Volume 3 Issue 7 August 2009
Penny Stock Fortunes
This “Dirty” Industry’s Secret
“Green” Penny Play
Get in on this profitable growth stock right now — before the price takes off
Inside This Issue There are no two ways about it…investing in environmentally
friendly companies is a powerful trend that will sustain itself for quite
Why the Best Green some time.
Company Isn’t Really
Green at All… Green stocks — like solar panel manufacturers, wind farm builders
page 2 and clean fuel developers — have seen share prices race ahead of the
rest of the market in recent months. Since the beginning of the year,
Two Ways to Profit From
the WilderHill Clean Energy Index has rallied 9.08%, versus a 1.68%
the Pork Boom…
page 4 loss for the market at large.
Individual companies have fared even better. Just look at Suntech
Can I Really Profit When
the Rally Fades? Power Holdings (NYSE:STP) and Helix Wind (OTCBB:HLXW), two
page 5 green companies that have netted investors 32% and 46%, respectively,
Watch List Update:
Limelight’s Bright Future… The allure of green companies isn’t relegated to Wall Street,
page 6 however. Main Street is going green too.
CXS Recap: Time to Get With the demise of our country’s traditional manufacturing base,
out of Immersion… growing numbers of now unemployed Americans are looking for
page 6 manufacturing jobs at green companies. The growth rate of these
Take Your 43% Gain off
green jobs has been quite robust. The Associated Press reports the
the Table — Save It for renewable energy sector has added jobs at more than twice the national
Sunnier Days… rate for nearly a decade. Now we can look forward to even more money
page 7 flowing into renewable energy projects, thanks to government interest.
That influx of jobs and money has even made its way to Motor City.
Where line workers in Ford, GM and Chrysler automotive plants once
had few options during past recession-induced layoffs, manufacturing jobs
with green companies have become a welcome alternative to the
unemployment line. Between 1998–2007, Michigan saw a 10.7%
increase in clean energy jobs — a trend that’s continued into 2009.
Green companies may be part of the only industry that isn’t awash
Publisher: Addison Wiggin
in a sea of red. That’s because today, green manufacturing has become
Editors: Greg Guenthner
a $228 billion dollar industry that’s attracting even the eye of behemoths
like GE and Wal-Mart.
However, while green companies have As a basic material used in practically every
investors’ attention right now, most of them aren’t household and office in the world, paper is remarkably
as compelling as they could be… recession resistant. And that omnipresence also
makes for a hugely diversified client base. To be
Why the Best Green Company sure, not all paper companies are equally attractive
in this economy, but it’s essential to remember that
Isn’t Really Green at All paper doesn’t just include the white sheets in your
The best green investment right now isn’t in printer — paper companies manufacture products
windmills or solar. In fact, it’s a business most people that are used as retail packaging, industrial components
wouldn’t categorize as green at all. That’s because and even building materials. Forget notebooks.
while traditional green technologies have enormous These are the paper products you want represented
potential, they’re untested in the business world in your investment portfolio right now.
and — for the most part — currently unprofitable. And that’s exactly the type of heavy-duty industrial
That’s fine if you’re willing to wait years for paper KapStone Paper and Packaging Corp.
gains to materialize in your portfolio, but that’s not (NASDAQ:KPPC) manufactures. The company,
an attractive option for investors who were burned which entered the scene in 2006, produces a range
by 2008’s tumultuous market. of unbleached kraft paper (sturdy paper used to
This month’s addition to the Penny Stock Fortunes make paper bags), liner board (very hard cardboard
used to make packaging) and lumber.
portfolio isn’t some experimental new technology —
in fact, it’s been around in some form for more than
KapStone Lead the Way in Market Rally
2,000 years. It’s also extremely profitable.
