Finding Value in the Netherlands

A huge part of my trading strategy is having a global, no holds barred mindset when it comes to my search for value in the markets. Restricted to companies specifically in the US, one would have trouble finding companies trading at steep discounts to intrinsic value in these US equity markets. With the freedom associated with my global value strategy, I have the option to look to other countries, countries with not so strong ties to the US. These are the companies you wouldn’t easily find in various index funds and ETF’s, and those are the ones that I love to go long on. Remember, when it comes to equity positions, most (not all) of my findings will be in the smaller cap areas, low liquidity, and low volume. This doesn’t worry me, nor should it worry you.

I will admit that in my screening for undervalued companies (which I try to do on a daily basis) I had never come across a company in the Netherlands until today. That company is Aegon NV (AEG). GuruFocus.com defines Aegon’s business as:

Dutch insurer Aegon offers life insurance, corporate pensions, and individual savings and retirement products in a range of markets in Europe, the Americas, and Asia. Through its Transamerica brand, Aegon generates approximately 60% of pretax earnings from the United States. Life insurance and annuities are the two largest contributors to earnings, followed by corporate pensions and individual savings and retirement products.

Before diving in to the company’s fundamentals, it’s important to set out the overall macro framework in which I work with micro data such as stock fundamentals. In my opinion (which, as always, could be wrong and am open to criticism), we are still in the midst of a bull run in US equities that is getting closer to bubble territory due to the overall positive sentiments and indicators globally. With Europe scrambling post Brexit, Venezuela literally up in flames from their socialism experiment, the United States economy remains the “safest” place to invest relative to the rest of the worlds economies. Because of this narrative, I don’t see a tremendous halt in capital flows flowing into the United States, at least for the remainder of this year. With that basic framework in mind, let’s dig into AEG.

Taking a look at their quarterly transcript, I was able to find out that out of every two households in the Netherlands, one of the households is a customer with AEG. That is a market share capture of 50% of the population. Those are incredible numbers.

Digging into Fundamentals

AEG works in a four pronged strategy, each with a specific purpose and objectives. The four prongs of their business are: The Americas, Europe, Asia, and Asset Management.

We know that AEG sells life insurance, pensions, and savings and retirement plans, and we know that most of their earnings (60%) come from the US. Taking a closer look at their balance sheets we can get a better picture of the company’s health. First let’s take a look at big picture trends to see how the company has fared up to this point. Revenues have trended upwards since 2015, along with equity and asset counts. Free cash flows took a major hit from 2016 to 2017, yet still positive. However, net income rose dramatically at the expense of a decrease in operating cash flows. So, we can begin to see the company is using its cash to generate more income for the company, this is a good sign. Now that we have the trend established, let’s see how the most recent quarter reported.

Quarter 3 Report

Corporate earnings increased 20% to 556M Euros. Return on equity increased 1.2[[ to 8.9%, and sales rose 54% to 4.5B Euros. The increase in earnings were driven by, “improved claims experience, higher fee revenue as a result of favorable markets, and lower expenses in the US.” The increase in sales numbers were a result from growth of fee-based businesses. Another main driver of increased earnings in this quarter is due to AEG’s Expense Savings initiative, in which they are on track to save 350 Million Euros by the end of 2018. AEG has increased its earnings the last five consecutive quarters, a great accomplishment.

AEG also reported record gross deposits of 41 billion Euros. The company says this increase is, “primarily driven by exceptionally strong asset management deposits and strong institutional platform sales in the UK.” The company says it remained true to its commitments in each of the four prongs of their business. For the Americas, the company improved their profitability in Life and Health insurance businesses. In Europe, the company positioned its Dutch business to resume its regular dividend payments. In Asia, capital regeneration turned into the black as a result, the company claims, of management decisions and actions. They also rolled out new propositions to help the company transition into the digital revolution. Finally, in the Asset Management sector of their business, the company deepened its presence in existing markets, as well as entered some new markets. They also secured strategic partnerships which will contribute significantly to their bottom line cash flows.

The company is looking for growth areas for new investments heading into the new year and beyond 2018. Most of their findings have led them to refining their search to Asian countries. The company said it wouldn’t chase growth in Asia for the sake of investing in Asia, but it is worth keeping an eye on especially if the Asian economies start to ramp up.

