Companies featured in this edition of the newsletter: ACCP, CVM, DKAM, EMDH, IMUC, ITUI, PHC, SIHI, TAGS
Economic news was squarely at the forefront of investors’ attention during this holiday shortened week as several less than encouraging reports led to a selloff in all of the major indices. All told, the major exchanges ended lower for the third consecutive week, as the Dow ended the week down 1.9%, losing 157 points to close at 8280, down 5.6% on the year while the Nasdaq surrendered 2.3% to finish the week at 1796, up 13.9% on the year. The S&P 500 and Russell 2000 lost 2.4% and 3.1% respectively, sliding back into negative territory on the year, down 0.7% and 0.4%.
In typical holiday fashion, volume on the week was significantly lower than normal with the NYSE trading around 1 billion shares versus its 200-day moving average of 1.5 billion, but what little activity there was trended towards the downside. Economic news did little to quell investor anxiety regarding labor markets as unemployment data was generally worse than expected. Nonfarm payrolls declined by 467,000 versus expectations for 325,000, while initial jobless claims came in at 614,000. The unemployment rate managed to marginally beat expectations however, coming in at 9.5%, but the better than expected performance may be attributed to cyclicality within labor markets as workers’ situations change due to seasonal factors.
Other noteworthy economic developments on the week included May construction spending which declined moderately more than expected, dropping by 0.9% versus expectations for a 0.6% drop. June Auto Sales and ISM Manufacturing were in line with consensus, but did little to impress markets.
What should investors look for this week? Earnings reports pick up moderately in advance of earnings season; look for results from Pepsi Bottling Co (NYSE: PBG) Wednesday morning followed by Alcoa (NYSE: AA) after the bell that same day. Insurer Progressive (NYSE: PGR) reports Friday before the bell.
Economic indicators for the week begin with ISM Services for June due out at 10:00am Monday. On Wednesday, look for weekly crude inventories at 10:30am, followed by Consumer Credit for May at 3:00 pm, with weekly initial jobless claims due out at 8:30am Thursday and Wholesale Inventories the same day at 10:00am. The week wraps up on Friday with Import and Export prices for June along with Trade Balance data for May released together at 8:30am followed by Preliminary Michigan Sentiment for July at 9:55am.
Conference schedules will be light following the holiday, but Credit Suisse Group will host their EEMEA Best Ideas Conference in New York on Tuesday, followed on Wednesday by the Morgan Stanley Energy Deepwater Conference which is also being held in New York.
CEL-SCI Corporation (AMEX: CVM), a late stage cancer immunotherapy company, announced last week that it has completed a registered direct offering under which it raised gross proceeds of $5.85 million. The size of the transaction, which was announced on June 24, 2009 when the company entered into definitive agreements, was increased from $5 million. CVM sold units consisting of one of the company’s common shares and 0.67 warrants to purchase one share of common stock. The investors purchased the units at a purchase price of $0.40 per unit. Shares lost half a cent on the week to close at $0.392.
Pioneer Behavioral Health (AMEX: PHC), a leading provider of inpatient and outpatient behavioral health services, announced last week that it has increased capacity at its Capstone facility in Detroit, Michigan by 32% in response to growing demand for the company’s services in the Michigan area. The increased capacity is expected to generate additional revenue in excess of $1.5 million annually, with improved operating margins as a result of more efficient utilization of PHC’s existing infrastructure. The company also plans to open a new 24-bed substance abuse program at its Harbor Oaks Hospital in New Baltimore, MI. In other news last week, the company also announced that its Board of Directors has authorized the buyback of up to 1 million shares of the company’s Class A common stock on the open market over the course of its next fiscal year, which begins July 1, 2009. The company’s current stock buyback program expired on June 30, 2009 and resulted in the purchase of approximately 400,000 shares of Class A common stock. Shares gained ten cents on the week to close at $1.40, the highest level of the year.
Tarrant Apparel Group (NASDAQ: TAGS), a design and sourcing company for private label and private brand casual apparel, said last week that it will hold a special meeting of shareholders on Thursday, August 20, 2009 at 10:00 a.m. Pacific time. The meeting will be held at its corporate headquarters in California. At this meeting, shareholders will vote on the previously announced merger agreement, in which the company’s management has agreed to acquire all of the shares of common stock of the Company not already owned by them for $0.85 per share in cash. Shares ended the week at $0.79.