135% S&P 500
I’m talking about paper. 120% Wilderhill Clean Energy Index
105% KapStone Paper
And while paper manufacturing may elicit 90%
mental images of huge, smoke-billowing tractors 60%
clear-cutting endangered rainforests, that’s not 30%
necessarily the case. Paper can actually be one of 15%
the greener products in your home. In fact, the -15%
May Jun Jul
Sustainable Forestry Initiative calls paper “one of
Since the market bottomed in March 2009, KPPC has been charging ahead
the few truly sustainable products” on the planet. of its benchmarks. Source: Google Finance
Surprisingly, manufacturing byproducts provide
a renewable source for more than 60% of the KapStone’s relatively short history has provided
energy used to make paper. Couple that with the a tremendous opportunity for investors as the
fact that paper is biodegradable, recyclable and company grows to meet customer demands. In the
reusable, and that papermakers are responsible for past year, the company has grown its quarterly sales
planting 4 million new trees every day, and paper by more than 109%. Compare that to the S&P 500,
really emerges as one of the most interesting green where sales have contracted by almost 8% over that
products out there. same period.
It also emerges as a compelling investment Those customers are also paying their bills…
Penny Stock Fortunes is published monthly by Agora Financial LLC, 808 St. Paul Street, Baltimore, MD 21202-2406, www.agorafinancial.com. Subscriptions are US $79
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the publisher nor the editor is a registered investment adviser. Readers should carefully review investment prospectuses, when available, and should consult investment counsel
before investing. Executive Publisher: Addison Wiggin; Publisher: Joseph Schriefer; Graphic Design: Susanne Clark
In this economy, it’s essential to look at receivables The company’s price-to-earnings ratio is equally
turnover (a measure of how quickly customers are low, at just 6.26. That too is 27% lower than the
paying for good received). It gives investors a hint industry norm.
at how readily buyers are paying up. At KapStone, KapStone’s shares took a big hit in 2008, along
customers average 26 days from the time an order with the rest of Wall Street, but they have yet to
is billed to the time cash is collected. That’s a reach levels consistent with the company’s value.
phenomenal number when you consider that some
of the behemoths in the industry take up to two
years to collect their checks.
Not Just Paper Gains…
As a new company, KapStone is also largely more The fact that KapStone is cheap shouldn’t be a
efficient than competitors who have unnecessarily huge surprise for many small-cap investors.
large head counts. At present, the company’s revenues Two factors — market capitalization and
per employee ring in at $341,717 — a full 25 times company history — are holding KapStone’s price
higher than the industry average. back from where it should currently be.
With a market cap of just $131 million,
Very Profitable Paper KapStone is one of our favorite kinds of companies:
That industry-trouncing efficiency translates the tiny kind that squeaks just below other analysts’
directly to KapStone’s financials. radar. That lack of analyst coverage all but guarantees
that the company will be ignored by most mainstream
In the company’s last quarter, it doubled profit retail and institutional investors.
margins from the year before to 7.9%, helped
largely by the acquisition of the Charleston Kraft The same is true of KapStone’s relatively short
Division. The new division effectively tripled the history. With only two full years of operating history
size of the papermaker, and should give KapStone under its belt, squeamish investors likely won’t give
a significant size advantage going forward. this stellar stock a second look.
While major acquisitions can severely damage Both of those issues will begin to disappear as
a company’s balance sheet, KapStone ended the last KapStone continues to grow. And as it does, so will
quarter in very good financial shape. With interest the discount the stock currently trades at.
coverage currently around 26 and a current ratio of Action to Take: Buy KapStone Paper and
1.68, the company is best in breed for its industry as Packaging Corp. (NASDAQ:KPPC) up to $5.15.
far as financial health is concerned.
Yet despite all of KapStone’s shining attributes, the CXS Breakdown:
stock is grossly undervalued. For starters, KapStone KapStone Paper and Packaging Corp.
currently trades at only 70% of its book value. That (NASDAQ:KPPC), www.kapstonepaper.com
means that each share of the company’s common
KapStone Paper and Packaging Corp. is a
stock actually costs less than the value of its assets.
manufacturer of a range of unbleached kraft paper, liner
That’s out of the ordinary for an equipment-heavy
board and lumber. The company started operations in
2006 and since then has managed to grow to annual
KPPC Daily 07/07/09 sales of more than $500 million. In 2008, the company
8 completed its purchase of its Charleston Kraft Division.
