rare Earths ore body.”

They also have a processing plant for the ore in some stage of development in Malaysia (so that they won’t be subject to Chinese policies, as they would be if they sourced this work in China).

But I’m not trying to sell you on this one — or sell you anything, frankly. I’m just telling you that you don’t need to spend $1,750 for an “exclusive” newsletter to find out what this company is, not when your friendly Stock Gumshoe is around.

(Though if you want to make a donation to the Stock Gumshoe cause as some of your fellow readers have, they’re always welcome — just click the donate button in the right sidebar.)

As I’ve said many times before, I don’t have any idea whether this is a good investment or will get to $5 by the summer as the ad predicts … and I don’t know if the story about the rare earth elements monopoly in China and the general demand picture for these unique elements holds water, though my basic understanding of the situation is that it does.

I don’t know if Lynas will run into any hitches as they develop their mine at Mt. Weld, or with their plant in Malaysia — the digging is supposed to start soon, I think, but the processing plant won’t be commissioned until the middle of next year.

I also haven’t looked in detail at Lynas’ financials, except to confirm that there is some investment bank interest as was teased, including institutional placements in the US — and that one of the major holders, a hedge fund called Ospraie, has been selling a bunch of shares recently. I don’t know if they’re prescient or idiotic to be doing so (or if this is just one of those “unwinding carry trade” stories for them). You can read all the filings and announcements yourself at http://www.asx.com.au if you’re interested. And if you promise to come back to the Gumshoe when you’re done.

As always, the Stock Gumshoe can’t tell you what to buy … but he can tell you what company the newsletter ads are telling you to buy. Now you’re on your own — enjoy!