Access Pharmaceuticals, Inc. (OTCBB: ACCP), an emerging biopharmaceutical company that develops and commercializes propriety products for the treatment and supportive care of cancer patients, announced last week that its European partner, SpePharm has commenced commercial launch of MuGard, it’s proprietary formulation designed to ease the suffering of patients afflicted with oral mucositis in Greece. The launch in Greece adds to existing international roll outs by SpePharm in Germany, Italy and the UK. SpePharm plans to launch MuGard in the rest of Europe over the coming 12 to 18 months, with Access receiving royalties on net sales as part of the licensing agreement. Shares gained three cents on the week to close at $2.20.
Drinks Americas Holdings (OTCBB: DKAM), a company that develops, owns, markets, and nationally distributes alcoholic and non-alcoholic premium beverages associated with renowned iconic celebrities, has announced that it will commence brewing and filling kegs for the launch of Kid Rock’s American Badass Beer Company, on the Fourth of July. Distribution is expected to commence at Detroit’s Comerica Park in time for concert dates on July 17th and 18th, with the beer being available at kiosks within the park during the concerts and rolling out in Michigan in the coming weeks followed by a number of Midwest market openings where it is expected to be extremely successful as a result of its association with Kid Rock who is enormously popular in the region. Shares lost half a penny on the week to close at $0.136.
ImmunoCellular Therapeutics (OTCBB: IMUC), a clinical-stage company that is developing immune based therapies for the treatment of brain and other cancers, announced last week that it has been granted a patent relating to its monoclonal antibody therapeutics by the Japanese patent office pertaining to the use of IMUC’s proprietary antibodies in diagnosing and treating patients with small cell lung cancer. The issuance expands the company’s existing network of intellectual property assets and should serve as an enabling factor as they continue to seek partners both domestically and abroad. Shares lost four cents on the week to close at $0.40.
i2Telecom (OTCBB: ITUI), a leading developer of award-winning patented and innovative high-quality mobile applications and services, announced that its MyGlobalTalk application is available on the iPhone via Apple’s App Store. TheMyGlobalTalk application for the iPhone is available free of charge and enables US-based users to make international phone calls for less by routing calls through the MyGlobalTalk network; it works wherever mobile service is available, providing high-quality voIP service without the need for a Wi-Fi connection. In other news last week, the company announced that it has appointed Gary Menees as Vice President of Strategic Sales for i2Telecom International, Inc. and its subsidiary companies. Mr. Menees will be in charge of developing and maintaining strategic relationships with targeted accounts across all of the company’s key markets, including enterprise, retail and small/medium business channels. Shares lost half a cent on the week to close at $0.055.
SPECIAL SITUATIONS:
SinoHub (OTCBB: SIHI) $2.50
Since 2006, China’s production of electronics has outpaced that of the US dramatically, making them the top supplier of electronic goods to the global marketplace. The estimated $400 Billion industry is heavily dependent on the ability to import electronic components such as cpu’s and communication chips that are produced elsewhere and integrate them into finished goods manufactured in China. The quest to find a more efficient system of bringing these components to Chinese manufacturers provides significant opportunities to companies positioned to capitalize on this rapidly growing sector of the global marketplace due to the significant logistical challenges associated with obtaining these components which have left manufacturers scrambling to find the most efficient way to procure the vast array of individual parts required to put together a finished product. SinoHub is a company that facilitates the electronics revolution in China by enabling simple, efficient procurement of electrical components through streamlining supply chain management (SCM), thus simplifying manufacturers’ never ending search for the individual electronic components that form the core of the devices that they produce.
SIHI has leveraged a strong international management team and proprietary SCM software technology that gives them significant competitive advantages over other operators in the space to create opportunities in a rapidly growing market. As large electronics manufacturers increasingly seek to outsource their supply chain management operations in order to take advantage of efficiencies created by specialized service providers such as SIHI, the company has reaped the rewards. Despite the global economic slowdown, SinoHub has managed to demonstrate staggering growth at a time when other companies were buckling under the pressure of the global meltdown, growing revenues by 178% (to $79.5 million) year over year in 2008, with forecasts of $120 million revenue for 2009, or 50% growth. Bolstered by continued strength in demand for so called must have products like cell phones , which make up 70% of SIHI’s revenue stream, and network equipment, the company has been able to take advantage of a sound business model and the fact that 90% of the products its customers make are sold into the local Chinese market which continues to grow at a rapid clip. Also, strong leadership from their management team has positioned the company ably to benefit as global economies continue to right themselves and demand for electronics begins to rise once again in markets outside of China.