Top-Line Power: KapStone operates in a recession-
5 resistant environment with great success. In spite of
4 economic conditions, the company has actually managed
to grow its revenues by triple digits. We expect strong
growth to continue in the near term. Score: 2 of 2
Aug Sep Oct Nov Dec 09 Feb Mar Apr May Jun Jul
Profit Fortress: As one of the leading paper
KapStone’s shares took a big hit in 2008, along with the rest of Wall Street,
but they have yet to reach levels consistent with the company’s value.
Over the last few years, Chinese pork
manufacturers in the country, KapStone’s customer consumption has nearly tripled. As the
relationships and name recognition should serve it well. amount of disposable income in the Far East
Nevertheless, the generic nature of its product makes mega power has increased, the amount of
additional competition the company’s main concern. pork consumed has skyrocketed. While many
Score: 1 of 2 Westerners were busy buying iPhones,
Black Clouds: A short operating history and Hummers and extra houses, a majority of
small-market capitalization are keeping this company Chinese citizens began pampering themselves
undervalued and below the radar…for now. As with an extra serving of hong shao rou, or
KapStone’s growth continues, today’s investors should red-cooked pork — a popular dish in the
reap the rewards of getting in early. Score: 2 of 2 People’s Republic…
Profit Catapults: KapStone’s breakneck growth China just became a net importer of pork
is the company’s primary profit catapult right now. But for the first time in its history. It’s only starting
with credit increasingly hard to come by for further to become a large-scale issue. Last year,
acquisitions, that speed may be stifled in the future. Chinese imports were up a whopping 311%.
Score: 1 of 2
If that’s not enough for you, take a look at this
Business Shock: This paper company focuses chart. It shows just how fast the growth of Chinese
on products that aren’t familiar to consumers, instead meat consumption (primarily pork) really is:
proffering industry-shaking efficiency and profitability to
get attention from retail investors. Score: 1of 2 Meat Consumption in China and the United States
CXS RATING: 7 out of 10
Market Capitalization: $131 million
Recent Price: $4.50
Price/Earnings: 6.26 30
Price/Sales: 0.22 20
Price/Book: 0.7 10
1960 1970 1980 1990 2000 2010
From the Watch List to Your Source: Zhongpin Inc., May 2009 Investor Presentation
Portfolio: Two Ways to Even though all the signs pointed to buy, we
Profit From the Pork Boom weren’t convinced just yet. All the irrationality in
the market over the past several months pushed
A few months ago, we began tracking a huge our two favorite plays, Zhongpin Inc.
growth industry in the Far East and the two companies (NASDAQ:HOGS) and AgFeed Industries Inc.
already taking advantage of it. Pork consumption is (NASDAQ:FEED), sky-high.
on the rise in China — and now we’ve given you
We wanted to make sure you were able to get into
the chance to grab your share of the profits.
these companies at the right price. The past month has
Over the past year, pork prices have been out of allowed that to happen. We’re now ready to buy…
control. After reaching a 13-year high, prices crashed
to extreme lows. With recessionary fears, rising An Industry Leader With
costs of feed and an unfortunately named influenza
outbreak, we’re looking at the perfect time to buy.
Why China? In your May issue, we wrote: Zhongpin is an industry-leading producer with
annual production capacity reaching nearly plenty of volume, but are still trading all over the board.
500,000 metric tons of pork. It derives its revenue Be sure not to chase the price. If they trade above our
primarily from sales of its pork products in over buy range, let them go. We’ll probably get another
3,000 retail locations. chance at them.
Even though Zhongpin is already a huge player [Note: We recommended these two pork plays in an
in this field, it’s still growing at an incredible rate. email alert on June 23, 2009. Our entry price for
Over the past five years, the company is averaging a Zhongpin is $9.95. Our entry price for AgFeed is $5.74.]