Potential Red Flags

One major potential red flag I see is the overall assumptions to company is placing on the markets returns both in the US and in the UK. For their models, the company is assuming an annual gross equity market return going forward of 8%. I’m not sure we will hit 8%, and if things start contracting, we would be lucky to get annual returns to hit 3-4%. This isn’t as bad as anticipating 10% annual growth, per say, nevertheless it is something to consider if the US fails to hit that mark, which would in turn force the company to adjust its models and pricings heading into 2018 and beyond.

AEG has in place a US micro hedging strategy within the company, in which the company puts an amount of capital into this hedging strategy to make sure they are not over exposed, and are prepared to weather any downturn in the US economy, which eases my nerves a bit.

Some Key Ratios

AEG is trading at 7.25 times earnings, making it better than 85% of the competitors in its industry. Price to book ratio of 0.43 makes it better than 94% of companies in its industry, a number that I love. Price to sales of 0.22 is better than 96% of competitors. It’s also trading at 6.42 times free cash flow, making it better than 64% of its competitors. In terms of all valuation ratios, AEG is at least better than half of its competitors in every category save Shiller PE Ratio.

AEG also sports a 5.00% dividend yield, which isn’t terrible at all. A nice return for holding on to a company whose charts are setting up quite nicely for a horizontal break pattern. Speaking of charts …

Charting AEG

www.tradingview

From the weekly charts, you can see that AEG is forming a year-long right triangle pattern, with price inching closer towards breaking out of that 6.00 – 6.05 range. As a disciple of classical charting principles, I favor horizontal breakouts more than others because of the increased possibility of the trade working out. Notice how I didn’t say probability. I am a huge Peter Brandt disciple, and Peter Brandt always preaches that classical charting doesn’t give a trader probabilities of trades becoming profitable, but rather it gives the trader a possibility of gaining a profit with a trade. This is a huge distinction, and one that I emphasize heavily as well. Peter Brandt is one of the best, if not the best classical chartist on the planet. His words are worth their weight in gold bitcoin.

I am waiting until a clear break above the resistance line on the weekly charts before making an entry. At that point, I would place my stops somewhere close to below the 50MA, which would put it under the ascending part of the triangle, and far enough away to let the trade run its course and give it a chance to be profitable.

As always, please shoot holes in my ideas if you find ways to do so, and don’t hesitate to email with questions.

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Two Charts For Next Week Trading

Its been a crazy week with the first full week of classes starting, and yes, it is finally the last year of schooling for me! But with the Labor Day Weekend extending my freedom by another day, it gives me time to send y’all a heads up on what I am thinking about going into next weeks trading. Although I have dozens of companies that are on my “radar”, there are only a select few (if that) each week that could be a potential trade set-up. A lot of the companies on my radar are longer term set – ups, developing set – ups, or companies that I am waiting for a drop in share price. Going into this next week I have two main charts that I am focusing on for potential trades, both of which I will dig into here.

As always, if you have any further questions, or you think my idea is stupid and I am missing something blatant, please email me. I love discussing ideas and bullet – proofing strategies whenever possible.

Chart 1 – Silver

I’m slowly beginning to realize that my writing has developed a quasi fetish towards silver. In all seriousness, silver has been on my radar for months, possibly a full year. I bought physical silver back in 2014 which I keep as a stowaway, but that was before I started getting extremely serious about the markets. Silver futures charts are looking extremely interesting as a bullish set – up. When it comes to charts, I like to follow Peter Brandt’s style (which, why wouldn’t one want to, with his 42% annualized return). Like Brandt, I first look at the weekly charts to see if there is a pattern setting up, from the weeklys, I dive into the dailys for an entry point and to place my stop losses. After recognizing a pattern on the weekly chart, I will use the daily chart to move my stop losses up or down according to which side of the trade I’m on.

Here’s the Weekly Chart for Silver Futures Continuous:

www.tradingview.png

From the charts, you can see the descending wedge pattern forming. What is important to note is that price action already broke the 200 MA, and is at the literal tip top of that resistance line going back into mid 2016. This will be the fourth time silver has tested its descending resistance level, and if it breaks through this time, it could be a powerful move upwards. That’s the beauty of waiting for chart patterns to develop: There is a clear right or wrong when it comes to your trade. If it breaks through that price resistance, I will put an order in and place my stop right below the 200 MA on the daily chart.

