Tuesday, February 15, 2011

OnlyDoubles Profit Spotlight for February 15th, 2010

Hello and welcome back to CRI's OnlyDoubles Profit Spotlight.

Here you will find past OnlyDoubles trades that have been recently closed. This blog's purpose is to update the public on recently completed OnlyDoubles trades as a demonstration of the model and a teaser to get you to subscribe. If you would like to learn more or subscribe (for real time access to OnlyDoubles NewTrades) please visit our Subscription page.

Regular readers of my blogs will know that by nature I am a very conservative investor. I look for deep discounts to value, never risk more than 5% of my total stake on a single investment idea and stick religiously to the notion of selling half of your position on a double (hence the name OnlyDoubles). Typically, my hold period is between four to six months and I can have more than a dozen stock positions on at any one given time (not to mention options). Usually, I do my DD and if I like what I see, I slowly accumulate a position. Most of the time, a stock or an option gives me plenty of time to take a position and then write up a nice 'Rational' case for buying it. Best case scenario, I'm in and then you all get in. We all have the same price target in mind and we all get out in and around that area.....makes sense no? 
So with all that being said, every once in a while we get handed an incredible treat. A treat so nice I can't even get it out to all my subscribers in time. This sometimes has unfortunate consequences -  today's stock is such an example.

About a month ago, while doing our regular VCIM screen, a stock came up that met our criteria. This stock had literally done nothing for years and had repeatedly been subject to trading halts. Once free trading again (trading halt lifted by the exchange in early Feb.) it popped up on the screens and I had to look at it. The fact that there was so few shares outstanding and it was such a low price ($.075) meant that the company was literally trading at the value a CDNX shell trades at. In all honesty, it almost didn't seem real. The company was Meridex Software (MSC on the Cdn. Venture exchange). 

The company describes itself as "a leading provider of software solutions for emergency management and calendar inter-operability. We help educational institutions, government, hospitals, retail and corporate enterprises manage, monitor, and optimize emergency preparedness and security. Meridex provides intelligent emergency management solutions synchronizing all of the relevant information sources into one common operating picture" (link)

Fundamental criteria
- currently 7 million shares outstanding as the stock was recently rolled back December, 2009 on a 1:15 basis (news link)
- 3.4 million Options to Directors at $.11 on pre-rolled back basis (news link)

But the real bottom line here is total valuation. At $.075 and with only 7 million shares outstanding, the trading vehicle MSC had a total market cap of $525,000. Now as a Canadian I know very well the bureaucracy of this country. You can't even sneeze without having to pay some government agency off. It is absolutely stunning how the Canadian system is very happy with the red -tape and the associated costs that go with it. And unlike some other more free market economies, there is absolutely no way around it, period! You want to do business in Canadian stocks, its gonna cost you a bundle. So this leads us to the big point - just because of costs, a CDNX listed trading shell goes for between $250,000 to $500,000 yet it doesn't show anywhere on the balance sheet. Between lawyers fees, filing fees, exchange fees, etc a new listing is very expensive. But as long as the company has paid its annual dues and submitted the required reports, it can sit on the exchange forever.

Technical criteria
The technical picture was rather compeling as a double bottom price pattern was registered when prices traded through the Fall '10 high of $.08. From a 50% level perspective, once could justify buying up to $.0975 and realistically expect to double your money.
1 year 50% rule ($.35 + $.04) / 2 = $.195
5 year 50% rule ($3.50 + $.04) / 2 = $1.77) 

So, just seven trading days ago, CRI went ahead and bought MSC.V on the double bottom breakout at $.08. I was willing to risk 50% of my capital here or down to the original bottom at $.04. I instantly placed open orders to sell half my position at $.165 or better.

Well, as you can see by today's price action, the stock went a little crazy. It hit a high of $.225 and CRI was filled on our sell order at $.17! I spent the rest of the morning talking with my regular traders and subscribers suggesting that if they could sell some at more than a double (of their purchase price) then to go ahead and do so. 

Congrats to all that were able to do so!

For subscribers who missed this trade, I do apologies, it came on way faster than I thought/expected and there hasn't even been any news....go figure. I had a choice between this one and ZN and I did the write up on Zinccorp. I feel just as bullish about ZN (maybe even a little more so after talking to the company) so certainly don't give up on him. For those that may wish to try and play MSC up to the ultimate target of $1.75. I suggest you work open orders down to the $.10 area as today's price action left a very large Gap at that level that will need to be filled at some point in the future (my hunch is it will be during the June correction).I wouldn't be in a big hurry to pull the trigger now, just be patient and if it comes back down to earth take a good look again near a dime...

That's all for this issue of CRI's OnlyDoubles,
Brian Beamish FCSI