79% gain in revenue and an 84% increase in net
income annually. That’s a remarkable feat.
Can I Really Profit When
It’s even kept this up throughout our current
economic downturn. During the first quarter of this the Rally Fades?
year, Zhongpin grew its bottom line 33.7% and A bear market rally is gift. And here at Penny
raised its year-end guidance. You can’t ask for much Stock Fortunes, we took full advantage of it, booking
more than that from a penny stock during a recession. profits all along the way. We gave you the chance
After hitting their 52-week high, shares of to make 34%, 47%, 61% and 279% — all in a
Zhongpin fell back to an attractive buying range. matter of weeks.
We’re going to put a very close upper limit on But now, it looks as if the furious rally has lost
this one. much of its steam. The market has already given
Action to take: Buy shares of Zhongpin back much of the gains it made since the beginning
Inc. (NASDAQ:HOGS) at or below $10.95. of May. So what is an investor to do when the
market is doing him no favors?
FEEDing You Profits Simply put, he has to adapt. That’s why we’ve
recently been recommending to you penny stocks
The other company profiled in both the May that have the best chance to outperform under any
and June issues was AgFeed Industries. If Zhongpin market conditions. These are stocks that are backed
is a growth story, AgFeed is a high-growth story. by powerful macroeconomic trends — or companies
Since its IPO in 2006, AgFeed has grown its top that have a distinct advantage, even during downturns.
line from just $8.6 million to $143.7 million in 2008. That’s why names like KapStone and Cascal
Its earnings jumped an equally impressive 1,300%, (NYSE:HOO) have been featured in these pages.
from just $1.2 million to $17 million at year-end. Cascal, a U.K-based water utility, provides water
In the first quarter of this year, AgFeed has kept and wastewater services to more than 4 million
this up with triple-digit growth and outlook for the customers in seven countries. By doing business in
rest of 2009 and 2010. emerging markets, Cascal has been able to grow its
These profits come from the company’s unique sales 10 times faster than the industry average. Plus,
position as both a leading swine feed producer and the water and wastewater industries are about as
pig farm owner. AgFeed has an annual capacity of recession proof as they come. They simply aren’t as
650,000 hogs, which it plans to increase to over 2 affected by the economic climate as a furniture
million in the next few years. store or a cable company. As we wrote in last
month’s issue, we can expect level demand from
This kind of growth initiative gives us confidence
utility customers, allowing for predictable sales
in AgFeed’s future. After a recent slump in share
numbers quarter to quarter.
price — also succeeding its 52-week high — we
have the perfect time to buy… As we move forward in these uncertain times,
we look for stocks like these to add to your penny
Action to take: Buy shares of AgFeed
stock portfolios. The overall markets may falter, but
Industries Inc. (NASDAQ:FEED) at or
you’ll still have quality, worthwhile companies to
see you through the downturn. So while your
These two companies are volatile. They trade with
neighbor complains about how much he’s losing in that process.
the market, you can sit back and relax. You’ll be We can’t give you much more information than
holding high-growth small caps with plenty of what we’ve already written. The methodology is a
potential — and even some downside protection… trade secret — and still very much under construction.
We’ll have more for you on this front soon enough…
Readying for Better Times
With the current bear market rally fading away, Watch List Update: Limelight’s
investors are looking toward any data point they Bright Future
can get their hands on that might show signs of
Last month, we added Limelight Networks Inc.
economic recovery. Sure, it’s possible that second-
(NASDAQ:LLNW) to our watch list. This month,
quarter earnings could offer some relief (if we see
better-than-expected numbers from some of the we’re even closer to pulling the trigger.
larger market movers). A few months ago, Limelight won a patent
But here at Penny Stock Fortunes, we’re looking infringement lawsuit that was filed against it by
for the cold, hard numbers that will point us toward Level 3 Communications, one of its top competitors.
recovery — and profits. That’s why we’re working On June 23, a district court judge rejected a retrial.
on an exclusive small-cap-based recovery index. This means Limelight is free from this court hassle
and can move on to expanding its media reach.
