Companies featured in the current edition of the newsletter: CETG, CKGT, CNLG, CVM, ENZ, ETGF, FMTI, GNBT, GSPG, HJHO, IASCA, ITUI, TKO
Last week is sure to go into the history books as one of the most fearful and exciting times in Wall Street’s history. After dropping like a rock for the first three and a half day, the market made a remarkable comeback that can draw comparisons to a yo-yo as all of the losses were recovered with 3 of the 4 major indices actually registering weekly gains. The Dow was the lone loser last week with a minimal loss of 34 points, maintaining its annual loss at 14.1%. The Nasdaq gained 13 points for the week, bringing its year-to-date loss to 14.3%. The S&P added 3 points, lowering its yearly loss to 14.5%, while the small-cap Russell surged 33 points, or 4.6%, for the week, and is now down only 1.6% for the year.
Follow last weekend’s news that Lehman Brothers was filing for bankruptcy, Merrill Lynch agreed to sell itself to Bank of America, and AIG needed to raise a huge amount of capital quickly in order to avoid bankruptcy, the Dow plunged over 500 points on Monday in what many feared could be considered Black Monday Part II. Tuesday was much calmer with the market recouping a portion of Monday’s losses after a reassuring report on consumer inflation, with CPI dropping 0.1% in August, and a decision by the Fed to leave the Fed Funds rate unchanged. On Wednesday, the market suffered another plunge as the Dow dropped another 450 points following news that the Fed agreed to a $85 billion secured loan for AIG. While this loan helped AIG remain solvent, it failed to address the underlying problem of illiquid mortgage securities weighting down the financial system, and the market sold off again. On Thursday, the bearish tone continued as the confluence of the disconcerting headlines surrounding the financial sector led to a massive flight-to-safety in gold and the U.S. Treasury market, with gold spiking by over $150 in just 3 days and the VIX Index hitting its highest level in six years. Then, around mid-day Thursday, the sun suddenly reappeared from behind the clouds as first the U.K.’s FSA announced a temporary ban on the short-selling of financial stocks and later in the day it was reported that the Treasury was working on a financial system fix equivalent to one which the Resolution Trust Corporation used during the savings and loan crisis of the late 1980’s. The market soared over 600 points from Thursday’s intraday low. This excitement about the stock market was abundant again on Friday after the SEC banned short-selling of 799 financial stocks until October 2. After all of these developments, the market regained all of its previous losses in less than two days with the S&P 500 surging 11.6% from its low on Thursday to its high on Friday.
Ironically, last week’s new rules on short selling could help small-cap stocks more than larger ones. While pleas from small companies to address market manipulation has largely fallen on deaf ears for years, last week’s implementation of new rules could help level the playing field for small stocks, as new SEC Rules require that shares that are shorted be delivered by settlement day, closing a loophole which previously permitted certain “naked” short sales.
Investors’ attention will be squarely focused this week on the bailout package that the Treasury is asking Congress for. According to published reports, The federal government is asking Congress for $700 billion to buy up distressed assets. Among the things the government is asking for is the authority to hire asset managers to oversee the buying of assets. The proposal would give the Treasury secretary significant leeway in buying, selling and holding residential or commercial mortgages, as well as “any securities, obligations or other instruments that are based on or related to such mortgages.” The only limitation would be that purchases couldn’t exceed $700 billion outstanding at any one time. Of course, the key for financial stocks will be what the Government is willing to pay for these distressed assets. Lawmakers have said they want to add additional provisions to the Treasury proposal, including more help for cash-strapped homeowners facing foreclosure. Financial Services Chairman Barney Frank (D., Mass.) has floated the idea of including limits on executive compensation for firms that take advantage of government aid.
What should investors look for this week on the corporate front? The corporate calendar is relatively light. On Monday morning, AutoZone (NYSE: AZO) will reports results. Nike (NYSE: NKE), Bed Bath & Beyond (NASDAQ: BBBY) and Paychex (NASDAQ: PAYX) will announce earnings on Wednesday after the close. On Thursday, credit card company Discover Financial Services (NYSE: DFS) will report earnings before the bell, while Accenture (NYSE: ACN) and Blackberry manufacturer Research In Motion (NASDAQ: RIMM) will release results after the close.
On the economic front, Existing Home Sales for August will be reported on Tuesday at 10:00 a.m. while Crude Inventories for the week will be released at 10:35 a.m. On Wednesday, look for Durable Goods Orders for August along with Initial Jobless Claims for the week at 8:30 a.m., followed by New Home Sales for August at 10:00 a.m. Friday morning at 8:30 a.m., the final GDP and the Chain Deflator for the second quarter will be reported, while the revised Michigan Sentiment for September will come out at 10:00 a.m. Investors should also keep an ear on comments from Chicago Fed president Evans, Dallas Fed President Fisher, and Fed Governor Warsh on Thursday and St. Louis Fed President Bullard on Friday.
