Stock Gumshoe

The following was submitted by loyal Gumshoe reader and Irregular Streetsifter, who has solved and written up a few for us before. Your friendly Gumshoe has done almost no editing, so this is Streetsifter’s work through and through … thanks!

Using their words, a “measly dollar” will buy you the solution to the two matching teasers from Ian Cooper and Christian DeHaemer, co-editors of the Taipan publication Red Zone Profits. But when you examine the details on the order form, you’ll see that after thirty days your one dollar trial subscription will be automatically renewed for $295 for every three months, bringing your annual total to a not-so-measly $1,180 per year. Both teasers promise to reveal a polysilicon manufacturer whose shares, currently selling for less than ten dollars, “will be trading at well over $50 a share” by next spring.

Of course, the Gumshoe can’t say whether the touted profits will ever materialize, but regular readers already know that you’re not going to have to pay even the first dollar to share the solution.

Both teasers (it’s really just one teaser posted by the two editors under their respective signatures) contain the following bullets:

• A company that just booked a $185 million deal to outfit a leading European solar technology company in polysilicon for the next seven years…

• One that’s signed another seven-year deal with a Fortune 500 electronics producer that could bring in $370 million…

• One that has been commissioned by the world’s largest solar module manufacturer for ten years and $678 million…

• One that is looking to bring in about $1.2 billion in the next ten years from polysilicon supply contracts.

With that many clues, the Gumshoe’s Cognolator (on loan to Streetsifter) doesn’t even need to warm up to operating speed before identifying the mystery stock as

Hoku Scientific, Inc. (NASDAQ: HOKU)

A Hoku press release contains confirmation matching the listed bullets. The seven year $185 million deal is a contract between Hoku Scientific’s subsidiary, Hoku Materials, Inc. and and Global Expertise Wafer Division, a subsidiary of Solar-Fabrik AG. The second seven year deal for $370 million is with SANYO Electric Co, and the $678 million ten year agreement is with Suntech Power Holdings Co., Ltd. The cumulative total of these agreements is $1.2 billion.

Tread cautiously through the polysilicon, however, since Hoku has already announced that second quarter revenue will be below analyst’s estimates, and the company is predicting a net loss of 1 – 1.2 million dollars. And their polysilicon production plant in Pocatello, Idaho is still under construction.

On June 6th of this year, the Gumshoe posted a solution to another Taipan solar energy stock, Sara Nunnally’s Material Profits Wildcatter tease for SOEN, and it certainly hasn’t qualified as a stellar performer. Whether Hoku will live up to the touter’s expectations is a subject for your own due diligence, but the solution comes to the tease – and the retention of your “measly dollar” - comes from your trusty Gumshoe, with thanks to regular contributor Streetsifter.

Now back to the Gumshoe’s words — I couldn’t resist adding a little bit. Solar teasers are thick on the ground, as Streetsifter says, and it’s getting so even your grandmother’s likely to be talking about the polysilicon shortage. It’s arguable whether we’re still in the “sweet spot” for polysilicon, in my personal (and probably flawed) opinion. I own one of the major polysilicon producers, MEMC Electronic Materials, and I’m growing nervous because every single major manufacturer is dramatically ramping up capacity to fuel the solar boom … and lots of little guys like HOKU are coming out of the woodwork with plans for a poly plant and a dream.

That’s not to say this isn’t a great one — but I wouldn’t assume, just because we have current high spot prices for polysilicon, that every chemical or wafer company that tries to exploit those prices is going to be successful. One need only look as far as LDK Solar, an upstart in this area and a favorite of Robert Hsu’s, that fell precipitously because it seems no one is really sure, still, whether they’re stretching the truth about their inventory.

If you’ve got a yen for solar, here are bunch of other solar and wafer teasers we’ve worked out over the past month or so:

SB-1 Energy Dividend
The Biggest Solar Energy Project Ever!
Robert Hsu’s Red Hot Solar Profits

Best to all, and extra thanks to Streetsifter for writing this one up for everyone!

This one is from Chris DeHaemer at Taipan’s Red Zone profits, and it looks like it circulated pretty heavily on Friday and over the weekend.

It’s for a company that uses momentum, in Dehaemer’s description, to store electrical energy, and essentially runs a big “momentum battery” that they use to buy up electricity at low rates overnight, then sell it again back to the grid at higher rates during the middle of the day. This is in the unregulated, auction-based energy markets, of course, which are available in many states.

The idea, according to the teaser, is that this company can make a killing without ever having to generate any electricity on its own — and it makes sense on a basic level, since we all understand the “buy low, sell high” business plan. Many of us, in fact, try to follow it.