I am a bit more confident in the possibility of a breakout in silver this time around because I have a potential double confirmation from both the weekly and the daily charts. Whenever you have two different time charts confirming a pattern, your odds of success increase. That’s what this entire game is about anyways, creating a positive edge in the markets.

Here is a picture of the daily chart for the same Silver Continuous Future:

What’s important to notice is that there is a confirmation of price breaking out of the resistance on the daily chart, and the weekly chart is close to follow. That is why Tuesday’s trading day is so important for silver, and will determine whether or not I place an order.

Now onto the topic of risk capital, I might edge closer to 100bps of risk, just given the increased confidence I have in the charts and in the sentiment around the market (increased volatility). I will confirm on the day of the trade if and when that happens, but for right now I am looking between 75 and 100bps risk.

Chart 2 – Jakks Pacific, Inc. (JAKK)

Most of you reading this have experienced Jakks Pacific merchandize at least some point in your life, most notably during the Holidays. GuruFocus has a great description of Jakks Pacific, saying:

Jakks Pacific Inc is a toy and leisure products manufacturing company. Its products offering include traditional toys and electronics such as action figures, toy vehicles, dolls and accessories, ride-on toys, toys for pets. They also offer role play, novelty and seasonal toys such as dress-up, pretend to play toys, Halloween and everyday costumes, junior sports, and outdoor activity toys. The brands under which these products are sold include Road Champs, Spy Net, Fisher Price, Kawasaki, JAKKS Pets, Disney Frozen, Black & Decker, Spiderman, Toy Story, Sesame Street, among others. Its products are sold to customers in the United States, Europe, Canada, Hong Kong, and Other parts of the world.

In short, they make toys for children (Unless there’s one reader who yells to himself, ‘They’re collectible figurines thank you!’). Unlike their toys, their charts are ugly, and times are tough for the company. Before we dig into the technicals, let’s see why I am evening worrying about JAKK as an investment. Remember, with equities, I always put more emphasis on the narrative around the company before I assess the chart. This is something that I file under the category of ‘Strong Opinions Weakly Held’ because certainly there have been times where I have seen a chart so tantalizing I will, as George Soros says, “Buy First and Investigate Later”.

The first thing that popped up to me with JAKK was their valuation. JAKK is trading for roughly 50% of Book Value. That discount is better than 80% of competitors in its industry. Because of this, it begged the question in my head, ‘How could such a huge, reputable brand like JAKK be trading at such a steep discount?’ The digging led me to their latest quarterly report.

Why The Sell – Off Occured

The biggest reason for the share decline was their drop in sales. JAKK reported a 10% decrease in sales QoQ, due to what they referred to as Sales Comparisons and Timing of Expenses. The decline in sales was linked to the decline in the retail space as a whole, with JAKK forced to suspend the sale of their product in certain stores due to shutdowns. To add to the decrease in sales, JAKK COGS (Cost of Goods Sold) increased 10%, a double whammy negatively affecting bottom line profits and margins.

The other major headwinds for the company that affected the bottom line was the suspension of toys from the new Star Wars movie and Frozen. Frozen provided a healthy dose of sales revenue for the company after that movie rocketed to #1. The good thing about a company like JAKK is that the movie industry isn’t dying. In fact, demand for super hero movies seems to increase. With Marvel and DC virtually dominating the big screen production, one can safely assume that JAKK will have more than enough content to dig from for their toy production. On that note, I want to discuss why I think the market isn’t realizing the importance of the brand name, the demand for products from movies, as well as the increase in free cash flow from the company.

What Wall Street Doesn’t See

Sometimes I think Wall Street gets too wrapped up in sales numbers and forgets other crucial aspects of a business that are not only performing well, but are increasing in their performance. When it comes to JAKK, that increase in performance is from free cash flow. Although sales numbers decreased 10%, JAKK was able to increase their FCF by 101% and their operating cash flow by 122%. The company also is trading for $3.84 per share in cash, which is a $0.40 discount to current price. In other words, Wall Street has beaten down this stock merely off of a missed sales number for one quarter.

