Stocks I Like – Left Behind Games

When I was in grade school, I heard people talking about a new heavy metal band (a genre which was then very popular) called “Stryper.” I learned that Stryper was a Christian heavy metal band. That is, they were Christians playing heavy metal, wearing leather pants and singing about Jesus. I thought the whole idea was ridiculous. However, they proved me wrong by selling millions of albums. I learned not to underestimate the size of the Christian marketplace, or the “cool factor” in Christian marketing.

Left Behind Games Inc (dba Inspired Media Entertainment) is a video game company specializing in faith-based videogames. They boast a selection of titles including action games such as its trademark “Left Behind” series, as well as mild-mannered educational games such as the “Charlie Church Mouse” children’s series.

In the past few years, Left Behind has successfully employed guerrilla-marketing techniques to expand its market, such as sending free copies of their video games to young followers. Word of mouth further moves the video games, and encourages these young Christians to buy future titles.

This holiday season, Left Behind Games will go mainstream, with their titles being carried by Wal-Mart in addition to existing Christian retailers.

Left Behind is a true penny stock, selling at the ridiculous price of just $0.003 dollars per share: yes, that’s correct, less than a penny a share. Why, you may ask, would this company be selling at less than a penny a share?

Left Behind is an evangelical Christian company, which in itself offends many. It has been accused of, among other things, making games that instill religious bigotry. In addition, the company’s strength (niche marketing) may also be its weakness from an investor’s standpoint, since they sometimes seem more intent on spreading Christianity than actually making a profit (though they are currently profitable).

Left Behind Games is a controversial and unproven company, in a volatile market with a battered stock that is traded over-the-counter: it doesn’t get any riskier than that. However, since you can currently buy 5,000 shares for the cost of a movie, I feel that a modest investment is warranted. As with all penny stocks, invest only an amount that you would be completely comfortable losing.

If video game sales go well, Left Behind Games (LFBG: OTC BB) may just be the stock purchase that you tell your grandkids about.

For more information, visit: www.leftbehindgames.com/index.php
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"Never underestimate Jesus, because he will just prove you wrong."

Brian Gurney
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Greek Debt Bailout – What Happens Now?

The Greek (actually Euro) debt crisis has been, at least temporarily, averted via a $1 trillion rescue package that could really be looked at as a “render predatory traders useless” package. Now what? Is the EU set to recover? Is everything just fine?

Despite these efforts, much of the world including the U.K., Canada, Israel, Dubai, Korea, China etc. (see: World Housing Bubble) are set to stagnate and/or enter recession within the next 18 months. In these countries, economic recovery has been more about new housing bubbles and consumer credit growth than real recovery.

Although the U.S. was the instigator of the worldwide collapse, it is now in the best position to move forward (no one said life is fair). The U.S. has inexpensive housing, low interest rates, a devalued dollar, moderately valued stocks, citizens with reduced debt, and increased productivity - all of which give the U.S. economy plenty of upside potential.

Under normal circumstances, a multinational recession would not bode well for U.S. stocks and I would say, “sell.” However, the current situation is more complicated than that. American stocks today are priced at levels that reflect modest post-recessionary income and a definite lack of euphoria. Even if world markets slow down, it is already priced into U.S. stocks at this level.

Secondly, you may have noticed that although world markets are global and affect each other, it is mostly the U.S. market that affects the rest of the world – and not the other way around. Even when a powerhouse like China experiences market drops, for example, the effect on the U.S. market is negligible. I suspect that when world markets decline it will bring down the American market only temporarily, until everyone realizes that U.S. growth is sustainable domestically at a level that supports and even exceeds today’s stock prices.

In short, most Commonwealth, EU, Arab and Asian countries have, at this point, little or no room on the upside, but plenty of room on the downside. Conversely, U.S. stocks that grandmothers around the world are still afraid to buy are the best investment opportunities around.

Many high-quality U.S. stocks, including members of the Dow 30, remain at single digit or low-double digit P/E levels, even on modest sales. If prices drop from here and you are a long-term investor, I recommend going against the grain and buying more, since any dip below today’s reasonable prices is a blessing. If you are afraid of volatility in your portfolio (there is sure to be plenty), ignore all this advice and stay away from the cheap-stocks party.

PS - The International cheap stocks party should begin sometime next year.

Statistics (at time of writing)
Dow Jones Industrial Average: 10,785
Hang Seng: 20,320
FTSE 100: 5,385

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"These high prices [in the Dow] were the cause of great jubilation on Wall Street, but I found them depressing. I was happier with a good 300-point drop that created some bargains."
Peter Lynch, Beating the Street
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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.

Two Stocks I Like - BioPharmaceutical

When it comes to stocks, I’m of the Peter Lynch School, which says that you shouldn't purchase a stock unless you can, a) rationalize your purchase in few sentences, and b) draw what the company does with a crayon. These companies fit the bill.