This project is a complicated one. It involves
the selection of hundreds of stocks and additional The good news doesn’t end there. Limelight also
metrics — unemployment rates, savings rates, etc. released its new content delivery service (CDN). It’s
Once these benchmarks are selected and compiled, the first of its kind to operate with Internet Protocol
we will begin to see a picture developing that will version 6 support, which can deliver content to
reveal investor sentiment and market performance. next-generation devices.
Eventually, when enough data are compiled, we will Even with this court ruling and the CDN release,
have a more accurate picture of where the market shares have come down sharply over the last
is headed, from a small capper’s point of view. And month. We’re close to a buying opportunity, but we
we’ll even have an idea of what specific industries want to make sure you get in at just the right
will recover first. moment. For now, hold off on Limelight. We’ll let
We’ve said this time and again on these pages: you know the minute you need to act…
Small-cap stocks traditionally lead the market out of
a recession. This recession will be no different, no CXS Recap:
matter how long it lasts… Time to Get out of Immersion
Small stocks are nimble and able to adapt — For more than a year now, we’ve touted the rise
and a recovery in our sector is usually a telltale of haptics — vibrating feedback used in many
signal to mainstream investors — letting them know touch-screen applications — as a virtual certainty.
it’s a bit safer to test the waters of the market. For the most part, this prediction has been spot on.
That’s why we have to be ready to make our Devices featuring haptic feedback — everything
moves. When the penny stock market moves — as from lower-end mobile phones to credit card
it did this spring — it does so in a big hurry. The readers at the grocery store — are permeating
largest gains will go to those who are ready to every aspect of our electronic lives
pounce on shares early… So when it became time to invest in this powerful
Of course, this new small-cap recovery index trend, the clear small-cap choice and industry leader
project is by no means a replacement for the CXS was Immersion Inc. (NASDAQ:IMMR). Immersion
System. We’ll still be using our steadfast rules to rules the haptics universe with numerous key patents.
pick the best possible penny stocks for you. And the company isn’t afraid to go after any- and
Consider the recovery index an additional tool in everyone who uses its technology, including Microsoft.
Although haptic feedback technology continues Take Your 43% Gain off the Table —
to thrive, Immersion is entering uncertain times. It
all began with an announcement that the company
Save It for Sunnier Days
began conducting an investigation into revenue It’s time to take our profits on Maxwell
transactions related to its medical instruments division. Technologies Inc. (NASDAQ:MXWL). We’re
That’s all we know right now. As one would currently up around 43% after a long and volatile ride.
expect, Immersion stock took a pretty big hit after But after a few weeks of jitters, we’re going to
the news hit the street… claim our prized gains. That doesn’t mean we’re
It is unclear at this time how long it will take for done with Maxwell…
the investigation to reveal anything substantial. It The company is just starting to become a
also puts previously reported financial information common name in certain green tech circles. We
in jeopardy. That means Immersion could have to have high hopes for Maxwell. Unfortunately, we’re
restate earnings sometime in the future. watching the market expand and contract. We want
Or it could mean nothing at all. At this point, it to take advantage of this while we can.
is impossible to say what will happen next. There We fully expect to see Maxwell in our portfolio
was no way to predict this would happen. And again. But for now, take your gains off the table. We
there’s no way to accurately predict how or when don’t know how long the market will be bouncing
this will all play out. Because of this newly added back and forth like this. But you’ll be the first to
layer of risk, we feel it is time to cut our losses and know when it’s time to buy again…
move onto more promising opportunities. Action to take: Sell Shares of Maxwell
Action to take: Sell shares of Immersion Technologies Inc (NASDAQ:MXWL) at market
Inc. (NASDAQ:IMMR) at market. for double-digit gains.
Urgent Subscription Note:
We recommended buying shares of Zhongpin and AgFeed Industries on June 23,
2009 in a flash-buy alert. Fortunately, both pork players are still below our buy-up-to price.
