8-30-09 - "P.I.P.E. Dreams" Makes Rodman & Renshaw Capital Group (RODM) Perfect

This past week was another banner week for the stock market. Volatility appears to be picking up, but it appears to be occurring in a very positive light. Anytime it looks like the market is about to tank, buyers quickly step in and right the ship. My last pick of CMLS is up in the air, but I still fill confident it will be a winner. In the meantime, http://theperfectstock.blogspot.com will spotlight another stock brought to its attention by an investor affectionately known as Bighoper. I must say that my only regret is that he didn't bring it to my attention sooner. In my opinion I have never seen a stock and a market match up more perfectly. Rodman & Renshaw Capital Group (RODM) has been and still is a perfect stock.

Rodman & Renshaw Capital Group, Inc. (RODM) is a holding company that through its various subsidiaries is engaged in the investment banking business. RODM’s principal operating subsidiary is Rodman & Renshaw, LLC (R&R). R&R is a full service investment bank dedicated to providing investment banking services to companies that have significant capital needs, along with research and sales and trading services to investor clients that focus on such companies. Rodman is a leading investment banking firm with particular emphasis on industries with significant capital needs, including health care, energy, metals/mining as well as a leader in the PIPE (private investment in public equity) and RD (registered direct placements) transaction markets. The division that is currently making Rodman a stock market juggernaut is the one that focuses on PIPE and RD.

Fundamentals

I've mentioned before that my other blog http://yourtradingtips.blogspot.com lists the 4 press release websites that 99% of publicly traded companies use to make official announcements. In my everyday quest for finding game changing news in companies, the headline that I have consistently seen for the past month or two pertains to companies seeking additional capital through private investment and direct placement. If you think about it, it makes a lot of sense. The economy being on the brink of a recession has forced many companies to be in need of cash infusions. Credit markets are still tight so it's tough to get money from the banks. With so many people hoarding cash and the stock market now improving, the next best option for capital is through private investment. This means of raising capital came to a standstill over the last year along with the rest of the stock market and RODM's stock price plummeted to a 52 week low of $0.14/share because of it.

However, things began to turnaround last quarter and the company posted a net income on a non-U.S. GAAP basis of $10.9 million, or $0.29 per diluted share lead predominately by their PIPE and RD transactions. Rodman was ranked the number one investment bank in PIPE transactions by volume for the second quarter and the first half of 2009. It has held this honor every year since 2005, but only until now has the distinction been so financially lucrative. This quarter RODM's PIPE deals have accelerated even more. They've basically been announcing 2 or 3 multi-million dollar deals a week. Right now, they have announced well over $300 million in deals this quarter and there's still over a month to go. They are on pace to destroy last quarter's stellar numbers. If you consider that their cut of each deal is about 6%, you can see how the cash can add up pretty quickly. The true beauty of RODM and it's business model is that we are only in the beginning phases of a resurgence in capital equity.

Technicals/ Momentum

See the image below for a chart 6 month chart of RODM.





As you can see, this stock has been phenomenal the entire month of August and is up about 300% in that time frame. From a technical standpoint, it looks like RODM may be overbought and in sincere need of a pullback. I thought the same thing at $2.00/share a few weeks ago, yet 8-28-09, it closed at $3.54. RODM simply doesn't have many sellers right now due to the strength of the fundamentals. Consequently, I don't believe traditional technical analysis is very useful with this particular stock. I say stick with the old adage, "The trend is your friend." Generally, a stock only moves this way when it is severely undervalued, which I believe RODM still is. Maybe the most telling aspect of the chart is the portion at the bottom that details the volume. It has really picked up the last month and has been consistent. That tells you the market is really behind this stock and that the big money players are starting to take notice.

Insider and Institutional Buying

To further support the notion that big money is beginning to buy RODM, lets look at the insider and institutional buying. According to filings just during the month of August 2009 on http://www.mffais.com/rodm, an insider bought 20,000 shares on the open market and 3 institutions established new holdings of around 1.2 million shares combined. For comparison only about 20,000 shares of RODM were sold by fund managers for the month. Remember, this stock was approximately $1.00/share just over a month ago. I suspect that as the share price solidifies itself well beyond penny status that more funds will want in. With only 35 million shares outstanding and around 15 million in the float, current shareholders are certain to force future buyers to pay a premium to today's price.

Catalysts

It's always good to have catalysts for further price appreciation. Every year RODM puts on the Rodman & Renshaw Annual Global Investment Conference that hundreds of public companies attend. This year's conference is scheduled for September 9-11, 2009. Despite the annual conference, RODM is a fairly obscure stock to most of the investing public. The added attention of the conference has given RODM a short term boost in share price in the past. With the stock's recent success, I see no reason why this year will be any different.

Investors love transparency. It is very easy to determine whether Rodman's business is booming because every offering the company places comes with a press release. Each release has typically rewarded shareholders with a positive trading day.

