Monday, January 20, 2014

Keep it Simple Stupid Investment: Female Health Co FHCO

Disclosure: I own shares of FHCO in my IRA

Skimming through a 74 page 10-Q might be some folks idea of a good time, but it's also going to consume a bunch of it too. A keep-it-simple-stupid investment should be one that you can explain to someone in 5 minuets or less.

Female Health Company is a stock I've been following (and investing in) since 2008. It's one of the simplest companies I have ever come across ... especially in the consumer goods type business.

Here are some quick stats about the company:

Full Time Employees: 132
Cash: $8.92M
Debt: $0
TTM Profit Margin: 45%
Source: Yahoo! Finance

The Female Health Company has 1 product. An FDA approved female condom. They call it the FC2. The company began with a condom called the FC1 - then improved on the technology several years ago ... which did 2 important things for shareholders. #1 the FC2 was cheaper than the original FC1 condom - and #2 (and more importantly) it was sold at a higher margin than the original FC1. Basically the Female Health Company hit the grand slam of consumer goods - they lowered the cost to the end consumer - and they increased their margins at the same time.

The majority of the sales come from large organizations, like the United States Agency for International Development (USAID), who order very large quantities usually to distribute to areas of the world with high AIDS/HIV and sexually transmitted infection rates.

You might ask: who uses a female condom? If you live in the United States, not many people. The last time I went through the company reports, they have some distribution in the New York and some other areas, but retail sales in the US are not a big money maker. In other areas of the world female condoms are relatively popular, and give women the power to prevent disease & pregnancy; instead of relying on the man to always wear a condom. Additionally - the FC2 can be re-used, which is an attractive value proposition in less wealthy nations.

With simple comes risks!

Okay, so that all sounds good. Simple company, simple product, patents, FDA clearance, share buy-backs, and a handy dividend yield sounds all good to me.

But - with only 1 product - and only a handful of bulk buyers, you are exposing yourself to plenty of risk. While I think its more likely a competitor would offer to buy-out Female Health Company if they wanted in on the market (quickly) - there are other, very small, competitors that could eat into market share if they were to get orders for their product. Also ... you're betting these large health organizations will keep getting funding AND keep buying these condoms. Any drop in orders, or worse, a cancellation would leave this company scrambling because there are only a few organizations with the buying power that can move the needle on sales of one product.

Ok, so that's basically the bad news.

In my opinion, your reward - now mostly in the form of a quarterly dividend & share buy-backs - is greater than the risk of a large buyer pulling out (bad pun) .... or a competitor coming up with a better version that clears the FDA & other approvals. Another risk is potential vaccines, cures or other medical advancements that reduce the need for condoms in general ... but without knowing much better I'd imagine we are decades away from that.

In short, Female Health Company is a simple, 1 product company - with only a handful of large buyers. Traditional male condoms will essentially always loom overhead as it's largest competitor and the industry standard. However, if large organizations are distributing male condoms - wouldn't it seem a little discriminatory if they didn't distribute female condoms as well? So in some ways, you could possibly assume the FC2 can piggyback off the sales of male condoms. If you believe that logic, you reduce your risk to just hoping health organizations receive funding & no other competitor entering the market.

The decision to invest is up to you, but at least it doesn't take reading a small novel of text to understand the Female Health Company. That alone makes it an attractive candidate to consider.

Thursday, January 16, 2014

United Online Content & Media Segments Provide Little Growth Prospects


Content/Media Member counts as of Q3 2012
Classmates: 57 million
StayFriends: 29 million
MyPoints: 9 million

Classmates/Memory Lane

After a failed attempt to become the webs leader in 'nostalgic content' Classmates is to social media as BlackBerry is to smart phones. That actually might be a compliment. The premise of the website is essentially what helped launch Facebook (FB) to stardom.

First called 'classmates' then re-branded to 'memory lane' ... now appears to be back to classmates. If you think MySpace is a ghost town, you know classmates is too. Searching the web for information about the website and you're likely to stumble upon many of the customer complaints about subscription charges billed to their credit cards. The company made a push into scanning old high school yearbooks into a database, and that might be the one unique selling point the website has. It also appears that's where a decent percentage of the organic search traffic comes from.

The site makes money from ads and by charging for certain access rights & content - most on a recurring basis; which is where many of the customer complaints stem from.

The bright spot is that 2013 Q3 churn went from 30,000 net decline, down from 66,000 the prior quarter. (Transcript)

MyPoints

This site is a way for consumers to earn points which are converted to cash or other items like gift cards or airline miles. A customer earns points by filling out surveys, searching the web, playing games and buying things through affiliated merchants. This space is less trendy than social media, but somewhat of a 'spammy' business since customers are bombarded with e-mails from partners & affiliates of MyPoints.

