Accuride (ACW), quick notes

November 8th, 2012

From the recent conference call:

There is no doubt that we have had a very challenging third quarter and we expected to continue to face headwinds from the commercial truck and other industrial segments over the next two to three quarters. The good news is, there is an underpinning for a fundamental recovery in the commercial vehicle market over the next several years. Manufacturing appears be holding its own with September’s ISM reading providing some reassurance.

The age of fleet is at 6.7 years and it’s at an all-time high going back more than 25 years. Historically, when trucks pass…the five-year and 500,000 mile mark, maintenance costs begin to rise sharply probably. Finally, freight volumes are continuing the trend of modest growth.

Accuride is a rebuilding company, having emerged from bankruptcy a few years ago.

…we are implementing lean manufacturing systems across the organization and are moving the company in the right direction with the goal of bringing all of our facilities up to the same high standards that we have already achieved at Henderson and Erie. I have worked with a consultant who is at Toyota veteran at three different companies and the marks he gives us for Erie and Henderson are the highest marks I have heard from him ever in the last 10 years of working with him.

An analyst clarification about guidance for cash flow:

Kirk Ludtke – CRT Capital Group
I am also looking at the implied fourth quarter guidance and with respect to cash flow it looks like you are looking for cash flow break even in the fourth quarter. Sounding about right?

Gregory Risch – Chief Financial Officer, Vice President
Yes, that’s right.

CEO comment:

The downturn in the industry which, as some of you who have been in the business much longer than myself, I have been here 20 months, I have got people who have been here 20 to 40 years. They said the downturn we experience in the third quarter is the steepest and most rapid declines they have ever seen their careers here.

Okay, so hopefully I have also been told, when it turns it turns up fast and I experienced that last year. We are much more well positioned to handle an upturn if there is an upturn next year…

Accuride Corporation, together with its subsidiaries, engages in designing, manufacturing, marketing, and supplying commercial vehicle components in North America. The company offers heavy- and medium-duty steel and aluminum wheels, light truck steel wheels, and military wheels; and wheel-end components and assemblies, such as brake drums, disc wheel hubs, spoke wheels, disc brake rotors, and automatic slack adjusters. It also provides truck body and chassis parts comprising bumpers, fuel tanks, battery boxes and toolboxes, front-end cross members, muffler assemblies, and crown assemblies and components, as well as fenders, exhaust components, sun visors, windshield masks, step assemblies, brackets, fuel tank supports, inner-hood panels, door assemblies, dash panel assemblies, and various other components. In addition, the company offers ductile and gray iron casting of transmission and engine-related components, which comprise flywheels, and transmission and engine-related housings and brackets; and ductile and gray iron casting of industrial components, such as flywheels, pump housings, small engine components, and other industrial components. Accuride Corporation markets its products under Accuride, Gunite, Imperial, and Brillion brand names. It serves heavy- and medium-duty truck, and commercial trailer original equipment manufacturers (OEM); and aftermarket suppliers, including OEM dealer networks, wholesale distributors, and aftermarket buying groups. The company was founded in 1986 and is headquartered in Evansville, Indiana.

Implant Sciences: Pumped and Probably Bankrupt (IMSC)

July 6th, 2012

Implant Sciences (IMSC) has historically been a sub-$1 Pink Sheet penny stock. The company makes devices to detect trace amounts of explosives. It sells the vast majority of its devices in Third World countries. Its products are not approved by the Transportation Security Administration (TSA) in the U.S.

In the last few weeks it has gained 50% to 100%, depending on the day of the week, giving it an astonishing $50 million market capitalization. The recent move has come on the following press:

VFC’s Stock House is a Seeking Alpha “Certified” author, which probably explains why the articles were picked up by Yahoo. The articles are entirely promotional and have titles like:

Gene Marcial’s blog is similar in that all of the information comes from the company itself. Marcial’s main “expert” is Goldman Small Cap Research. What Marcial doesn’t tell the reader is that Goldman is a penny-stock promotion operation. It does “sponsored research” (i.e companies pay it to be favorably covered). Its disclaimer states: “Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company….” Here’s a sampling of Goldman’s analytical writing from a couple of different reports:

  • “The moment you have all been waiting for is here…”
  • “The Most Disruptive Technology in Energy in Years…”
  • “…[a flurry of news] will move the stock close to the $0.10 level…a company that we believe will dominate…”

Furthermore, Marcial and Goldman are business partners, in a service called “Corporate Profile” or CPreports, which calls itself “a one stop resource for the hottest stock news and stock picks.” It too is a sponsorship based “news” service, according to its disclaimer:

Since Corporate Profile, LLC has been compensated in many instances for its services, investors should evaluate the information on the Site with that in mind and should always perform their own independent analysis. Corporate Profile or its affiliates may from time to time aqcuire stock in companies that it covers. This compensation could be in cash or/and issuance of securities of the profiled company.