JAKK is taking direct effort to fix the problems of the most recent quarter. JAKK is increasing their master global reach of toy licenses in a host of countries, and most recently opened up a branch in London. For the remainder of 2017, JAKK is branching into the sporting / outdoors industry as well as Cosmetics.

The most important aspect of the JAKK business developments come from their online space. I stress this with every company in retail that I investigate … How are they competing online, and how are they making themselves more accessible online? JAKK has expanded and grown its online presence tremendously. Online sales are up 50% YoY for the company, a great sign of mobility.

The Chart

 

Notice anything crazy about this weekly chart? JAKK hasn’t been this low since 1997. To put that in perspective, they haven’t been this low since my 3rd birthday. At these levels, there is price support, its just very far dated. If it can hold this price level though, it would present significant support from it. Moving on to the daily charts we find a similar story.

On the daily charts, JAKK is very close to breaking both price resistance levels going back to the start of 2017, as well as the 50 MA. Whenever I dissect these companies that are trading at a steep discount to book value, and even a discount to cash, it’s extremely important to try to increase the possibility of buying after a bottoming formation. Note: I am not trying to ‘pick’ a bottom in a stock, what I am saying is that its important to buy off of a basing pattern with momentum heading upwards.

When looking to buy JAKK, my entry position would be on the 3.65 – 3.70 price range, and I would put my stop loss around the 3.30 price range, right below the price support on the most recent coiling pattern formation.

Takeaway & Email Notification

These are two of the top charts that I am paying attention to coming into the trading week. If you have any concerns or questions on these two potential trades, shoot me an email or text if you have my number.

One thing that I would like to stress is that this website isn’t the only place that I communicate with potential investors or partners interested in investing with me. I have a list of people whom I email on a semi regular basis where I discuss individual trades and results of my two funds. If you would like to be included on this email list, leave me a comment in the comments section, or shoot me a personal email regarding your inquiry.

A Look into the World of ADHD Drug Companies

I’ve been content sitting on the sidelines with the positions in my portfolio, so I’m not pressed to spend cash for the sake of spending cash. Seemingly each day that passes the market rises higher and higher, and the bargain bits and pieces are being steadily sucked up in the vacuum that is ‘animal spirits’, among other things. Once again, this isn’t an excuse, only an observation of the underlying market conditions. There is still value to be found if one presses hard enough. Oddly enough, I can’t seem to get away from biotech whenever I start digging for bargains. I am not sure if it is how biotech companies value the assets on their books or what not, but this is where I’m finding the most value. Unfortunately there is so much left to be determined on Capitol Hill that many of these smaller companies are left in limbo when it comes to decision making. Not having a consistent tax code in place, nor even knowing what the next healthcare system will look like plague the companies and those who seek to invest. One such company is Alcobra Pharma, or ADHD (clever ticker, right?). ADHD is a classic NCAV discount play trading at a 30% discount to its NCAV. Usually I would like that discount to be at least 50%, but I think ADHD is developing something that could be a strong catalyst in its market. Before we get into the catalyst, it’s important to take a look at the fundamentals of this company.

Continue reading “A Look into the World of ADHD Drug Companies”

Deep Restructuring Play in Biotech

It’s been a while since I’ve written about a particular company, and frankly its not because I don’t have the time … I just haven’t really found any worth writing about. Whether its a new IPO, or Amazon’s buyout of Whole Foods, one event or another seems to kick the market past 6th gear and into overdrive. However, like I mentioned in my investors newsletter, and like I alluded to in previous pieces, what I think about the general market means absolutely nothing. It shouldn’t mean anything to you, the reader, and it shouldn’t mean anything to those that choose to put their money with me. My job is to find value. Period. It’s important that I stress this because when most people think of finding value, they assume that most of the value to be sought is during bear markets. We haven’t had a bear market in eight years now (since I started investing). To be on the sidelines during a bull run like this for the sake of “not being able to find value” is an atrocious and poisonous mistake to capital and intellect. Sure it might not have been a bear market where deals are found just by running a simple screener, closing your eyes, and landing on a net-net within seconds, but to make excuses is to attempt to cover up a lack of dedication and research.