Baring that UNTD is capable of acquiring even low quality traffic, it should be able to monetize MyPoints while maintaining low customer service standards & not re-investing in the business much. It appears that MyPoints can maintain registration levels partly due to affiliates, who are converting leads for the company at a decent rate. Each of these signups cost the company $1.00 + network fees - scrub rate. The company wrote down the value massively during the 2013 year, and they haven't provided much color on how (or if) they will be able to grow this business.


StayFriends

On the StayFriends.com website, which I had to translate into English, they boast 29 million users, 100 employees and they were hiring at 4 different positions in January 2014. In August 2013 the company boasted 14 million members in Germany. The company will use some of the technology and marketing techniques they've developed for Classmates on this membership base. With the growth of Facebook, Twitter and localized social media in these countries - it's hard to imagine these numbers are nothing more than mostly inactive accounts in a few years.

MySite

When I was following the companies conference calls, they don't even really talk about this website much, so I can imagine the income is negligible. If you think that they might have a hidden gem here, I'd doubt it. Wix.com Ltd (WIX) went public in November 2013 and the financials show they don't make a profit. Form my experience Wix's offerings were pretty weak & clunky so I'm not surprised they don't make money, but that's beside the point, web hosting is a highly competitive business with much larger players including Amazon and RackSpace.

There are some self-employed affiliate marketers with a better portfolio of websites than United Online has. They do benefit from a massive user base (they have paid marketing fees for) ... and e-mails to millions of people at a time is going to lead to sales - even if at an increasingly lower conversion rate.

Most investors are going to flock into United Online for the dividend, and in the short term, the company should be able to bleed these properties of revenue each quarter. They've resulted to spammy techniques that have left high quality customers canceling accounts. Your growth largely depends on people using these sites more - and given all the competition in these spaces, that is unlikely. The other option is that they acquire new websites - but based on this track record of purchases, that may not be the best use of cash.



Monday, January 13, 2014

MGT Capital Investment's FanThrowdown.com Fumbles Player Confidence

MGT Capital Investment (MGT) owns 65% of Daily Fantasy website Fan Throwdown. 

On January 9th this was sent to Fan Throwdown Members:

Hello FanTD User,
If you are receiving this notice, it means that you are on our master list of users who have met or exceeded the total in winnings that would require a tax form to be submitted. We would like to take this opportunity to inform you of our policy on this matter, as well as ask you to please submit the required forms as soon as is convenient for you. 
For any user who has a total in gross winnings that equals or exceeds $600 for any calendar year, the government requires us to get a W9 form for US citizens, and a W8 form from users outside the US. 
This total does not take losses or withdrawals into account, and is strictly a total in winnings that you have been awarded in one year’s time. Please understand that filling out the required form is NOT an agreement to pay tax on this amount, it is strictly the information WE need to report these winnings to the government as we are required to by law. How this affects your yearly tax burden is between you and the IRS, and our participation does not in any way affect that process. 
Please note that any pending withdrawals are held from processing for any users who are required to send the tax forms and have yet to do so. 
If you have any questions or concerns on this matter, please do not hesitate to contact us.
This immediately started a forum thread on a website where members of the daily fantasy community were outraged that Fan Throwdown was not taking losses into account when reporting information to the IRS. This issue also was backing up cash-outs - as players needed to submit this info in order to withdraw money from the website.

On January 10th this was sent to members of Fan Throwdown:

To our players and the broader DFS Community:
In the last day or so we have received feedback about FanThrowdown’s policy regarding the issuance of 1099-MISC tax documents for calendar year 2013. We became aware that due to the lack of communication (and miscommunications) in this process, the DFS community concluded that FanTD was not sensitive to this issue. I can assure you that this perception could not be further from the truth. For those of you who do not know me, I am the CFO and a director of MGT Capital Investments, Inc., the parent company of FanTD. As you can appreciate, in my position, I need to obtain all relevant facts prior to jumping to uncertain conclusions, particularly with respect to such sensitive information as FanTD’s tax reporting obligations to our players.
I requested our tax advisors conduct deeper research, and based on those findings plus the Company’s independent research, we will report 1099-MISC tax documents utilizing “Net Winnings” which will consist of Gross Winnings less Entry Fees. We express our sincerest apologies for any concerns or misunderstanding by not providing certainty on this matter sooner. 
Several months ago, when MGT invested into FanThrowdown, we saw an asset with great potential for growth in an exciting new industry. Our initial goal was to repair the longstanding technical issues by attracting exceptional engineering talent and then to deploy daily contests with greater accessibility and speed. We now face the need to strengthen the management team at FanThrowdown and we will be making immediate changes to address the situation. 
With respect to player deposits, please be assured that MGT is a New York Stock Exchange company with a $25 million market value, $5 million in cash, and no debt. There is absolutely no need for concern with respect to the safety and integrity of your funds. 
Thank you again for your feedback—we believe we have always demonstrated immense respect for our players and will continue to do so. 
It remains our goal to aggressively improve MGT’s Daily Fantasy Sports ventures with our player’s best interests in mind. 
Best regards,
Robert Traversa
MGT Capital Investments, Inc.
500 Mamaroneck Avenue, suite 204
Harrison, NY 10528
Bold emphasis added by me.

