Three Tiny Mo-Mo Stocks for a Big Mo-Mo Market

By Michael Brush
Exclusively for InvestorIdeas.com
January 25, 2007

There’s so much bullishness in the market now as indices and many stocks hit all-time highs, you need to be careful. Often when bullishness gets to these extremes, a pullback providing better prices lies around the corner.

But if you insist on jumping on the bandwagon and buying stocks trading at or near all-time highs, why not go along with insiders who are doing the same?

That’s what you have with three small, uncovered companies:

• Tix (TIXC), which sells discount show tickets in Las Vegas


• Integrated Electrical Services (IESC), an electrical contractor


• FRMO (FRMO), a sophisticated investment research shop whose revenue is growing rapidly along with client assets
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All three of these companies have had great runs, and they are trading at or near twelve-month highs – if you ignore few anomalous trading days for FRMO at the end of December. What’s even better, insiders have been buying all the way up, including at recent prices. That shows a kind of moxie that says these little momentum names are headed even higher.

If you follow insiders into these three stocks, just remember as always to have a time horizon of at least a year or two – as insiders typically buy with the same kind of outlook.

Tix (TIXC)

What goes to Vegas stays in Vegas – and not only because the house odds are stacked against you. Long gone are the sweet deals -- unless, of course, you are flexible and you stop by any of the four Vegas ticket booths of Tix4Tonight.

Tix4Tonight, a division of Tix, sells tickets for Las Vegas shows at 50% off the original box office price, on the same day of the performance. The outfit has non-exclusive agreements with about 60 of the roughly 80 shows in Las Vegas at any given time. It offers tickets for about 50 shows each day.

Business is booming.

Revenue doubled in the third quarter of last year to $1.4 million, and the company reported three cents a share in earnings. Tix also looks financially sound. It has about $1.2 million in cash and minimal debt, and it produced about a half a million dollars in cash in the first nine months of the year, up from $44,000 in 2005.

Last summer, Tix launched Tix4Dinner, which offers reservations for discounted dinners at a set time at restaurants on the Las Vegas strip. This business contributed little in the third quarter.

But it just started, and insiders apparently see big things ahead. Since December 19, they have purchased $442,000 worth of stock for prices between $4.41 and $4.93, according to InsiderScore.com. The stock recently traded for $4.85. A director named Benjamin Frankel was recently selling, but that doesn’t bother me. He also sold a year ago at 50 cents a share.

Integrated Electrical Services (IESC)

When builders need an electrician, they call Integrated Electrical Services. Operating out of 121 locations in 48 states, this company does the wiring for everything from office buildings and power plants, to airports, theaters, stadiums, high-rise residential buildings, factories, and hospitals.

You might have second thoughts about buying shares of a company with exposure to the housing market. But I wouldn’t worry about it. Commercial construction is booming, and this company has gotten anywhere from 58% to 66% of its revenue from commercial and industrial work in the past three years.

Shares of the company, which was in and out of bankruptcy last year, are being accumulated by Tontine Management, a contrarian and value-oriented hedge fund. Tontine bought $2.8 million worth at $18.02 on January 3. Company insiders have purchased $120,000 since mid December for prices between $14 and $20.16. The stock recently traded for $22.80.

FRMO (FRMO)

FRMO conducts investment research for hedge funds and mutual funds, with a focus on ferreting out intellectual property that is undervalued and in the early stages of development.

It must be doing a good job, because research fees are growing leaps and bounds. Fees collected from one client called Kinetics Advisers’ Hedge Funds grew to $2.9 million last year from $960,000 in 2004. Revenue from another client called Kinetics Paradigm Fund grew to $2.1 million last year from $125,000 in 2004. All told, FRMO fees grew six times to $6.6 million last year from $1.1 million in 2004.

Now the research shop looks poised for more growth as it also advises newer funds called Horizon Global Advisers incorporated in Ireland and Croupier Offshore Fund, incorporated in the Caymen Islands.

Director Lawrence Goldstein has been a regular buyer since September when the stock traded at $4. His most recent purchase was a few days ago on January 19 when he bought $114,000 worth at $8.22. The stock recently traded for $7.50.

One drawback is that this company trades in the pink sheets, still one of the more Neanderthal exchanges despite recent attempts to modernize. Pink sheet companies don’t have to provide regular filings.

And buying this stock may require a call to your broker if you want your offer to get displayed between the bid and the asking price to get a better deal on your purchase. But this being the pink sheets, you may not get represented, even if you call. Pink sheet market makers, after all, enjoy the piggish profits they can make on the big spreads, for doing nothing.

The bottom line: If you are going to go long in markets trading at or near all time highs, you might as well go along with insiders who are doing the same. That’s what you have with these three stocks, which all look like buys right here. Just be prepared for a pullback if something spooks the bulls all around you.

Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: /insiderscorner/. InvestorI deas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp . InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.

Look Out Energizer Bunny, Here Comes the Fuel Cell Battery

Wouldn’t it be nice to get a month out of your cell phone battery without having to recharge?

That may sound far fetched. But it’s the kind of mileage you could see from fuel cell-based batteries in a few years.

The futuristic battery is based on what’s called direct methanol fuel cell technology (DMFC). An Albany, NY-based company called Mechanical Technology (MKTY) has a version of the battery that can last for over 90 hours.

Plus it probably won’t blow up in your lap.

Of course fuel cells, like many other kinds of “alternative energy,” are one of those areas that hold plenty promise -- and let down -- for investors. So if you buy shares of Mechanical Technology, limit your exposure and be prepared to think long term.

“This is one of our most speculative stocks,” agrees Edward Guinness of the London-based Guinness Atkinson Alternative Energy Fund (GAAEX), which holds the stock. “We are in it eyes wide open coming up against crunch time. The problem is it they are nearly a year and a half from hitting a revenue upswing. The next 18 months are going to be key.”

But like Guinness, I’ll give Mechanical Technology the benefit of the doubt as a speculative play -- because insiders have been buying the stock.

In November insiders purchased $262,000 worth for $1.81-$2 right before the stock shot up to nearly $3. Then chief executive Peng Lim bought $20,000 worth in the pullback in late December. You can get it even cheaper now at around $1.80.

I’d be a buyer, for the following reasons.

Strong partnerships

Mechanical Technology is developing fuel cell batteries with several high-profile partners, including the Duracell division of Gillette, the cell phone maker Samsung, and the U.S. Air Force and the Army.

It has a low-powered battery for consumer applications (called Mobion-1) that packs a lot more power than standard lithium-ion batteries – the kind you use now. One problem: The battery is still too big.

Mechanical Technology is also developing high-powered versions of this battery for use by the military (Mobion-30) in applications like satellite communications systems.

The company is in the demonstration phase for each. But it hopes to be selling the military batteries in 2008.

End of the road for lithium-ion

Makers of lithium-ion batteries been cramming more and more energy into smaller batteries, and they’ve pushed the limits. The result has been exploding batteries – which recently lead to a massive laptop battery pack recall by Apple (AAPL) and Dell (DELL).

The whole affair heightens the interest in fuel cell batteries, believes Rodman & Renshaw analyst Amit Dayal. Besides, portable digital gadgets will continue to demand more memory and computing power to handle more complex tasks. This calls for more power – and fuel cell batteries may be the answer.

Pure methanol

Mechanical Technology develops fuel cells in its MTI MicroFuel Cells division. Rodman & Renshaw’s Dayal thinks the company’s direct methanol micro fuel cells are superior to those of competitors because they run on pure methanol, which means they produce more power. The batteries operate on a small cartridge of methanol, and they can be “recharged” instantly by putting in a new cartridge.

Bigger potential upside

With a market cap of just $55 million, Mechanical Technology looks like a better deal than competing plays like Medis Technologies (MDTL) which has a market cap ten times the size. “There is significantly more upside in Mechanical Technology if this does take off,” says Guinness.

Cash burn

By a rough calculation, Mechanical Technology seems like it could go a year or more without another dilutive capital raise. It looks Mechanical Technology used up about $13 million to $14 million in cash in 2006.

As of early November the company had $5 million in cash. It also held shares of Plug Power (PLUG), which the company helped found, worth $11.6 million. It December, it raised $10.3 million by selling stock to RG Capital Management based in the Cayman Islands.

While the MTI MicroFuel Cells division burns cash, the company also has an instruments division that produced $1.7 million in revenue in the third quarter, an increase of 19%. The company has no debt, and it has a tax loss carry-forward of about $46 million.

Mechanical Technology may announce a new partnership in the private sector this year, and the Department of Energy could increase funding for alternative fuel cell technology. It expects sales in the military sector to start in 2008.

The bottom line: These kinds of alternative energy plays often flame out – so be careful with position size. But the recent round of insider buying suggests this company is one of the safer ways to get exposure to what could be a big deal in consumer electronics a few years down the road.

Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorI deas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp . InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.

An Unconventional Energy Player in the Driver’s Seat

Our energy bets are bruised and battered, and it’s easy to see why.

By Michael Brush
Exclusively for InvestorIdeas.com
January 11, 2006

Investors had big bet on energy stocks, but now that crude oil has fallen 9% this year and 30% since last summer, hedge funds are heading for the exits.

Is there any end in sight?

It may be just around the corner. The eerily warm weather in much of the U.S. is about to "turn on a dime," predicts AccuWeather.com forecaster Joe Bastardi.