Also, RODM is slowly, but surely inching to $5/share. This is really a key level, because at that price every fund manager has the green light to take a position. Some are not allowed to buy stocks below that share price. Once it hits this level, the fireworks could really begin.

Conclusion

The stock market is amazing in that the biggest losers one year can be the biggest winners the next. Last year, all the redemptions left most investors overweight in cash and companies cashed strapped with no equity takers. Now, with banks being held to a higher standard, those same investors are putting their cash to work buying into companies at extreme discounts. The biggest beneficiary of this pendulum shift is RODM. The stock is up almost 2500% from its 52 week low, yet strangely enough, I have yet to see a single article on Motley Fool, Seeking Alpha, Minyanville, The Street or any other notable print media individually spotlighting this turnaround story. I think that this is a strong sign that most people are still unaware of RODM and that it still has a lot of room to move up. The market is unpredictable, but I believe that there is a good chance RODM will move very close to $5.00/share by the end of its investor conference in the next two weeks. At that point the stock may finally be met with some selling, but it could be very temporary. If they keep announcing deals as most believe, double digits could be in this company's not so distant future. Rodman & Renshaw Capital Group (RODM) is the next perfect stock.

8-16-09 - Surge in Auto Ads Makes Cumulus Media (CMLS) Perfect

The blog http://theperfectstock.blogspot.com is back with another perfect stock selection. I've gotten a lot of positive feedback from the post prior to the last one regarding the selection of Lee Enterprises (LEE). This newspaper stock is up 88% since it was posted 3 weeks ago. With the success of the LEE, I've decided to stay with the media sector because the group as a whole is undervalued and red hot. However, this choice focuses on radio media. Cumulus Media (CMLS) is the next perfect stock.

Cumulus Media Inc. (Cumulus) owns and operates FM/AM radio station clusters serving mid-sized markets in the United States. Also, through its investment in Cumulus Media Partners, LLC (CMP), the Company also operates U.S. radio station clusters serving large-sized markets. As of December 31, 2008, Cumulus owned and operated 315 radio stations in 59 mid-sized United States media markets and operated the 32 radio stations in nine markets, including San Francisco, Dallas, Houston and Atlanta that are owned by CMP.

News

I'm a bit of a sports junky, so I listen to a lot of sports radio on my way to and from work. As I was driving, I made a mental note to myself that there sure were a lot of auto ads during the commercial breaks. After doing a little research I realized that this revelation was a critically positive element in the near term success of radio media companies. The Auto sector is the nation's biggest advertiser, but they trimmed there first-quarter spending by 28 percent to $2.31 billion from $3.22 billion in the same period last year, according to TNS Media Intelligence.

Confirmation of my thoughts came last week in the latest quarterly report provided by the large radio conglomerate CBS Radio. They see revenue improvement in the third and fourth quarters of this year, led by a resurgence in automotive advertising. The government's cash for clunkers program has been one of the main catalysts. Often times the market will take information from the major players and apply it to the entire sector. This news has and will continue to push the radio stocks higher.

Technicals

See below for a 5 year chart of CMLS




As you can see, this stock has been in free fall the last 5 years. We're talking about a 90% decline over that time frame. This chart mirrors the results of practically every publicly traded radio company. When you consider the fact that there has been no bankruptcy talk and CMLS reported an eps a week and a half ago of 35 cents, one would have to think the downside at this point is limited. However, the upside is huge.

Let's take a look at a more recent chart of CMLS. See below for its 3 month chart.


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As you can see, the nice cup handle breakout has resulted in a move significantly higher the last two weeks. However, the past few days, it has given up some gains. In my opinion this is perfectly normal after such a significant run-up. I believe that this is a pullback rather than a start of a trend downward. Friday marked what very well could be the end of that pullback. The stock began the day down over 20%, but reversed intra-day and finished down less than 3% on average volume. Also, several of the other radio stocks continued to move higher. Traders will take note of this reversal and see it as bullish.

Change in Sector Sentiment

I have never known radio stocks or media stocks in general to be "stock market darlings". Typically, these feelings are left to high growth sectors like Technology and Biotechnology. However, media companies have finally made the adjustment of significantly reducing expenses to offset the fallout of a slumping economy. With revenues having already bottomed and things beginning to look positive again, their profit potential is pretty staggering. A lot of these companies are currently trading at annualized forward PE of around 1. These ratios are just too good to be passed up by value investors and far exceeds any growth story that I can think of. Also, I've noticed in several of these stocks that groups like Goldman Sachs are beginning to take positions. The sentiment is definitely changing.

Sector Rotation

I talked in great length about the significance of money rotating into new sectors on the LEE post. So, I won't elaborate further. However, it is clear to me that a similar pattern is taking place with the radio stocks. Every one of these stocks has recently seen significant gains. The newspaper stocks have been consistently moving higher for around a month now. The radio stocks only began to move two weeks ago. I'm expecting the surge to continue.