Needless to say, CPreports’ homepage links to Marcial’s Forbes column. Mutual back-scratching and possible conflicts of interest are rather common in this story. Update: All the signs point to Corporate Profile taking money to pump the stock, as seen in this hard-hitting YouTube video.

Marcial’s other expert is “Gregory MacArthur, president of investment consulting firm ViewPoint2000.” He says nothing that isn’t straight from a company press release. ViewPoint2000 has no Internet presence, making it hard to investigate. MacArthur has no detectable track record, although there is a Gregory MacArthur registered on with just one book review. That one review is of….Gene Marcial’s book. Mutual back-scratching, everywhere you look…

Maybe all this coverage is legitimate, and it’s not shady for Marcial to promote a penny stock by citing his buddies. Maybe there really is a company that will dominate and could trade for almost $0.10. However it is rather odd to have so much “independent” analysis of Implant Sciences, and no mention of the company’s warning of bankruptcy.

We will be required to repay all of our borrowings from DMRJ on September 30, 2012. Our obligations to DMRJ are secured by a security interest in substantially all of our assets. … As of April 30, 2012, the outstanding balances due to DMRJ under these instruments were $3,440,000, $1,000,000 and $23,907,000, respectively. If we are unable to repay these amounts as required, refinance our obligations to DMRJ, or negotiate extensions of these obligations, DMRJ may seize our assets and we may be forced to curtail or discontinue operations entirely and/or file for protection under bankruptcy laws.

Implant Science is in hock to DMRJ Group, which also approved some directors as a condition of financing. Any new capital has to come on DMRJ’s terms. So, can the company meet its debt obligations? The balance sheet shows negative working capital and negative shareholder equity:

  • Current assets: $5.5 million
  • Current liabilities: $35 million
  • Shareholder equity: ($29 million)

The company has lost between $12 and $16 million in each of the last three years. It has had negative operating cash flow every year. It owns $3 million in cash-equivalents (subtracting inventory from current assets). It cannot produce the $28 million that it has to repay on Sep. 30. Also troubling to any thesis about a growth stock is that its revenue is unstable and in decline:

  • 2009: $8.7 million
  • 2010: $3.5 million
  • 2011: $6.6 million

Marcial reported this as “Last year, Implant’s revenues doubled…”

The promoted hope for the company is that its trace-explosive detectors will be approved for use by the TSA. According to the company, that could happen in August. Currently, the majority of its sales are to the Third World. However, the only information about the chances for that approval comes from the company itself. And, approval doesn’t mean winning contracts in any case. It will still have to compete against larger and more reputable companies.

According to Goldman, who is paid to be optimistic, the government has allocated $40 million to “hand-held explosive trace detection devices”, Implant’s specialty. Suppose that’s true. Suppose Implant is approved to bid on that. According to Goldman, there are two other, much larger and well-established competitors: Smiths Detection and Morpho Detection. It’s surprising GE isn’t in this game, but suppose Goldman is right. Suppose Implant Sciences competes with just two others, and gets 33% of the pie. That is $12 million in revenue. Suppose its profit margins are 10%. That is $1.2 million in profit. It is losing $15 million/year, and needs $28 million by Sep. 30 to remain solvent.

It’s hard to see how this stock can be anything but a rip-off. The company has sold itself to DMRJ Group and has no ability to buy itself back. While DMRJ has an interest in supporting the business, that is quite different from supporting the common shareholder. If it is a bankrupt business with a viable product, DMRJ can seize the assets. If it is a bankrupt business with no viable product, the common shareholder still loses. If it is to survive, it must do so through dilution of the common shareholder by issuing new shares on DMRJ Group’s terms.

The most interesting thing about this, to me (maybe I’m naive), is not the pump and dump. That’s as old as the hills. It’s that reputable media like Forbes can be used to pump a penny stock. At least VFC’s Stock House disclosed a long position in his articles (no excuse for failing to mention the miserable financial condition, however). Seeking Alpha requires it. Does Forbes? If little investors can’t trust Forbes columnists not to rip them off, who can they trust? One expects somebody to have standards, somewhere.