I have no idea whether these stocks will go up or down in the next 6 hours, days, or weeks, and don’t know anyone who does. My intention is to hold them (I own both) until at least the peak of the next market cycle, or until the company proves to be something other than what I thought (for example, the dreaded words, “accounting irregularities.”)

Note that both of these companies are relatively unknown and relatively low-priced, which puts them squarely in the "speculative" category.

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CRTX – Cornerstone Therapeutics Inc.

To quote from the 2004 10-K report (honesty at its finest): “We were incorporated in Delaware on July 14, 2000. Since our inception, we have incurred significant losses each year. As of December 31, 2004, we had an accumulated deficit of $58.5 million. We expect to incur significant and growing losses for the foreseeable future…we expect our operating losses to continue to increase over the next several years as we continue to fund our development programs and prepare for potential commercial launch of our product candidates. We do not expect to achieve profitability in the foreseeable future; and we cannot assure you that we will achieve profitability at all.”

In those heady days of rising housing markets and consumer glee, Cornerstone (formerly Critical Therapeutics) was trading at about $70 per share, despite having no earnings whatsoever. That was then. Fast-forward to 2010, and Cornerstone touts rapidly increasing sales at great margins and with no long-term debt; yet, its share price is only 1/10th what it was as a purely speculative play in 2005.

Cornerstone’s specialty is respiratory ailment medications. Although Cornerstone is engaged in research, it is more interested in acquisitions. That is, CRTX finds established products that are poorly marketed, and re-launches them for a quick earnings boost. It also acquires late-stage development products that it can push for FDA approval and bring to market. Once products have been acquired or approved, Cornerstone uses a highly focused sales force of 113 agents to market these products.

The only thing I don’t like about Cornerstone is that, like many growing companies, is has been regularly increasing its number of outstanding shares (essentially printing money) for acquisitions. Having said that, when it does issue shares the purpose is to acquire product rights for added revenues – a good sign.

CRTX Statistics (at time of writing):
$6.77 per share
P/E of 8.8
No long-term debt
Gross margin 76.6%

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SKBI – Skystar Bio Pharmaceutical

Skystar is a Chinese pharmaceutical company (incorporated in Nevada) that primarily engages in medicines, vaccines and related health care for animals, both personal (pets) and commercial (livestock and poultry).

In one of those ridiculous transitions that can only happen in the world of speculative stocks, Skystar was incorporated in 1998 as “Hollywood Entertainment Network,” which was an independent film company. In 2000, riding the wave of the technology boom, it changed it’s name to “Cyber Group Network Corp” and became a security hardware and software developer. Several paragraphs of 10-K report later, and Skystar is now a bio pharmaceutical company. Normally I wouldn’t invest a dime with a change-your-line-of-business-a-thousand-times company, except for one important factor: Skystar is now legitimate.

In 2009, Skystar had over 33.8 million in revenue at 51% gross margin. Skystar manufactures a long list of products, including medications, microorganisms, feed additives and vaccines, while employing over 200 people. It has research and development facilities in China. And it has solid, growing earnings.

I suspect that Skystar's shaded past has a lot to do with its low stock price.

China's stock market is firmly in bubble territory and volatile of late, so expect this share price to move around a lot.

SKBI Statistics (at time of writing):
$9.75 per share
P/E of 7.17
No long-term debt
Gross Margin 51.09%

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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.

Canadian Debt II

Nothing confirms things like a good old-fashioned survey.

When I wrote about the perils of Canadian debt (Spending 'til it Hurts) I had no idea that CMHC would soon be confirming those ideas; but they did, with the spin cycle set on high.

Today, CMHC released the results of a survey showing that Canadian consumers are not - in the least - concerned about their high debt levels. In fact, 68% of new homeowners feel that they will be able to pay off their mortgages early, which means that they expect free cash flow and good times ahead.

The report also confirms that Canadian consumers feel they are savvy real estate investors, due to the extensive "self-education" they undertake before making purchases. This self-education includes consulting mortgage brokers, lenders, and real estate agents (all of whom have a vested interest in selling homes).

As a side note, the CMHC report frequently reads like an advertisement for mortgage brokers, including this gem: "According to mortgage consumers, the benefits that mortgage brokers offer are that they are able to get the best deal or rate for their clients, they are convenient, and they offer time-savings when obtaining a mortgage." On the same page is a photo of a smiling, embracing couple: presumably homeowners.

Hubris and propaganda continue to feel the love in Canada.
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CMHC survey

CNBC article (regarding CMHC survey)
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"(It's) actual mandate today, which is different from what it was back 20 or 30 years ago, is really just to get people into houses...and that's always been something that bothers me, because it really doesn't have a stability mandate."
David Dodge, former Governor of the Bank of Canada, describing the role of the Canadian Mortgage and Housing Corporation (CMHC), February 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.