I’ve mentioned numerous times how I overvalued I think the market is, but looking at my current portfolio; out of my 10 positions, 4 of them are long US equities. That’s 40% of my portfolio long US Equities. One of them is a pure momentum play, but the others are what I consider deep value, net – net picks. Even in this bull market you can still find deals, you just have to look extremely hard. Peter Lynch said it best, “Whoever turns over the most rocks will generally win.” Let’s turn over another rock.

Continue reading “Deep Restructuring Play in Biotech”

Another Way To Play Pharmaceuticals (SWKH)

The search for value is getting harder, but its not impossible, not yet. I wonder if at the point of impossibility to find decent value, the end of the bubble will appear. Either way, I don’t care. I’m not in the business of market timing, I’m in the business of finding value and extracting profits from that value. I think I’ve found another one of those value plays in SWKH.

SWK Holdings Corp is a specialized finance company seeking opportunities in the healthcare industry. The Company provides capital solutions to various life science companies, institutions and inventors. More specifically, their investors presentation says, “SWK’s primary focus is on originating and investing in structured, asset-based debt transactions in the pharmaceutical and medical device space, including IP-based cash flow streams, synthetic royalties, legacy product acquisitions.” In other words, think of it like a hedge fund for bio-pharmaceutical companies.

Continue reading “Another Way To Play Pharmaceuticals (SWKH)”

Timmins Gold Deep Value Buyout

Below is a snapshot of my write-up on Timmins Gold (TGD) from April 28th. TGD popped up on my deep value screener and was hanging around the top of the list for a while but I cared not to look. However, after looking at the price action of gold, and developing a personal hypothesis on the global macro position of gold, I thought TGD would be a perfect way to play gold. I coined TGD “a long call option on gold without the theta (time decay)”. Further commentary from the write-up on TradingView goes as follows:

April 28th, 2017

TGD 3.27% came up in my Deep Value screeners as one of the highest ranked companies in the screener, so I took a look to see what they were about. Timmins Gold Corp 3.27% is a gold 0.61% mining company, so right away I knew their success or demise was closely tied to whatever the price of gold 0.61%did. Before going into the fundamentals, let’s take a look at the charts.

Since late January of this year, TGD 3.27% has been consolidating nicely around the 0.35 – 0.42 price levels. I liked the length of the consolidation, and the overall chart seemed pretty well set up for a high run breakout if the price action dictated. Liking the chart, I headed over to check out the fundamentals of this company to see if there could be any substance to the breakout, or if the breakout would even be justified.

TGD 3.27% is trading at 3.77 times earnings , 0.94 times book value, and is trading 3.59 times its free cash flow. Not bad ratios, and it clearly makes this a deep value play within the gold 0.61% sector. Taking a look at some of the return percentages for the company I was pleased to find that TGD 3.27% had an Operating Margin of 30%, ROA of 20%, ROC of 25%, and a 21% ROI             . Pretty impressive. Next, I took a look at their cash positions, because I love investing in companies with a ton of cash ( RGR -0.47%is a perfect example of this idea of tons of cash, no debt, and it paying off). TGD’s Current Ratio is 3.01, more than enough cash to cover its debts.

Taking everything into consideration, this is virtually a long call option on the price of gold 0.61% without the theta (time decay). I am looking for it to break that consolidation pattern, perhaps the 0.46 price level, at which I would go long, and place my stop right below the consolidation pattern at 0.30. Once again, I want to stress that although the company appears to be solid fundamentally, they are very correlated to whatever the price of Gold 0.61% does. If gold 0.61% goes south, TGD 3.27% will most likely follow. However, if you’re long term bullish on the price of gold 0.61% like I am, this could be a way to expose yourself to gold 0.61% without having to invest purely in gold 0.61% or gold futures 0.61% .

I know this is a shorter post from me, but I wanted to update y’all on the way value can be captured if you look in the depths of the stock market pantries. Obviously these types of situations where a company gets bought out and the share price realizes a 900% gain are FEW AND FAR BETWEEN, you can enhance your chances by looking where no-one else cares to look. These types of “rare bird” (taken from Dr. Michael Burry) situations can only be found in the small / micro cap space. Successful small cap and micro cap companies are like baitfish to a hungry Great White shark. Except in the baitfish example, the baitfish turns into a Great White shark as well.