Anavex Life Sciences Corp. (AVXL)

May 29th, 2012

Looks like a bankrupt penny stock scam.

Anavex Life Sciences Corp. (AVXL) reported over $3 million in bills, and under $299k in cash equivalents. It has negative equity and no analyst coverage.

According to Anavex’s quarterly report….

“Since inception on January 23, 2004, we have incurred aggregate net losses of $31,734,121 from operations. We can offer no assurance that we will ever operate profitably or that we will generate positive cash flow in the future. To date, we have not generated any revenues from our operations. Our history of losses and no revenues raise substantial doubt about our ability to continue as a going concern. As a result, our management expects the business to continue to experience negative cash flow for the foreseeable future and cannot predict when, if ever, our business might become profitable.”

“Our independent auditors have noted in their report concerning our annual financial statements for the fiscal year ended September 30, 2011 that we have incurred substantial losses since inception, which raises substantial doubt about our ability to continue as a going concern. In the event we are not able to continue operations you will likely suffer a complete loss of your investment in our securities.”

“Our research and development plans will require substantial additional future funding which could impact our operational and financial condition. Without the required additional funds, we will likely cease operations.”

Anavex has never generated revenue and has lost $30 million, nonetheless Harvey Lalach, the CEO–who seems to also on the board of directors and probably influences his own salary–pays himself almost $1 million per year in salary and stock compensation.

His prior track record looks equally scammy. He was the CEO of Assure Energy which traded as ASURF on the OTCBB and then disappeared. He was the CEO of Globalenetcare, another penny stock that has now disappeared.

You have to wonder why a company that trades in the US is headquartered in Canada and conducted its only clinical trial in Europe. Makes scrutiny difficult….

Update. Other vanished penny stock operations run by Lalach include:

  • First Cypress Technologies (FCYP), penny stock that is no longer listed and shows strong symptoms of scamming, as per
  • InstaPay Systems (IPYS), a now worthless and delisted company run by Lalach.
  • Source

Natural gas prices

April 15th, 2012

Natural gas is at a 10-year low, and it’s hard to believe it can go much lower. Its competitors should benefit if natural gas increases in price. As the price rises, demand will increase for the alternatives. And, as the price of electricity rises, the margins should rise on the production of electricity from coal and solar. Slate blog on that idea.

  • Some stocks are MEMC Electronic Materials Inc. (WFR) and the ETF Guggenheim Solar (TAN). Hedge fund manager Daniel Loeb has a position in WFR. I’m also interested in Waterfurnace, a geothermal play which trades in Canada as WFI.TO and on the Pink Sheets as WFIFF.PK. However, solar stocks have been so pounded lately, that I suspect they represent a better deal at this point.
  • Coal-burning utilities suffer when natural gas and electricity prices drop, and likewise would benefit if they rise. GenOn Energy, Inc. (GEN) is cheap, near a 52-week low, has been profitable (barely) despite the difficult pricing environment, and has some efficient coal-burning plants.
  • Wilbur Ross, an expert in turnarounds and special situations has taken a large position in EXCO Resources Inc. (XCO), a natural gas producer.

Market Indicators, Dec. 31 2011

January 1st, 2012

There are three well-known ways of valuing the stock market that are based on publicly available information.

Two are based on earnings: 1) The ratio of total stock market capitalization to gross national product (GNP). The market cap. to GNP ratio was popularized by Warren Buffet. 2) A cyclically adjusted PE ratio (typically a 10-year PE ratio). The 10-year PE was popularized by Robert Schiller (but not first proposed by him).

The other ratio is Tobin’s Q, similar to a market price-to-book ratio. It measures the replacement cost of publicaly traded companies.

Taken as a whole, where do these indicators stand?

The total market capitalization of US stocks is approximately 15.5 trillion, as of the last trading day of the year.

The GNP at the end of SEP 30 was 15.4 trillion. In other words, the Buffet ratio ratio is roughly 1. According to Buffet, that is average; he considers a ratio of around .75 to be a good deal. In his 2001 article when the ratio was 1.3, he suggested the market might return 7% annually over ten years (it yielded around 2%).

Schiller publishes the 10-year PE ratio on his Web site. It is currently 21, in comparison to the historic average of 16.4. Again, the market seems to be overvalued, or at least no screaming deal.

Finding values for Tobin’s Q is a bit more complicated. There is a Web site run by Smithers & Co. (an asset manager) that tracks it. According to that source, the market is roughly 33% overvalued (it was 29% overvalued on SEP 30).