Much of the company’s strength comes not only from its decision to work with suppliers of products that are typically in high demand, but from its business model which generates revenue through three different avenues and creates a full service offering that its competition cannot match. The first avenue is through traditional sale of electronic components; buying from suppliers at a lower price than they sell to manufacturers, which is facilitated by their extensive, real time database of supplier prices that enables profitable sales margins with reduced risk. SIHI’s second method of generating revenue deals with enabling the direct procurement of components needed to fill manufacturers’ orders. The company’s proprietary online database allows simple reorder of components, while their strong relationship with Chinese banks fostered by management allows SIHI to finance acquisition of the components, making them a full service supplier who then passes the bill on to manufacturers. This service allows manufacturers to outsource their component purchases to SinoHub and get a more efficient service than they would ordinarily be able to access through their own means, and to get SIHI’s supply chain management services in the bargain. SinoHub’s SCM services enhance the value added to manufacturing clients through streamlining Customs interactions thanks to their ongoing relationship with Customs officials fostered through constant communications, while their warehousing and delivery services allow for immediate delivery of components to manufacturers in an industry where delays can prove extremely costly.
SIHI’s business plan of increasing operational efficiency for manufacturers operating in the largest electronics market in the world has proven extremely successful to date, despite the global economic woes characterizing the past year. With a strong, proprietary database and existing relationships with Chinese Customs and other officials that form high barriers to entry in an extremely viable market, SIHI seems extremely well positioned to capitalize on the continued recovery of not only the Chinese economy, but the global marketplace as well, as increased worldwide demand for electronics bodes well for the company’s future prospects as they branch out to supply manufacturers of other types of electronics beyond mobile phones and network equipment. Thanks to strong management and exceptionally low overhead costs, the company’s fundamentals have never been stronger; but while its largest competitor trades at 46.8 times earnings according to published report, SIHI is currently trading at only 6 times earnings, presenting investors with an opportunity to invest in a seemingly undervalued company serving the world’s largest electronics market which is poised for sharp growth as global consumer demand begins its rise from the ashes of the economic turmoil of the past year.
Emerging Media Holdings (OTC: EMDH) $0.51
With the recent rally in US equity markets that has seen many oversold stocks return to fair value, many investors have begun to turn to emerging markets in search of similarly undervalued opportunities that they hope will demonstrate a rebound analogous to their US counterparts. One such company is Emerging Media Holdings, the U.S. parent company for Media Alianta and Analiticmedia-Grup (AMG) subsidiaries, one of Eastern Europe’s top television advertising and production companies with operations in Moldova and Romania.
Nestled in between Romania and the Ukraine, Moldova benefits from a stable economic climate as a result of its location between two of Eastern Europe’s most progressive governments, and furthermore from Romania’s recent inclusion in the European Union. Moldova’s economy faltered following the breakup of the Soviet Union, but has since recovered to achieve macroeconomic and financial stabilization, benefitting greatly from its location at the crossroads of commercial routes connecting Western Europe and Asia. The economy returned to positive growth in 2000, and remained at or above 6% growth until it was interrupted by the recent global slowdown, suggesting that it is poised to resume its uptrend as markets continue to normalize.
Emerging Media Holdings’ core business is operating television and radio broadcasting services to Moldova and the surrounding regions, taking advantage of strong brand recognition formed by associations with the leading Russian television company NTV, and their recent acquisition of rights to exclusively distribute Russian language TNT-Bravo programming in the region. The company benefits from a lack of competition and strong growth in the fledgling advertising market which has been hampered by the downturn, but has recently shown signs of recovery. EMDH has capitalized on the global economic weakness by increasing acquisition activities during the period which should serve to position the company well to take advantage of recovery.
In addition to their operations in Moldova, EMDH has recently announced its intention to acquire a majority interest in Genesis International, one of Romania’s fastest growing infrastructure companies which is expected to have an immediate impact on the company’s bottom line once the acquisition closes, as there are substantial plans to improve Romania’s existing network of highways and public transportation in a stimulus move similar to that proposed by the Obama administration in the US. As worldwide recovery continues, emerging markets such as Moldova and Romania that have had their positive growth stunted in the wake of the slowdown should provide investors with an under-utilized sector with potential for substantial growth. EMDH’s recent acquisition activity is expected to significantly enhance shareholder value as the Eastern European markets that it serves continue to rebound, making them an interesting emerging market play in a rapidly growing industry.
