“The End of Rust” — What’s Nick Hodge’s “Oscar of Innovation” corrosion-fighting stock?

Sniffing out a teaser pick from Hodge's Early Advantage

By Travis Johnson, Stock Gumshoe, October 31, 2014

This teaser pitch started running, and we covered it, in mid-September — this article originally ran on September 18. It has not been updated or revised in the six weeks since then, but the ad is still in heavy enough rotation that many people are asking about it again, so we’re re-posting it for you.

The stock has gone from 81 cents to about 53 cents in those six weeks, I haven’t looked into whether or not there are specific reasons for the drop (the market, of course, is also down, and tiny stocks tend to be more volatile than the overall market).

What follows was published in mid-September and has not been updated:

——-from 9/18/14——-

Nick Hodge consistently finds and recommends (and, at least indirectly, promotes) little tiny companies with cool-sounding and important-sounding technologies for his Early Advantage newsletter. And Angel Publishing teases and advertises his stuff more aggressively than some publishers, so I get asked about it all the time.

These stocks are too small to absorb a lot of new shareholders without going crazy, so they often are quite volatile when they get some newsletter attention (or even attention from our small group here), rising and falling more because of the new investor attention they receive than because of any actual business performance. So that’s your up-front caveat, before I even know what this stock is or whether I’ll end up being interested in it.

Hodge’s teaser pitch today, busking for subscriptions to his $799 Early Advantage, is for a company that he says can make you 86 times your money as it solves the corrosion problems that plague our pipeline networks. Those are real problems, fighting corrosion is a real and very large market that’s been a focus of manufacturers since steel galvanizing was popularized almost 200 years ago. So will this microcap company Hodge is talking about be the big solution and the next leap forward after galvanization?

Well, that I probably can’t tell you. I know very little about the industry. But I can sift through Hodge’s clues and tell you what company he’s talking about, and then you can decide. It is, after all, your money.

Here’s how the ad catches our attention:

“This 80-Cent Company Has Cornered a $1.2 Trillion Empire…

“And is Poised to Pay Out 86 Times Your Money! ….

“… there have been more than 200 pipeline accidents since 2000….

“That’s more than 20 expensive and dangerous disasters each and every year over the past decade.

“It’s a $1.2 TRILLION-per-year problem….

“… corrosion amounts to 7% of the entire U.S. GDP. That’s more than HALF of what we spend on defense each year….

“What if there was an answer to this issue?

“What if one 80-cent company had secured 13 patents, won nine industry awards, received upwards of $70 million in funding, and cornered this $1.2 trillion market all for its very own?”

So that’s the question — what the heck is this 80-cent company? You can check out the ad if you want to see all of the hype and promise, but here are the remaining clues I sifted out of the muck:

“But one tiny company out of Florida has the leading — and patented — technology that could end these issues forever….

“… it’s mastered a new pipe-protection technology that’s 40 times faster, 20% cheaper, and 100 times more environmentally friendly than the antique technology currently in use today….

“… several of the world’s largest oil and gas corporations — and even NASA — are turning to it to protect their pipes….

“The company I’m telling you about today has mastered a process that uses a high-intensity arc lamp — basically a mini-sun — to bond any material known to man onto metal.

“This technology is literally limitless.

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“And not only does it protect the metal from corrosion for long periods of time, but it also protects metal piping from other prevalent problems such as wear and heat.

“The best part, though, is that it’s CHEAP. That’s the real key here.

“Put simply, thanks to this company, we could paint the world in stainless steel at a cost competitive with Sherwin-Williams….

“… it’s already been spotted in the top 20 of Inc. Magazine’s fastest-growing manufacturers… and because of this, some major players are taking notice.

“Perhaps it’s why NASA recently agreed to fund a significant portion of what this company does. Remember, this company doesn’t just coat pipes… it can coat any metal to prevent rust, wear, and corrosion… even in space.

“And if that’s not enough, state and federal agencies have jumped on the bandwagon as well, piling $4.6 million into this company’s pockets over the past three months alone.”

So who is it? Thinkolator sez this is definitely a little $50 million market cap company called Abakan (ABKI, trades over the counter). The shares are indeed at about 80 cents right now, they do claim to have received $4.6 million in grants and loans from government agencies over the last three months (though that was in May, when they announced some small business funding from NASA). Their primary businesses are Mesocoat, which is the cladding/coating business that’s being teased here, and Powdermet, which is more of a nano-scale coatings business that looks like it’s earlier in the R&D cycle. That’s from a two-minute look at their website, so I could be misinterpreting.

Coatings and corrosion-fighting are big businesses, so it probably won’t come as a huge surprise to you that Abakan is not the only company in the business. Just browsing Google with a variety of searches about corrosion fighting, next generation cladding, and nano protection for steel will get you an almost overwhelming number of products and tiny little private companies to run down. So if you can do that and understand whether Abakan and MesoCoat have any kind of sustainable advantage building, well, you’re a lot smarter than I am and you have a lot more time on your hands.

So I can just tell you how a quick look at their financials comes out: They have extremely inconsistent revenues, with the first revenues booked in 2012 after many years of no incoming business — that’s not necessarily shocking for a company that says it has a new and transformative product. They should have just completed a private placement (they planned for it to close on 9/15) to raise $7.5 million at 40 cents a share (half of the current share price — the stock cratered to 40 cents when the placement was announced last month but then recovered very quickly), so if that did close they will have diluted the share count considerably (increasing it by about 25%). Of course, there are no earnings to dilute, but they have at least had some revenue (they trade at about 88X 2013 sales)… if they continue on the “churn” pace they were at in 2013 (we don’t know much about recent financials, more on that in a moment), then the $7.5 million they just raised would probably get them through about a year.

And on the “future promise” they are focused on the same kind of stuff Nick Hodge is, largely the CermaClad technology from their subsidiary MesoCoat, though it looks like the offshore oil and gas industry is their first target for possible future business. You can get a basic idea from their July CEO “update” here.

As for actual financial information subsequent to February, they’re not saying yet — the latest quarterly reporting is delayed, with the company filing for an extension with the SEC because the acquisition of a larger share of MesoCoat (by selling down or exchanging some of their position in Powdermet) made the filing too difficult to do on time.

I don’t know if that will be reason for concern in the end or not, the business is very speculative and loss-making anyway, and has already diluted shareholders recently, but it is a little difficult to evaluate a small company that hopes to be growing when the latest numbers are eight months old. They checked the box on that form indicating the data would be forthcoming 15 days after the due date, which by my reading (assuming the deadline is really August 29, as indicated) means they’re already past due on the extension. That’s not encouraging, given the lack of information about their financials, but perhaps if you look into it you’ll be impressed with other aspects of the company or stock. It’s your money… let us know what you think with a comment below.

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