What other buy/sell signals are there for the market as a whole? Valuation indicators are bets on mean-reversion. What about betting on the trend? The market is just below its 200-day moving average. Nothing bullish there.

There is one overwhelming bullish economic signal. The yield curve is substantially positive. A difference of more than 65 basis points between the 3-month and 10-year Treasury is bullish. The current spread is 187 basis points. But, that is because the 30-day Treasury yields virtually nothing. This is an economic indicator, rather a stock market indicator per se, although it is histocially correlated with bull markets. It probably stimulates the market because the world’s main investment choices are corporate and sovereign, and sovereign debt is expensive when rates are low.

In summary, we enter the new year with the following picture:


PuraMed Bioscience (PMBS) & LipiGesic (penny stock scams)

January 1st, 2012

A textbook example of a penny-stock pumping operation:

* PuraMed Bioscience (PMBS) has a “going concern” warning from its auditor, and has stated that it cannot continue business without raising money. Source: annual report.
* The company had $30,000 in sales last year, while the 2 executives paid themselves $180,000 and enormous quantities of stock (which they have to dump in order to get their money). Source: annual report
* The company has a track record of paying bills, such as those from consultants, by issuing large amounts of shares for as little as $0.15 per share. Source: annual report.
* The company has marketed as an “independent study” a study of its main product, LipiGesic, that it funded. The CEO was one of the researchers. The CEO paid himself in shares for conducting the research on LipiGesic. Source: press releases and the company’s annual report.
* LipiGesic is based on feverfew, which is a kind of daisy that anybody can grow. Yet, the company is trying to sell LipiGesic in packaging that only contains 6 doses for between $20-$30. Source: company site and Web searches.
* Feverfew is associated with side-effects, including rebound headaches and miscarriages. The company doesn’t, or didn’t until recently, warn about side-effects. Source: Web research; company Web site.
* The company is changing its Web presence in response to comments on the PMBS.OB Yahoo message board.
* The vast majority of posts to the PMBS.OB board are from accounts that post almost nowhere else. Many of those accounts were created in the last few months, for the exclusive purpose of promoting the stock.
* Many of the insiders were previously involved with Quigly Inc.’s product, Cold-EEZE. The nasal spray version of that product destroyed the sense of smell of some users, resulting in a class-action lawsuit. The officers were also sued by shareholders for unjustly enriching themselves at shareholder expense. For example, see this old Motley Fool article

…the Barron’s piece laid out an astonishing web of people “censured, barred or jailed by securities authorities for stock fraud” who have had, or still have, connections with Quigley Corp. The article ended with the kind of knowing comment Barron’s loves to issue: trading in Quigley stock was now under investigation by the Securities and Exchange Commission (SEC), so investors shouldn’t expect the stock to “levitate” forever.

Specifically, Alpert reported that Raphael D. Bloom, a disbarred stockbroker convicted in 1989 of stock fraud, had introduced company Chairman and CEO Guy Quigley to a financial consulting and public relations firm called Diversified Corporate Consulting. The “managing member” of Diversified is William A. Calvo, III, a securities lawyer who was disbarred in Florida state court, and later in Federal Court, for his participation in a fraudulent public offering…..

Can you short penny stocks? Actually, some brokers allow it. The maintenance requirements are high, however.

Market Timing

December 26th, 2011

Can amateurs time the market? Some simple, non-proprietary indicators that make sense:

The 200-day moving average profits from trends. In this system, the market is trending upward when it crosses its moving average (buy), and falling when it corsses below (sell). The system fails in cyclical markets, i.e where mean-reversion profits. (See Faber and Hulbert)

The multi-year (5 to 10 years) PE ratio is cyclical. It’s a bet on mean-reversion. Logically, it’s a good complement to a trend-following system such as a moving average. (See Hussman and CXO Advisory)

A normal yield curve, in which 10-year Treasuries are more than 65 basis-points higher than 90-day Treasuries is strongly correlated with bull markets. (See Crossing Wall ST and a more recent look). However, the yield curve right now is considered by some to be abnormal, because the government is keeping short-term rates at near 0%. See this interview with bond-expert Van Hoisington for example.

What would happen if you just invested in thirds? Put 1/3 of your portfolio into the market when it’s above the 200-day moving average (thus capturing the profit available due to trending). Invest another third when the market’s long-term PE ratio is at or below average (capturing the profit predictable from mean-reversion). And add the final third based on the yield curve.

