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Sunday, February 21, 2010

Two Stocks I Like - Penny Stocks

The two stocks featured here are speculative plays. Neither company is currently netting a profit. Put another way, there is a very real possibility that these companies could fall into bankruptcy. Neither company has conclusively proven that their business model works. Nonetheless, these companies are innovative enough, and have enough “real” earnings potential to warrant some consideration. I own both.
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U-Food Restaurant Group (UFFC, OTC) www.ufoodgrill.com

U-Food Grill is a fast-food restaurant chain that focuses on healthy fast food: organic rice, low-fat cheeses, whole-grain breads, hormone-free lean meats etc. Their menu includes U.S. staples such as burgers and fries (baked), wraps, rice bowls, and salads. They currently have 10 locations in the U.S.

U-Food Grill’s official spokesperson is former heavyweight champion George Foreman, whose image is everywhere. George Foreman fits in perfectly with the healthy image of U-Food, as well as the “healthy grilled food” concept made famous by his George Foreman Grill.

U-Food initially got killed during the credit crisis, as its prices were significantly higher than traditional fast food outlets (between $8-14 per meal). Now, their prices are in line with other fast food restaurants ($5-10 per meal). The recession also, I think, helped U-Food define its long-term strategy. They recognized that their restaurants do best in areas with above-average incomes, or where there is a real demand for healthier fast food. In response, U-Food is now focusing on opening restaurants in hospitals and airports.

Stock Price (at time of writing): $0.073 USD

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HearAtLast Holdings (HRAL, OTC) www.hearatlast.com

This company is a Canadian-based retail store with 28 locations, specializing in mid- to high-end hearing aids. HearAtLast formerly opened small shops that competed with local hearing aid stores, but changed its strategy a couple of years ago, choosing instead to be co-branded with a large retailer: Wal-Mart Canada.

I visited HearAtLast’s location in the Wal-Mart megastore in Westbank BC in 2009, and got a tour of the location from the local manager. Customers who suspect hearing trouble start with a simple test using a set of headphones. If their hearing is not perfect, an appointment is made for a rigorous test in a sound-proof booth (located in back). If necessary, an appropriate make and model of hearing aid is afterward presented to the client. The store was clean, sharp, high-tech, and located right at the entrance & check-out area. Perfect.

Stock Price (at time of writing): $0.0585 USD
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Disclosure
Do not buy stocks, or take this or any other financial advice without doing your own analysis; including, but not limited to: reviewing business models, financial statements, management style and philosophy, recent developments, market macroeconomic analysis, and chart analysis. If you do not know how to do these things, you shouldn't be buying stocks in the first place. Seek the advice of professionals, as appropriate.

U.S. Robin Hood Real Estate


This week, President Obama announced revisions to the mortgage bailout program, giving the hardest hit states additional support. But when clients can’t pay – or simply don’t want to pay – will modifications help? For many of these borrowers, it was all-or-nothing from the beginning.

Back in June of 2007, customers would walk into my office saying, "I'm going to buy this house, redo the roof, sell it, and make a hundred grand!!” (During a bubble, people never say “thousand.” they always say "grand.") “But,” they would add, “we have to do it right away, because this market won't last forever!" Other clients would admit, "I don't have the money to buy supplies for renos, so I'm going to buy them on my credit card. It’s no problem. I’m going to flip the place in a month anyway."

In other words, people were intentionally making financially dangerous decisions, knowing full well that they were buying into a bubble. I saw little of the innocent “I didn’t understand the paperwork” crowd that made appearances on TV later on. And when I declined their mortgages, they got angry: "If you won't give me the money, I'll just go to someone else who will!" (I was, after all, denying them their once-in-a-lifetime opportunity to get rich.) If you're 40 years old and your only assets are a Harley-Davidson and some tools, why not risk everything? After walking out of my office, they probably went to a high-risk lender, got approved, and then our bank stupidly bought back their mortgage through a CDO.

Now we are giving them more money. I would like to see the U.S. housing market recover more quickly, just like everyone else. But instead of setting a dangerous precedent, the Government should continue to increase productivity through infrastructure renewal, keep interest rates low, and wait until the market drops low enough for the savers (of which there are many) to buy the homes. That is, stop bailing out gamblers and let the market work itself out.

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