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.