Another overall valuation metric is the ratio of total stock market capitalization to GNP or GDP. This could supplement the 10-year PE ratio, or you could break the portfolio into fourths, giving it more of a value-tilt. (See Warren Buffet and Motley Fool)

Where to find the data:

  • Buffet’s ratio. GDP-version: (it predicts the market is at the high-end of fairly valued, with a likely annual return of 5.1%).
  • A 10-year PE ratio: Schiller and (currently high, predicting a low return).
  • 200-day moving average for VTI (a total stock market ETF): Yahoo! Finance (currently the market = its moving average).
  • The yield curve: US Treasury …use the 3-month and 10-year columns (currently very bullish, but note concerns about atificially low interest rates right now).

* Day-late update: There is also Tobin’s Q, which is similar to book value. See Smithers, which also mentioned Schiller’s 10-year PE ratio (called “CAPE” for “cyclically adjusted”), and Equities and Tobin’s Q. Tobin’s Q also suggests the market is slightly overvalued.
* Another source of info on Buffet’s and Schiller’s market valuation methods is MyPlanIQ.

Another good article on the current stance of the yield curve:

BMY vs. MRK, update

July 10th, 2011

Barron’s has an article on this topic as well, coming to similar conclusions. It endorses Novartis (NVS), partly because it has a sizable toe in the generic drug business, which should benefit from a wave of expiring patents. See A Prescription for Profiting From Drug Stocks

How to own oil–not refiners, not natural gas. Oil.

June 29th, 2011

It’s hard to own oil. Most of the ETFs that present themselves as vehicles for owning oil do a poor job of it. They own futures, rather than physical oil. Most of the major oil companies are a mixture of oil, natural gas, and refining operations. For example, Exxon-Mobile now only gets 60% of its value from oil production.

Tickers of major companies with a high percentage of their value from oil production: PBR, CVX, SU, CNQ, OXY, PWE, IMO, CEO. All of these get around 75% or more of their current value from oil production. (The rest is from natural gas or refining.) Source:

The four major ETFs for oil invest in futures contracts: USO, OIL, DBO, and USL. The first two have underperformed the WTI spot price index horribly, while the latter two have underperformed slightly. DBO has a longer track record than USL. You can compare the performance of stocks and ETFs to the price of West Texas oil at Bloomberg:

BNO is an ETF that tracks Brent oil–most of the oil sold in Europe rather then the US.

Why care more about oil? It is unique. Natural gas, coal, solar, hydro, wind, nuclear are ways to contribute energy to infrastructure. Mostly, they go into the electric grid, or sometimes directly to industry use. They compete with each other, and so each is less unique. Oil has little competition. There are no hybrid Boeing 747’s. The majority of the planet living on little income is not considering a Prius Chevrolet Volt for its next purchase. Biofuel is growing, but small, and potentially limited because it competes with food production. Oil is more needed, and thus more potentially profitable.

Bristol-Meyers Squibb (BMY) or Merck (MRK)

June 20th, 2011

An interesting, albeit speculative, graph of the effect of drug pipelines on revenue:
pipeline revenue vs. current revenue

The article also notes that Bristol-Meyers will have to spend a lot on research in order to achieve that result, and that “estimates are notoriously unreliable”. Still, they are equally unreliable across companies.

At first glance, BMY seems to be a good value, given that all these companies have similar valuations right now, as if the market is priced for similar growth prospects:

Bristol-Meyers Squibb (BMY)
Enterprise Value/Revenue (ttm): 2.32
Enterprise Value/EBITDA (ttm): 6.45

Novartis (NVS)
Enterprise Value/Revenue (ttm): 3.00
Enterprise Value/EBITDA (ttm): 10.30

Pfizer (PFE)
Enterprise Value/Revenue (ttm): 2.62
Enterprise Value/EBITDA (ttm): 6.97

Merck (MRK)
Enterprise Value/Revenue (ttm): 2.47
Enterprise Value/EBITDA (ttm): 6.97

Why, then, does BMY have the worst 5-year growth forecast???:

Next 5 Years (per annum) -1.60%

Next 5 Years (per annum) 4.78%

Next 5 Years (per annum) 2.81%

Next 5 Years (per annum) 4.23%

The data is inconsistent on BMY. Maybe expiring patents, in addtion to research expense, are the problem….
lost revenue by 2013

Combining the two graphs (like a Venn Diagram), suggests that MRK is the safest bet. BMY seems high risk/reward with additional risk coming from the inconsistency of data.