Enzo Biochem, Inc. (NYSE: ENZ) will present on Tuesday at 10:00 a.m. at the four-day UBS Global Life Sciences Conference that kicks off on Monday in New York. Also starting on Monday in New York will be the Thomas Weisel Partners two-day Consumer Conference and Deutsche Bank’s one-day Homebuilding Symposium. On Tuesday, the four-day Merrill Lynch Global Power & Gas Leaders Conference kicks off in New York while Deutsche Bank will start its three-day Sixteenth Annual Leveraged Finance Conference in Scottsdale, AZ. Credit Suisse will hold its Global Steel and Mining Conference in London on Wednesday while Deutsche Bank hosts the Global Oil & Gas Conference in London on Thursday.
Volume Alert: Shares of drug delivery company Generex Biotechnology Corporation (NASDAQ: GNBT) rose on more than 3 times the average volume after the company announce that it has reached the enrollment milestone of more than two hundred subjects in its pivotal Phase III clinical trial of Generex Oral-lyn, its flagship proprietary oral insulin spray product. There are 74 sites in the United States, Canada, Bulgaria, Poland, Romania, Russia and Ukraine actively screening and enrolling subjects. This pivotal trial is now well underway and it is expected that additional subjects will be enrolled in the near future. Overall, the Phase III study will involve up to 750 subjects with Type-1 Diabetes The company believes that Generex Oral-lyn will offer a safe, simple, fast, effective, and pain-free alternative to insulin injections, which will improve patient compliance, thereby delaying the progress of diabetes and the onset of its many complications. The stock gained 3 cents last week to close at $0.68.
Forbes Medi-Tech Inc. (NASDAQ: FMTI), a life sciences company focused on evidence-based nutritional solutions, announced the launch of a new dairy beverage containing the company’s proprietary cholesterol-lowering ingredient, Reducol, in Uruguay. The beverage will be produced and distributed by CONAPROLE, the main dairy exporter in Uruguay and Latin America. With this product launch in South America, Forbes continues to expand the number of product lines containing Reducol. This new yogurt drink containing Reducol and marketed under the Vital+ brand represents the first cholesterol-lowering dairy product to be launched in Uruguay. Shares lost 10 cents last week, closing at $0.63.
CEL-SCI Corporation (AMEX: CVM), a company that engages in the research and development of drugs and vaccines used in the treatment of cancer, announced that it expects to take delivery of the new manufacturing facility for its lead drug Multikine on October 8, 2008. This dedicated facility will produce the Multikine that will be used for CEL-SCI’s pivotal Phase III clinical trial for first-line therapy of previously untreated head and neck cancer patients, and subsequently for sale following approval of the drug. The facility, which cost about $22 million to build, is state of the art and commercial ready. Having its own Multikine dedicated manufacturing facility gives CEL-SCI control and eliminates a great deal of risk from the product development. The company is developing Multikine for approval as a first line indication in head and neck cancer. To that end, CEL-SCI’s upcoming Phase III clinical trial is an 800 patient clinical study designed to demonstrate that administration of its cancer drug Multikine to head and neck cancer patients before they receive any conventional cancer treatment will increase their survival. Head and neck cancer is one of the world’s widest-spread cancers affecting about 650,000 people per year. Shares lost 2 cents last week to close at $0.55.
China Kangtai Cactus Biotech Inc. (OTCBB: CKGT), a vertically integrated grower, developer, manufacturer and marketer of a variety of cactus-based consumer products in China, announced that it has been awarded a patent by China’s intellectual property agency for Cactus Health-Preserving Cigarette. The production of Cactus Health-Preserving Cigarettes will enhance the health of smokers throughout the country. Compared with regular cigarettes, it can lower the tar and nicotine content by 70%. In addition to reducing the harm from smoking, the honeysuckle and ginkgo biloba leaves offer medicinal benefits. Cactus Health-Preserving Cigarette is made from cactus with other supplementary materials like honeysuckle, ginkgo biloba leaves “all of which have various health benefits – and a small amount of tobacco leaves. When smokers use the product, they enjoy the same taste they have come to expect from cigarettes, with substantially less tar and nicotine. It also can greatly reduce the harm to surrounding population. The company has already commenced test production runs, and believes that this product can capture a significant portion of the hundreds of millions of Chinese who are smokers. The stock ended the week at $0.57, down 3 cents.
