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.
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Telecom highs drive iShares Telecom to new high... top performing sector ETF of the past year.