“Quick Fortune from an Odd-Looking Aussie Investment”

by Travis Johnson, Stock Gumshoe | October 9, 2008 10:01 am

I haven’t written about Dan Denning[1]’s stuff for a while — back when people still liked investing in commodities I did several pieces about his “Pilbara Profit Secrets[2]” 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[3] 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[4] 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[5]. 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[6] 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[7]’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[8] 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[9] and clean coal[10] 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.

Source URL: https://www.stockgumshoe.com/reviews/australian-small-cap-investigator/quick-fortune-from-an-odd-looking-aussie-investment/