Element 21 Golf Company (OTCBB: ETGF), the manufacturer of advanced Scandium Alloy golf and fishing equipment, has added Bass Pro chain of stores as a distributor of its Carrot Stix line of fishing rods. Bass Pro has over 65 locations in USA and Canada, serving over 75 million sportsmen a year. As Element 21 continues to grow its brands and industry recognition, this announcement that Bass Pro Shops will be another major box store to take on the Carrot Stix line, speaks volumes of the technology, quality and consumer demand for Element 21 products. The stock ended the week at $0.68, down 32 cents.
GoldSpring, Inc. (OTCBB: GSPG), a North American precious metals mining company, focused in Nevada, with extensive, contiguous property in the Comstock Lode District, announced results of an updated 43-101 Resource Report for the Hartford Complex it received from Telesto Nevada Inc., an independent geology firm. The report provides an estimate of the contained resource gold ounces currently drill indicated at GoldSpring’s Hartford Complex in the Comstock Lode District, which represents less than 2% of the company’s overall holdings. Utilizing a price of $777 per ounce gold and $11 per ounce silver (which is the low range of recent prices), the mathematical valuation of the resource identified in this report would be approximately $418 million. The updated estimate includes data from 57 drill holes completed as part of the current drill program,19 additional drill holes not included in the company’s June 10, 2008 Preliminary Resource Report. As a result, the current estimated value of $418 million represents a 37% increase to the value of the resource indicated in the preliminary report of $305 million based on current gold prices. Furthermore, the company anticipates that the development activities will result in gold and silver production during 2009. Separately, GoldSpring will host its first Investor Day at its Comstock property on October 11, 2008. Activities will consist of a comprehensive tour of its Comstock property, including the Hartford Complex, an overview of its mineral holdings and the property’s geologic setting and a discussion of the company’s aforementioned Preliminary Resource Report. The presentation will also include a demonstration of the computer modeling of the ore deposit at the Hartford Complex and a barbeque. Shares ended the week at $0.03, down 1 cent.
Halcyon Jets Holdings, Inc. (OTCBB: HJHO), a broker of private jet services, reported record revenue for its second fiscal quarter ended July 31, 2008 with revenue rising exponentially to $13.9 million from $1.4 million in the year earlier period. Trips completed by clients increased from 70 in the 2008 second fiscal quarter to 454 in the 2009 fiscal second quarter while operating margins on flight services improved to 18.1% from 11.0% in the year-earlier period. The 2009 fiscal Q2 results reflect growing recognition of the value proposition the company offer customers in the highly competitive private travel segment. Clients are increasingly booking private travel through Halcyon, attributable to the favorable experiences of friends and colleagues. And although the company has been operating for less than 18 months, it has already become a leading arranger of private jet services. Furthermore, management is confident that HJHO is well-positioned for strong growth during the balance of the calendar year and beyond as it expands our marketing activities. Shares ended the week unchanged at $0.29.
IAS Energy, Inc. (OTCBB: IASCA), which has an option to acquired up to a 100% interest in an Chinese Internet company, filed its financial results for the three months ended July 31, 2008. While revenue was $5,407 during the quarter, it is important to remember that the company is winding down its oil operations and continues to aggressively expand its interest in Power Telecom Limited, which entirely owns www.video1314.com, a Hong Kong based company that is a Chinese Web 2.0 platform similar to YouTube. IASCA now owns a 60% interest in Video1314 and the website is averaging more than half a million visits each day. The company plans to grow the number of monthly hits to 50 million by the end of 2008 through the introduction of more user-friendly interfaces in the near future. Once again, we remind investors that just 2 years ago, Google bought YouTube for $1.65 billion and that www.video1314.com is planning to greatly expand upon the functionality offered by YouTube. The stock ended the week at $0.18, down 4 cents.
i2Telecom International, Inc. (OTCBB: ITUI), a developer of award-winning patented and innovative high-quality Voice-over-Internet Protocol products and services, announced the launch of its MyGlobalTalk Smartphone application for BlackBerry and Windows Mobile users. MyGlobalTalk allows users to take advantage of the benefits of IP telephony to make international and long distance cellular calls independent of wireless carrier, smartphone handset make, or voice/data plan for as low as two cents per minute anywhere in the world. The service requires users to be able to download i2 software to their phones. Rival VOIP mobile phone companies require a call to their access switches and then place a second phone call, therefore giving I2 a competitive advantage as it requires only a single call. MyGlobalTalk is targeted towards both the consumer and business markets as the product offers business executives a high-quality, low-cost option for their global communications needs while also allowing recent immigrants to dial around more expensive phone plans offered by traditional carriers and phone cards. Shares lost 4 cents last week to close at $0.09.
