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How Low Can You Go?

By Stansberry Research Interview Series
Wednesday, May 30, 2007

Sometimes stocks just won't go any lower.
 
Earlier this month, we saw this with James River Coal (JRCC). JRCC's performance over the last two years has been more than dismal. The company has only posted one quarterly profit since exiting bankruptcy in early 2004. Between October 2005 and January 2007, JRCC shares lost more than 90% of their value.
 
Even legendary distressed securities investor Philip Falcone gave up on the stock and began liquidating his position...
 
However, starting in January 2007, JRCC has staged an incredible rebound. Nothing had changed about the company's business. Investors simply couldn't make money selling the company short anymore. It was time to buy.
 
We introduced the stock to Growth Stock Wire readers on May 9, 2007. JRCC shares have since soared an additional 30%. Again, there's nothing to really write about from a financial standpoint. JRCC had been massively undervalued based on its reserves for years. Rather, it was a classic example of a stock bottoming out.
 
Valence Technologies (VLNC) is another loser.
 
VLNC designs and sells lithium-ion rechargeable batteries. If you've never heard of these, it's not surprising. VLNC's 2006 sales were a measly $15 million.
 
But I'm not dismissing the technology. VLNC's batteries are longer lasting and cleaner than most batteries. The company's N-Charge Power System allows you to use your laptop continuously for seven to eight hours before needing a recharge.
 
However, VLNC has had a lot of difficulty marketing its products. The company has made alliances with other commercials flops, namely the Segway scooters, which today account for 53% of VLNC's sales.
 
As was the case with JRCC, VLNC's earnings are nonexistent. The company hasn't posted in a profit in more than 10 years. Even worse, VLNC has more than quadrupled its shares outstanding in the last 10 years, resulting in a massive dilution of share value. Most of this dilution came in the form of raising capital from the billionaire chairman of the board, Carl Berg.
 
Aside from funding VLNC's business, Berg has been loading up on VLNC shares like there's no tomorrow. In the last three years, he's bought $67 million worth of VLNC's stock. Berg now owns 45% of VLNC's shares outstanding via investment firms and his own personal holdings. Most recently, Berg bought another $1 million worth of VLNC's stock on May 17, 2007.
 
And like JRCC, VLNC's stock looks read to pop...
 
As you can see, VLNC shares have bottomed out three times in the last two years. Every time, the stock has soared soon after. Recently, VLNC shares have been consolidating around $1 and change.
 
VLNC will announce its second-quarter earnings on Wednesday, June 13. I believe we should see a share price jump prior to the announcements. Again, nothing fundamental has changed about VLNC's business, but the stock has indicated it will probably not go any lower.
 
Between VLNC's association with clean energy - its batteries are rechargeable – and Carl Berg's purchases, speculators can consider this stock as a short-term trade. I wouldn't be surprised to see a quick price spike to $1.50 or even $2.00 in the next three weeks.
 
This microcap is too illiquid for me to make a formal recommendation in my Inside Strategist advisory, but both the chart and the insiders present a bullish case for a quick rebound.
 
Good trading,
 
Graham




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Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%