That was a horrible analogy. Long story short, look into the cobwebs of the market, dust off those left-for-dead companies, and see if you can squeeze any value out of them.

Disclaimer: Rockvue Capital cannot guarantee to find another 900% winner, and past success in highlighting stock picks does in NO WAY guarantee future success in the endeavor.

InsipreMD (NSPR) A Medical Cigar Butt

Quick Fundamental Figures

Price to Book – 0.23

Price to Sales – 0.19

EV – to – EBITDA – 0.06

Price to Net Cash – 0.43

Price to NCAV – 0.28

A Cigar Butt With A Few Puffs

InspireMD Inc is a medical device company. The Company is engaged in the development and commercialization of proprietary MicroNet stent platform technology for the treatment of complex vascular and coronary disease. Based out of Tel Aviv, Israel, this is a global micro cap with tremendous value potential. This company isn’t for the faint of heart. This is a true blue net net, beaten down equity close to life support. However, I think it has the potential to be a rare bird, with the right catalyst. InspireMD (NSPR) is taking a different approach to their business, moving away from single distribution to a direct distribution model. Much of the decline in the share price has been the volatility associated with this change in business models.

NSPR has declined 94% over the last year after starting 2016 at $10.58 per share. In order to find out how NSPR got here, we have to take a look at the past.

Financials Analysis

Starting with the Income Statement, it is easy to see the decline in share price. Since starting record keeping in 2009, NSPR has failed to make a profit. From 2011 to 2014, the company lost $14, $18, $15, and $24 million respectively. Translate that into EPS and you get dismal numbers: -3.33, -240, -260, -374.50 for 2011 – 2014.

Cash Flows paint a similar picture, showing increasing losses from 2011 – 2014, and decreasing cash positions since 2013. Free cash flow in the negatives was also reported from 2011 – 2014.

Taking a glance at the balance sheets, a similar trend prevails. Decrease in current assets since 2013 and a decrease in total assets since the same year.

A Potential Comeback?

The past numbers are pitiful, that’s well understood. But the important thing with my investing approach is an emphasis on the present, the here and now. Yes, going back 10 years in terms of financial data can help you understand how the business got to where it is now, but that doesn’t do anything for you if you’re trying to find value going forward. I guess this has been part of my change as an investor in my process. When I started, I was a deep believer in analyzing the balance sheets and finding the truth in that, instead of in the price action. However, the price action is the final and only metric that truly matters. It doesn’t matter if you find a company you think is tremendously undervalued, if the price action doesn’t reflect your sentiment, it doesn’t matter. At the same time, however, I believe the market is slow to adjust in the small cap and micro cap space.

Looking at the last 10 quarters of data, I see a much more positive trend. Operating income has trimmed from -6 to $-2 million. Earnings Per Share has seen the greatest turnaround, going from -50.00 to 0.44 in the black. We see the same thing when we move to the Cash Flow Statements. Net cash provided by operating activities increased from -6 to -2 million. Cash and Cash Equivalents have increased from 5 million in 2014, to 8 million in 2016. Free cash flow has increased from -6 million to -2 million.

Most Recent Earnings Report

James Barry is the CEO of InspireMD, and he had positive things to say about NSPR in their latest Quarterly Earnings Report on the 9th of May. Barry was quoted as saying:

“Earlier this year, we announced our transition away from a single distributor covering 18 European countries to a direct distribution model. In just a few short months, we have announced numerous distribution agreements covering markets across Europe, Asia and South America, fulfilling our commitment to relaunch both more broadly and more focused in Europe, as well as expanding our global footprint. We are extremely encouraged by the favorable response from our new partners and potential near-term future partners around the world. Not only have these distribution agreements expanded our geographic coverage, but in markets previously served by our former European distributor we are gaining deeper access into all four key clinical specialties that implant carotid stents” (Finance.yahoo.com)

The catalyst to growth and increased value in NSPR is through their latest product, the CGuard EPS device. Just starting to roll out the device to distributors, NSPR has received tremendous praise about this device. So much praise in fact, that it was honored in Russia at the ICCA Stroke 2017 Convention, as well as the Leipzig Interventional Course in Germany. Most importantly is the growth of the product. Even during a transition period in the business, NSPR recognized a 12% growth in their YoY sales of the CGuard EPS. In comparing 4Q2016 to 1Q2017, NSPR saw an 84% increase in their sales of the CGuard EPS. Because of this growth, NSPR is upping its guidance on sales for the year 2017 and 2018, banking on their device going mainstream and falling into the hands of surgeons, cardiologists, radiologists, and neurodiologists.