So … what is this magical company that can store power and instantly re-sell it to the grid when demand spikes?

Well, when DeHaemer talks about “momentum” it’s pretty clear that he has to be talking about flywheel technology — giant heavy wheels, often running in a vacuum, that regulate and, in some cases, store energy with, hopefully, minimal loss. This is not too different from the concept that provides some of the power to the Toyota Prius, though in that case the actual wheels are “flywheels” — when you step on the brake, it sends that kinetic energy from the wheel back to the battery to use for running the engine.

And in a flywheel power plant I imagine it must work similarly (in case you can’t tell, I’m NOT an engineer) — the plant pulls energy off the grid to get the flywheels rotating, tries to develop an environment that allows them to keep spinning without losing much energy, and then, when the power is needed again, the momentum of the flywheel is attached to a generator that can spit electrical power back to the grid.

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OK, so I’m not going to win any technical writing awards for my delightful and colorful description of the flywheel power plant, but I think I get the basic idea. Hopefully you do, too.

So, what is this flywheel power plant company, trading at $1.50 at the end of August, according to the teaser (though as far as I can tell, the teaser didn’t start circulating until Friday, September 14, when the shares were appreciably higher)?

Well, the other clues should help us to sleuth this one out:

Insiders have bought heavily this summer, since July 6, 2007.

And DeHaemer tells us that “it could produce the highest profit margins in the history of the utility industry.”

So … figured it out yet? Maybe so, but I’ll tell you anyway … loyal reader Stonecutter and I both agree that this company is …

Beacon Power Corp. (BCON)

And it has had a wild couple of weeks, during which big news came out about several things: a $10 million cash infusion, testing success for their product, and news about preparing for manufacture and the launch of the actual power plant by early next year.

And, being an occasional sucker … er, investing enthusiast … myself, I actually thought about dabbling in shares of this one with my own cabbage when the press releases were flowing from the company last week. Don’t worry, I don’t actually own any shares, but I’m always tempted by interesting technologies like this.

Unfortunately, I’m a bit of a sucker for innovative electrical power companies — one of my larger mistakes, which remains in my portfolio at a huge loss so far, is MMC Energy (MMCN), which is a more conventional electricity generation company, albeit one with it’s own special niche (unfortunately, a niche that they’ve grown much more slowly than I was hoping).

So I certainly wouldn’t consider my interest in the shares to be at all significant, except perhaps as a contrarian indicator.

As with most startup companies and projects like this, it’s very hard to get any idea of when they might become profitable … if they ever will. Of course, since they’re starting up their plant probably over the winter, and winter is a generally low rate and low usage time for electricity, this is not perhaps the time to build wealth through an eletricity rate arbitrage scheme like this … or get attention from the media due to high electricity rates.

But what about this company? Well, if you want to know more about them one thing to really focus on that newsletters almost never cover well, and certainly almost never note in their teasers, is competition — and BCON, as you’re probably aware, did not invent the flywheel. There are a few other power companies of varying focus who sell or manufacture or use flywheel products for electricity storage, they did a quick overview of a few of them over at Stockerblog a few months ago that might help you go get started.

The company is, to get down to brass tacks, a long way from being profitable. These are expensive installations, and I have no idea what their plans are for a second plant, or for expansion. While the Northeast is an appealing place for electricity companies due to the utilities’ inability to build new plants very easily thanks to NIMBY concerns, it’s not the most taxed electrical grid in the country — usually southern California gets that nod, especially in the Summer, so that’s where most of the energy traders of the last, scandal-ridden school got their chops (Enron, et al). It would be nice to see the company try this in other markets, too, which may already be in the plans for all I know.

In my mind this ends up looking risky in a few ways: It’s a bet on a technology that hasn’t yet proven itself on this scale and in this kind of real world usage; it’s a bet on continued high energy rates and a continued open auction market for electricity; and it’s a bet that these guys are better than and/or ahead of their competitors. I’m most sanguine about that last one, since this is a new product/service and, if it works, there may be plenty of room for it to grow even if several companies get into the game. The other two, I’m not so sure.

If anyone else is an expert on flywheel energy storage … or has looked at Beacon or any of the other companies in any detail, please feel free to share. I do see potential, but that doesn’t necessarily mean much … potential without earnings can only last so long.

