“Quick Fortune from an Odd-Looking Aussie Investment”

By Travis Johnson, Stock Gumshoe, October 9, 2008

I haven’t written about Dan Denning’s stuff for a while — back when people still liked investing in commodities I did several pieces about his “Pilbara Profit Secrets” ad campaign for a bunch of Aussie resource stocks, but that particular sector is not setting off anyone’s drool reflexes lately … so the ad hasn’t been around lately.

He does have an ad out there for us, though, and it features a few companies we’ve looked at in this space before.

The first time I wrote about Dan Denning was way back at the dawn of the great age of the Stock Gumshoe, in the Spring of 2007. At the time, he was trying to sell his Australian Small Cap Investigator newsletter — and he still is.

And at the time, he was recommending a small Aussie company that makes a home fuel cell — and he still is.

Unfortunately for those who were enthused by the initial recommendation, the stock has taken quite a pantsing in the last year and a half. Back when I first saw Denning’s ad, the company — Ceramic Fuel Cells Limited — was getting some attention for deals with utilities in the UK, and it seemed on the verge of breaking out, product-wise. The shares were trading for close to 50 pence in London, where most of the volume is in this stock.

Today, Dan is saying that the product is at least six months away, but that the shares are cheap now because of that wait. The stock trades at about 11 pence now, down 70-80% from its highs.

Is it a reasonable bet? I don’t know, I haven’t examined the company in detail, though the product is indeed very interesting and may be just the kind of thing the marketplace needs. Certainly, fuel cell power is a wonderful promise for the world in terms of emissions and efficiency … it’s just that this promise has been in the air for so long that it will be tough to know the turning point when it becomes reality.

So far, investors as a whole don’t feel all that lovely about the stock, and it is a teensy weensy company so pretty much anything could happen.

If you’re interested in seeing the original writeup from the Gumshoe archives, that article is here. It’s a quickie, it appears that in the past 18 months I’ve gotten quite a bit more blathery.

One reader asked about how to deal with a company like this that has multiple listings — why is it priced differently in different countries, and where should you buy? This one is at ticker CFU in both Australia and London, and at CEFLF on the U.S. pink sheets. Here’s how the prices break down today:

London’s last trade was 11.5 pence (that would currently be a hair under 20 cents US, or about 28 cents in Australia).
Australia’s last trade was 33 Australian cents, which is a bit of a premium — but they closed hours before London, too.
And in the U.S. where volume is very scant on the pink sheets, it last traded yesterday with an official pink sheets close of 30 cents. Which I would assume means that someone got quite excited about this newsletter ad and overpaid — the “average volume” in the pink sheets, according to Yahoo Finance, is only about 1,000 shares, which is only $300 at that price.

Generally, when you’ve got a stock that trades in a few places like this, the best way to buy it (should you be so inclined) is on the market where it has the highest volume. That’s going to be the closest to the “fair” price that you’ll see. If you really want these shares and can’t trade in London, where most of the trading is, or in Australia, where there is at least some volume, there’s every chance that you’ll have to overpay to buy on the pink sheets, and that you’ll be underpaid when you want to sell.

If the company gets taken over or something, you still own the same number of shares no matter where you live — but the takeover bid will likely be priced in the home country or the country where the greatest volume is, and your payout would just depend on the exchange rate at the time. I’m not a broker and don’t have much experience trading on exchanges around the world, but in my opinion it’s best to go where the volume is — or at least, to price your bid for the current prices that the highest volume market is offering. Anomalies like this, where a stock trades at significantly different prices on a couple different exchanges, are fairly common for tiny companies but unusual for large ones — if all the exchanges are open to international investors, then arbitrageurs will whittle away at the price differences until they’re nearly gone, but with a tiny stock like this that’s primarily traded by individual speculators and is likely to be ignored by any big arbitrage traders, the imbalance can swing wildly. Especially when most markets are absolutely insane, as is the case now.