Revenues for the most recent quarter were up $6,000 from the previous quarter, which doesn’t seem like a sizable increase, but it was offset due to their decline in the MGuard Prime EPS. The decline in the MGuard is due to what Barry calls, “the trend of doctors increasingly using drug eluting stents (DES), rather than bare metal stents in STEMI patients” (Finance.yahoo.com). NSPR says it will look to partner with DES devices to strengthen its MGuard Prime product.

The biggest takeaway from the earnings report is the actual EPS of the company. After suffering a loss of $7.00 per share in the same quarter last year, NSPR achieved a net loss of a mere $0.81 per share in 1Q2017. NSPR also increased their cash position by a little more than a million dollars.

The Cigar Butt Value

Like I mentioned up top, the ratios on NSPR scream net net, deep value. Trading at a 77% discount to book value, an 81% discount to sales, an 81% discount to NCAV, and a 43% discount to net cash, NSPR is roadkill in the market. However, no matter how great the value may seem, it does nothing for us if the price action doesn’t coincide with our thesis. For this reason we must take into consideration the chart.

Price Action Potential

As you can see from the chart, there is tremendous amounts of consolidation at the 0.76 to .60 price channel. In an effort to focus more on the price action, I am looking for a breakout from that 0.76 price level. If that breakout happens, it could signal the bullish thesis I laid out. A more convincing price action would be a breakout above the 50 MA. I am content to wait on this one and wait for the price action to confirm my entry.

Final Thoughts

In my journey as an investor, I have made tremendous changes to my approach. Ask me a year ago, and I would’ve just bought and held a company like this, not worrying about the losses, only focusing on the gains. However, the road to true wealth and true capital management is by focusing on the losses, letting your winners run, cutting your losses short, and going for home runs. Once again, in a position like this, I would risk 1% of the portfolio, and place my stop below the lower end of the price channel at 0.50. I made that exact mistake with this exact company. Instead of waiting for the price action, I got caught up in the value of the company, bought right away at 0.96 per share, and watched it ride all the way down to 0.63 before selling. There were two main things I did wrong when I first entered this company. First, I didn’t enter on a price action breakout (i.e., I didn’t wait for the price to confirm my hypothesis), I entered during a consolidation, one of the worst entries one can make. Secondly, I didn’t place any stop losses. So not only did I violate the first rule of waiting for the price action, but I violated arguably the most important rule of risk and capital management, control your losses.

I have learned so much from this one mistake. That’s really what molds the investor, through mistakes. I try to keep my mistakes at a minimum, and instead read, learn, and research from those that have made countless mistakes before me. I love this quote from Benoit Lessard, and I’ll leave y’all with it:

“Learn from the mistake of others. You won’t live long enough to make them all yourself.”

 

Juniper Pharmaceuticals Distress Play

Pharmaceutical companies. When I think of biopharma, the first word that pops into my head is, “stressful”. I’m right, to an extent. Pharmaceutical companies, especially those in the small cap / micro cap space live and die by drug approvals and pipeline passes. Failure to pass a drug test or failure to bring a product to market sends most biopharma’s down into the depths of their price history, with companies falling 50 – 60% on average after the rubble has been cleared. But yes, even in those depths can one find value, albeit contrarian deep value. When I look for Graham Net Nets, I’m not looking at the hottest sector, much the opposite. I want to find the industry that is going through the ringer (a la Retail). However, biotechnology hasn’t been in the depths of the markets. It has experienced stress with the new health care reform and drug pricing regulations. So, off I went to try to find some value in biopharma, and along came Juniper Pharmaceuticals.

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