On the Wires: Capital City Energy Group, Inc. (OTCBB: CETG) hired Douglas B. Crawford, as its Chief Accounting Officer. Mr. Crawford brings a wealth of experience to CETG, including 9 years as CFO of Ports Petroleum Company, a $750 million wholesaler and retailer of petroleum products with more 80 Fuel Marts in 15 states and wholesale clients in 20 states. Mr. Crawford is expected to contribute his expertise to corporate development, operational strategies, business & financial analysis, securing collateral & financing as well as reporting & forecasting. Forbes Medi-Tech Inc. (NASDAQ: FMTI) received a Nasdaq Staff Deficiency Letter dated September 19, 2008 indicating that the bid price for its common stock has closed below the minimum of U.S. $1.00 per share for the last 30 consecutive trading days, as required by Nasdaq listing rules. Nasdaq has provided Forbes with 180 calendar days, or until March 18, 2009, to regain compliance with this rule.
SPECIAL SITUATION:
Conolog Corporation (NASDAQ: CNLG) $0.40
While people love gadgets and the lure of quick gains, which is why they often sink money into companies that make jet packs, laser-guided bowling bowls and other high-tech “toys”, given the current economic environment, prudent investors might actually make more money with stable manufacturing companies that provide goods that are truly useful and not merely entertaining. One such company is Conolog Corporation, which is a provider of digital signal processing and digital security solutions to electric utilities worldwide, including transmitters, receivers and multiplexers.
Conolog derives the majority of its revenues from commercial sales under the trade name of INIVEN,which is a division of the company. One of main product groups designed by INIVEN is the PTR/PDR Teleprotection Series which is targeted exclusively at electric power generators, such as electric utilities and other non-utilities generators, in order to protect their transmission and distribution lines. An example of how this product works should illuminate Conolog’s value proposition. The PTR/PDR Teleprotection Series products are initially installed in pairs, one unit at each end of the electric line. Each unit is connected and in constant communication with the other as they continuously monitor the line for faults. In the event of a fault occurring, such as a downed line or a short circuit, the unit at either end that detects the fault confirms it with the other unit and the electric line is immediately isolated for shut down, averting costly damage and downtime. The speed with which the electric line is monitored is less than one hundredth of a second. Furthermore, the company also offers 4-channel systems (PTR-1500) and 8-channel digital systems (PDR-2000) in addition to the simple dual channel system (PTR-1000) described above.
Conolog appears well positioned to quickly gain market share in the very large market for PTR/PDR Teleprotection products. In the United States alone, there are over 500 large entities generating electricity, including municipal, cooperative, and Federal systems. By installing Conolog’s PTR/PDR systems on both new power lines and existing lines that are not properly protected, these electricity generators can improve efficiency and significantly reduce down time. The company’s products are already being well received by the market as Conolog shipped 226 PDR/PTR systems in fiscal 2008 ended July 31, 2008. It is important to note that these 226 systems were valued at over $990,000. Meanwhile, the company’s total revenue for fiscal 2007 was roughly $520,000. As a result, alert investors may be able to jump on board early as it would not be surprising to see Conolog report revenue growth of over 100% for fiscal 2008 when the company files annual report 10-K next month.
Investors should also keep in mind that Conolog offers a full suite of solutions to utilities to complement the aforementioned PTR/PDR Teleprotection systems. Additional product lines include Audio Tone & Telemetry Equipment, a Multiplex Supervisory Control System, and a fiber optic link and data modem. Audio Tone & Telemetry systems allow a user to remotely control functions such as opening a valve, starting a motor, controlling landing lights at an airport, activating a hazard warning on a highway, and in return allow the user to receive information, such as the liquid level in a tank, the pressure in a pipe, the flow of traffic, the status of a landing light, or confirmation that a command was performed. Multiplex Supervisory Control System is a response to the cost and scarcity of dedicated phone lines whereby the phone link is dedicated to one subscriber. The multiplexer enables customers with high volumes of supervisory data where many functions are monitored from a single site to transmit data on fewer phone lines with more data per channel. Finally, the fiber optic link and data modem is Conolog’s solution to the expansion of fiber lines by its customers and their need to switch equipment from phone lines to fiber.
Separately, investors should also know that Conolog’s shares may be currently trading below the company’s cash per share ratio. During its last quarterly report, Conolog reported having over $2.1 million in cash and equivalent, which equates to approximately $0.75 per share based on the current number of outstanding shares of less than 2.8 million shares.
Conolog’s stock value could increase significantly from its current level of only $0.40 as the company continues to expand its marketing efforts and is focused on expanding sales, product applications, related software and production capacity throughout the balance of the year.