The ad also covered a few other “special reports” that he’d like to send to you. One of them touches on another Australian stock that we’ve seen teased by a couple different newsletters.

Denning calls this special report “More Strategic than Oil: The Secret ‘Mt Weld Motherlode'” … and those of you who’ve been in class for more than a week or two here at Gumshoe University will recognize instantly that the company teased is Lynas, the miner of rare earth minerals. I won’t bore you with more about this one now, but if you missed it I wrote quite a bit about Lynas a couple weeks back when another newsletter was teasing it as the way to “Break China’s Monazite Metals Monopoly.”

For a while, Lynas was by far the best performer in the Gumshoe tracking spreadsheet — I’ve been remiss in adding new names to that spreadsheet from recent writeups, but Lynas is still there as a pick by Ann Sosnowski from about two years ago now. It’s now moved down quite a bit, but is barely positive, and I still hold some Lynas shares personally.

Denning also covered a few other “special reports” about some Aussie solar and clean coal companies, I don’t believe I’ve every written about any of them before, but I’ll take a look next time the Australia muse strikes.


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Mike Clee
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Mike Clee
October 9, 2008 5:35 pm

Do you have anything on 13-F which gewts you money that does not have to be repaid?

ponce
ponce
October 9, 2008 7:47 pm

CAUTION! Some 8 years ago, Plug Power appeared to be the most advanced technology on home fuel cell. They announced a near break through in fuel cell. Their stock went sky high. Since then nothing of substance happened and their stock keep sliding to now $0.74. A Russian company was even suckered into this. I doubt if CFU will have a miracle in 6 months. However, Honda is now beta testing fuel cell powered cars, providing them to celebrities. If Honda’s fuel cell fits in a car, it could fit easily in the backyard. So maybe we are getting near to the break through. I will wait though for the market to stabilize. Even the best companies are going down with the market.

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Jane G.
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Jane G.
October 10, 2008 12:10 am

If you want to buy stocks on foreign exchanges at Schwab’s, you are charged a minimum fee of $100 both buying and selling. You cannot trade on line for them. Other than establishing accounts in foreign countries, are there other ways to buy these non-ADR stocks at a fair price?

Wayne
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Wayne
October 10, 2008 12:47 am

For Jane G: Scottrade can buy your stocks on the Canadian Exchange(s?)for $27 USD each way. Do not know if they intend to expand this in the future to other countries. (Everything I have been interested in is on the TSX.)

Wave_Rider
Wave_Rider
October 20, 2008 4:16 am

Warning Will Robinson – Danger, Danger….
Dear Old Dan has just advised that one of his small cap picks – making fuel cells – has lost millions of dollars in mortgage backed securities.
Seems to have stuffed the finances / working capital of the company.
Good example of how wide-reaching this sub-prime deal goes – why didn’t the idiots invest their millions on speeding up production of the fuel cell ???
Thanks Travis, for the explanation on where to invest on multiple listings it was very informative.
Also a personal thought – the share market crawls up over decades when purchases are made from savings – the last decade it has screamed almost vertically, (compared to 1929 > 1999), due I guess to the easy credit – borrow at 8% (?) invest in shares and get 200% / 300% / 400% inceases.
I imagine the profits from bundling sub primes also got invested back in the market ($60 trillion ?) – otherwise where did this money go – other than fat cat salaries ?
What is happening now is the stock price has fallen, the loan is still there = sell the shares to repay the loan = lower prices accross the spectrum.
In a total market decline like this even the good companies will fall eventually / continually so unless you have a plan to buy at $20 & sell at $30 you are being set up for a fall over the next year.
The $700+ prices for Google will not be seen again in this decade – more likely +/- $200… because the money supply to fund that sort of purchase at $700 has evaporated.
No doubt there may be a slight recovery between now & April next year but when the Alt-A loans start to fail the next downward slide will begin and hello 3500 – 4500 on the Dow.
Too early to say “Happy Christmas” ?

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