Penny stocks are typically volatile and sometimes require quicker action. If you
haven’t already, you can sign up for our email list. We send those on the list a weekly
update on portfolio positions, as well as any flash buys or sells we have.
To add your name to the list, or simply send any feedback you might have
about Penny Stock Fortunes or your portfolio positions, email us at
email@example.com. You can also call us at 1-888-345-5093.
Penny Stock Fortunes Open Positions
2009 Entry DATE CXS Score Entry PRICE Current PRICE Gain/Loss Status
KapStone Paper (KPPC) 7/14/2009 7 NEW $4.71 NEW Buy up to $5.15
AgFeed Industries Inc (FEED) 6/23/2009 — 5.74 $5.18 -9.76% Buy up to $6.25
Zhongpin Inc (HOGS) 6/23/2009 — 9.95 $9.52 -4.32% Buy up to $10.95
International Coal Group Inc (ICO) 6/15/2009 6 3.12 $2.46 -21.15% Buy up to $3.55
Cascal (HOO) 6/15/2009 8 3.85 $3.71 -3.64% Buy up to $4.00
EnergySolutions Inc (ES) 5/22/2009 8 $8.20 $7.58 -7.56% Buy up to $8.50
Energy Recovery Inc (ERII) 4/15/2009 9 $7.04 $6.74 -4.26% Buy up to $7.75
Javelin Pharmaceuticals Inc (JAV) 2/20/2009 7 $1.20 $1.29 7.50% Buy up to $1.75
2008 Entry DATE CXS Score Entry PRICE Current PRICE Gain/Loss Status
Globecomm Systems (GCOM) 10/17/2008 7 $8.25 $6.68 -19.03% Buy up to $9.00
Sierra Wireless (SWIR) 10/17/2008 9 $8.14 $5.55 -31.82% Buy up to $9.00
General Moly (GMO) 9/18/2008 7 $4.82 $1.93 -59.96% Buy up to $6.15
Northern Technologies Intl. (NTIC) 8/25/2008 8 $12.00 $6.71 -44.08% Hold
Waste Services (WSII) 7/16/2008 7 $7.64 $5.41 -29.19% Buy up to $7.64
American Oriental Bioengineering (AOB) 4/14/2008 7 $8.35 $4.95 -40.72% Hold
Immersion Corp (IMMR) 4/14/2008 9 $7.62 $3.64 -52.23% Sold
Actuate (ACTU) 3/14/2008 7 $4.02 $4.80 19.40% Hold
Maxwell Technologies (MXWL) 2/21/2008 9 $9.10 $13.00 42.86% Sold
FuelCell Energy Inc (FCEL) 1/17/2008 9 $8.48 $3.73 -56.01% Hold
2007 Entry DATE CXS Score Entry PRICE Current PRICE Gain/Loss Status
Coeur d’Alene Mines Corporation (CDE) 11/23/2007 7 $41.80* $10.95 -73.80% Buy
Recent Winners CXS Score Buy Price Sell Price % Gain Days Held
Dendreon Corp (DNDN) 8 $5.35 $20.30 279.44% 335
First Cash Financial Services 7 $8.57 $15.59 81.91% 48
Darling Intl (DAR) 9 $3.75 $6.05 61.33% 28
Ivanhoe Energy Inc. — $1.76 $2.78 57.95% 463
North Am. Galvanizing & Coatings (NGA) 6 $3.56 $5.25 47.47% 193
CarMax Inc 8 $7.36 $10.16 38.04% 44
LoopNet Inc (LOOP) 7 $6.35 $8.50 33.86% 67
Dicks Sporting Goods (DKS) — $13.69 $17.89 30.68% 122
*CDE underwent a 1–10 reverse split, causing both current and entry prices to change.
Note: Returns are based on recommended entry and exit prices as mentioned in the CXS e-mail alerts. Brokers’ fees are not taken into consideration
when calculating returns. If you are not receiving the CXS e-mail alerts, please send us an e-mail to firstname.lastname@example.org. All numbers
are believed to be correct. Prices as of 06/15/09.