August 11 update: Just a note that this stock, along with Chris DeHaemer’s other resource play Rusina Mining, has taken a significant hit of late. The hit this company is taking is probably almost entirely related to the current debate in the Somali government about setting up a new government oil company and new centralized oil policy, perhaps with investment from Indonesia and Kuwait and China. There might be some fear that this little resource company’s deal with Puntland could be superseded, though they claim that Puntland is independent from Somalia and will honor its agreement. Just a little more grist for your mill — there was a good article from Reuters yesterday that gives a solid update on the current debate and uncertainty.

Shares have fallen at least 20% or so from the highs they reached on the first round of teaser emails and newsletter recommendations from Taipan, and the emails continue to be churned out predicting several hundred percent gains by October, and more dramatic gains to follow. This one seems to me like more of a lottery ticket every day, even aside from the fact that the predictions of great oil reserves in Somalia are technically and officially “unproven” so far, but Somali politics may well cause more big moves one way or the other here in the coming days … or months … or whatever. Then again, someone wins the lottery every now and then, don’t they?

Here’s the original post from May:

This email ad came in for one of Christian DeHaemer’s Taipan newsletters (I didn’t click through to find out, I assume it’s Red Zone Profits or GRESSOR, though he may have others) and it refers to a special report that will be released “in three days” (the email is from yesterday, May 10).

And the Stock Gumshoe loves to jump the gun on these things, so let’s take a look.

It’s for a company that owns mineral and oil exploration rights in Somalia.

Stupid, right?

That was certainly my first reaction. But he of course backs it up by saying that this exploration is in Puntland, the “safest” part of Somalia, that is run by triabal chieftains and is somewhat autonomous from the Mogadishu government.

And the usual hyperbole: “This tiny 50-cent oil exploration company is, hands down, the single most lucrative investment opportunity I’ve seen in my entire life.”

My favorite part is the hint of conspiracy and international intrigue, as always:

“A band of bloodthirsty Somali pirates… a ruthless tribal warlord… a 900-ton cargo ship hijacked off Africa’s Horn…a fierce fire-fight in Mogadishu’s Bakara Market… a $25 billion bribery scheme… a suitcase full of crisp cool cash… and a tiny 50-cent micro-cap stock that could return 60 times your money.”

That’s a colorful quote! Sounds kind of like that Cameroon cobalt investment of a couple months back, eh?

“Tiny 50-cent “Oil Raider” Stuns Tribal Warlords … Black Hawk Down … Blood in the Streets … could be $8 by October”

Well that’s pretty much all the hints we’re given on this one … so can we crack it before DeHaemer releases his report?

I think you already know the answer to that question — this is the Gumshoe we’re talking about here! If I couldn’t crack it, I’d just pretend I didn’t get the email

This little 50-cent exploration company that has bought up mineral and oil rights in northern Somalia is …

Range Resources, Ltd. (RRS in Australia, appears to be RGRLF.PK on the US pink sheets)

They are trading at about 50 cents (Australian … 42 cents in the US), and they did make a deal with the autonomous chieftains of Puntland to acquire those mineral rights.

Now, before you run off to place your order (as if you’d be that impetuous!), there are a few things to note about this wee company:

I don’t know if it’s a great investment or a lousy one — I’ll leave that assessment to the professionals, I don’t even know if they have any earnings or history, or warrants, or whether they’re run by a pack of fools or a bevy of brahmin.

But I do know that their oil rights in Puntland are probably in some dispute, even as they have teams of people on the ground trying to find the old oil sites from when the majors were in Somalia, and maybe even doing some drilling by now.

A quick web search on the topic will be all you need to do in order to determine that the Mogadishu government doesn’t necessarily think the Puntland folks should be selling off these rights — they believe that the central government owns those oil rights, and may have already made a deal elsewhere. After just a few minutes I got very confused, but I am confident in saying that — at the very least — it’s worth a little research before investing in a company whose main asset is an exploration license in Puntland … or, for that matter, anywhere in Somaliland.

I don’t dispute that there’s oil in Somalia — I have absolutely no idea, though I know there was plenty of exploration there before the “Blackhawk Down” years — but I would be careful about assuming that any Somali oil wealth would flow right to this little company. It might, but I’m not ready to give them the benefit of the doubt without doing more research than I’m willing to put in right now.

If anyone else has looked into this one at all, please share. (and be careful — there are five or six different companies called something like “Range Resources”, including a big and unrelated one on the NYSE).

Happy weekend, everyone.

June 1 Update: FYI, I just posted some more info about Range and their partner in the Somalia exploration project over on the forum. There’s another company involved, for those who might like a different way to get at this investing idea (and one that hasn’t doubled in the last couple weeks).