Conclusion

We are still seeing some investment opportunities of a lifetime in some severely beaten down sectors. The stock market is a forward think tool. Evidence of an uptick in revenue in the radio stocks is already available. The jump in auto advertisements is the most notable reason for the turnaround. If you wait to see proof in the numbers, you'll miss the significant gains sure to come in the meantime. I picked Cumulus mostly because investors/traders have already taken profits from its initial push. To me, it looks the most ready to make its next move higher. However, all the radio stocks are good. I also like ROIAK, ETM, and EMMS. CMLS currently sits at $1.36. I firmly believe $2.50 -$3.00 per share will be reached in the very near future with the potential to go much higher. Cumulus Media (CMLS) is the next perfect stock.

8-5-09 - Government Backing Makes ECOtality, Inc. (ETLY.OB) Perfect

The stock market certainly has been holding up quite strong in spite of the large jump it's made the past couple of weeks. As a result, the perfect stocks have been a little easier to find. The next selection of http://theperfectstock.blogspot.com is along the lines of a post made a few months ago regarding NVAX. Certain stocks can have a story so powerful that it supersedes a long drawn out analysis. This is another one of those stocks. The next perfect stock is ECOtality, Inc. (ETLY.OB).

ECOtality, Inc. is engaged in providing electric vehicle infrastructure products and solutions that are used in on-road grid-connected vehicles, including plug-in hybrid electric vehicles (PHEV) and battery electric vehicles (BEV), material handling and airport electric ground support applications. Through its main operating subsidiary Electric Transportation Engineering Corporation (eTec), the primary product offering of the Company is the Minit-Charger line of advanced battery fast-charge systems that are designed for various motive applications.

ETLY.OB began the day at $0.12/share, but released some huge news around lunch time that almost caused the stock to triple. Now, the critics of this blog will be quick to question why I would point out a stock that has already had such a huge runup. Based on the share price alone, the naysayers would just lump this stock in with all the rest of the "penny pump and dumps". I say this stock requires a much deeper look.

News

Electric Transportation Engineering Corporation (eTec), a subsidiary of ECOtality, Inc. announced that it has been selected by U.S. Department of Energy for a grant of approximately $99.8 million to undertake the largest deployment of electric vehicles (EVs) and charging infrastructure in U.S. history. eTec will partner with Nissan North America to deploy EVs and the charging infrastructure to support them. ECOtality's President and CEO is quoted as saying, “ECOtality is committed to enhancing America’s energy independence, accelerating the market acceptance of electric transportation and supporting President Obama’s goals for job creation and advanced electric drive vehicle deployment.”

The basis for this post is conveyed in three key elements mentioned in snippets of the press release above:

1.) "... U.S. Department of Energy for a grant of approximately $99.8 million to undertake the largest deployment of electric vehicles (EVs) and charging infrastructure in U.S. history"

All the key elements are in bold print. When you've got the support of the government for $100 million to do something that's the largest in U.S. history, that is a game changing announcement.

2.) "eTec will partner with Nissan North America.."

ETLY.OB was able to partner with one of the leading automobile manufacturers in the world. Whatever credibility ECOtality may have lacked being a penny OTCBB stock, it was instantly upgraded with the inclusion of Nissan. This is the type of name recognition that attracts both quick flippers, long term retail holders, and institutional buyers (despite what you may have thought or read, institutions do occasionally buy stocks not on major exchanges if a stock has a powerful enough story). It's always best to have all three to maintain a share price that is quickly moving higher.

3.) "...supporting President Obama’s goals for job creation and advanced electric drive vehicle deployment"

The market is always seeking "Obama Trades" and this certainly qualifies as one. Obama has made it very clear that he wants to reduce the U.S.'s dependence on oil. Have you noticed how well a lot of the algae base bio-fuel companies have done recently. The announcement a few weeks back involving Exxon's investment in this form of bio-fuel is a classic example of an "Obama Trade". Many stocks in that arena such Biocentric Energy Holdings (BEHL.PK) have recently seen stratospheric rises in their share price. This push for the deployment of electric drive vehicles correlates conceptually with the algae bio-fuel and I'd expect the market to react in much the same way.

Conclusion

ETLY.OB finished today at $0.31/share on 70 times the normal trading volume. A lot of people will point to the $100 million and do market cap calculations, but I don't think that makes a lot of sense at this point. Nissan will probably get a cut of the money and keep in mind that this is a government matching program. I think what is important is the overall story. ECOtality has approximately, 160-170 million shares outstanding, but the float is about half that due to heavy insider ownership. Most of you know that I like low float stocks, but at the current share price, I think this share structure is perfect. In my opinion, ETLY.OB is poised to quickly double. The short term prospects for this stock is still solid because it ran with a mid-day press release. A lot of investors/ traders are still discovering it and they will want to buy in. Thursday, 8-6-09, I'd look to buy early and ride the momentum. Government backing, a strong partner, and Obama's blessing makes ECOtality, Inc. (ETLY.OB) the next perfect stock.