"Those who think that this winter is going to remain mild are in for a shock," he says. "A week from now, we'll start seeing truly cold air across much of the country, and we expect this change to last.” By the end of the month, people in the Northeast will be shoveling out their driveways, and today’s mild weather “will be a distant memory," he says.

I wouldn’t be surprised. A sharp reversal in the second half of winter can be common when an El Nino pattern causes unusually warm weather in the first half – the case right now.

The arrival of cold winter weather to the environs of a good portion of the world’s energy traders in New York will likely reverse the negative psychology towards the sector – and put a bid under our energy stocks.

Besides a change in the weather, these factors should support higher energy prices:

Strong global growth and demand from countries like China and India.
Tensions in the Middle East -- which have moved off the front pages but haven’t gone away.
Underlying shortages of natural gas in Northern America where prices are higher compared to a few years back because all the easy reserves have been exploited.
We’ve even seen a little insider buying in this pullback. Insiders recently bought at Weatherford International Ltd. (WFT) click here). Aubrey McClendon and other top execs at Chesapeake Energy (CHK) were recently buying (click here). There were also buyers in late December at Abraxas Petroleum (ABP) (click here).

Panhandle Royalty

Here’s another energy stock where a savvy director recently stepped up to buy: Panhandle Royalty (PHX). This is a micro-cap natural gas company with solid holdings in two of the hottest natural gas plays around: the Fayetteville Shale in Arkansas and the Woodford Shale in Oklahoma.

The buyer was Robert Robotti, a money manager at Robotti & Company Advisors. Specializing in small-cap names, his firm has beaten the market consistently over years. On January 8, Robotti bought $291,000 worth of Panhandle Royalty stock. That took his position up to 576,000 shares, according to Insiderscore.com, or 6.8% of the company’s shares outstanding.

Cooperative beginnings

While most energy companies have to lease land, take on most of the investment risk and giving up a big part of the profits as well, Panhandle Royalty is on the other side of this equation.

It owns big swaths of energy-rich land in Oklahoma, New Mexico, Texas and some other states, thanks in part to its humble origins as an energy cooperative eight decades ago.

The company was founded in the Oklahoma Panhandle in 1926 as the Panhandle Cooperative Royalty Company. For years it functioned as a co-op based on a simple principle. Any single individual in that area at the time might own land with rich energy reserves. But it wasn’t a sure thing. Given the uncertainty, wouldn’t it be better for lots of landholders to pool their land and then share equally in any finds?

A lot of people thought so, and the co-op was born. It converted into a company in 1979, and it still holds 260,000 acres in energy-rich regions.

It holds “unconventional resource plays,” meaning the energy is tougher to get out. It’s usually done through horizontal wells. But a little math – and speculation – shows the potentially huge amount of energy Panhandle Royalty controls in these unconventional plays, which now get a lot more attention because natural gas prices have gone up so much.

Fayetteville and Woodford

Let’s take Panhandle Royalty’s 9,000 acres in the Fayetteville Shale in Arkansas first. Panhandle Royalty has leased out the land for a $2 million fee and an 18.75% royalty. It will also take a “working interest” in some wells that will cost some capital and yield a 5% or so revenue share.

But here’s the key question: How much natural gas lies beneath Panhandle Royalty’s land? One way to guess is to look at what other energy companies are finding. Southwestern Energy (SWN) and other players there are reporting two to three billion cubic feet of gas (BCF) per well.

Panhandle Royalty’s 9,000 acres could have about 80 wells, or 160 BCF of gas. If that’s right, Panhandle Royalty’s 18.75% share would work out to about 30 BCF of natural gas. That’s nearly double its current 34 BCF of proven reserves.

The potential for Panhandle Royalty’s 10,000 acres in the Woodford Shale in Oklahoma is even greater. Based on production numbers from Newfield Exploration (NFX) – and assuming Panhandle Royalty’s holdings are equally productive – Panhandle could have 240 BCF worth of gas. That’s seven times its proven reserves of 34 BCF.

“The opportunities are dramatic, given the company’s small size,” says Robotti. That would explain why Robotti recently took his already-large position in this company up another notch, at around $18 a share.

Panhandle Royalty also has 2,600 acres in the Woodford Shale in West Texas, and 7,300 acres in Wolfcamp in Chaves County, New Mexico.

The bottom line: It will take years to prove out the above scenarios, and they are no certain bet. But if they work out this stock could go up dramatically. Anyone buying Panhandle Royalty in this recent pullback should be willing to wait several years for that to happen.

Disclaimer
At the time of publication, Michael Brush had long exposure to Weatherford International, Southwest Energy, and Chesapeake Energy. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorI deas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp . InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.