Inside the same thread, connections are made that one of the owners of FanThrowdown.com is a registered sex offender.

Member EmpireMaker2 in the forum thread I link to earlier made this post approximately on January 9, 2014:
Also seems like the owner of fanthrowdown is a registered sex offender. Payments to the site go to JONATHAN LICATA not Mongero. He changed his last name to his mother maiden name presumably after this happened. Let me know if you need anymore evidence.
http://whois.polodomains.com/domain/K65jol1EQ0WwV8latCJuBg.._info.html
http://offender.fdle.state.fl.us/offender/flyer.do?personId=69892
A link was later posted to a news story blurb that described the crime.

It remains to be seen how these developments will filter through the daily fantasy community which is fragmented among several websites that allow customers to play fantasy sports games for cash against others.

Alternative Investment - Lending Club Peer to Peer Lending

I first heard of Lending Club several years ago during the financial crisis when the loan losses were a bit higher due to the poor economy and falling interest rates. It was a risky investment then because you have customers (borrowers) who are loosing jobs, while interest rates fall - so the rate they are locked in at doesn't seem so attractive anymore.

Interest rates are still at rock bottom levels thanks to the Federal Reserve, and are likely to stay low for a period of time. While I'm no banker, I know the physiology of the borrower. If you are paying on a loan at ... let say 8% and interest start rising - you feel better about paying your loan off than if rates were falling.

As an investor, you can benefit from peer-to-peer lending by supplying portions of the loan (usually in increments of $25) and accruing the interest payments (minus Lending Clubs fee). Essentially you turn yourself into a bank supplying loans. There's a really good blog by a peer-to-peer lending investor that shows his results every month and has a pretty cool website of information you might want to check out to find out more about the industry.

Anyway, during the rise of the equity markets during 2013 I found it hard to put 'new money' to work in markets that were at all-time highs. Consequently I decided to try Lending Club based on interest rates & the general economy had stabilized in the short term.

It's not a complicated website or process to understand, and the website I link to earlier has a wealth of good information, but I wanted to touch on the most important aspect of selecting the loans to invest in on Lending Club.

Filtering:

  • I only purchase loans that have 'Verified Income'
Many of Lending Clubs loans haven't even verified the income of the lender! That sounds like what caused the housing boom/crisis - so I stay away from anything that hasn't been verified. Additionally, I factor in the location the borrower lives. If a borrower makes $10,000/month - that may sound like a lot, and in some parts of the country, it certainly is. However if the borrower is from New York or parts of California, 10k per month might make the loan a little more risky than if they lived in Utah. 
  • Additionally you want to examine the details of the loan application
Things like existing credit lines/usage, if the borrower has delinquencies & inquiries are all things that show up on the credit report. I also like seeing if the lender has entered any notes or answered any questions. I've found loans where the borrower has stated they "have paid off a Lending Club loan before" or they give details of how they are going to pay the loan back each month. These all add to the confidence level of the investment.

Peer to peer lending isn't for anyone. I have recommended this service to other people and they have enjoyed it. While I don't know what their portfolio performance is, mine is around 9% net annualized return and I have no defaults (only after 8 months of lending) so that has me positive about this investment as well. 

Sunday, January 12, 2014

QC Holdings Inc Concentration of Business in Missouri Could Be In Risk

Disclosure: I don't have any positions in this company. It is on my 2014 watch list of speculative companies.

I'm always on the hunt for new companies to invest in - either long or short. I stumbled across QC Holdings (QCCO) while hunting for companies that are trading near cash values. At the time of writing this, QC Holdings had about $0.80 cents in cash vrs a stock price around $2.00

This company operates Pay Day Loans under a variety of different names in several states in the country. There are pressures within the industry from governments & legislation that reduces the ability of the company to even stay open within the state.

Per the companies 10-Q filed with the SEC on 11/13/2013
Over the past few years, legislatures in certain states (and voter initiatives in a few states) have enacted interest rate caps from 28% to 36% per annum on payday lending. A 36% per annum interest rate translates to approximately $1.38 per $100 loaned, which effectively precludes us from offering payday loans in those states unless other transaction fees may be charged to the customer. (Source)
Bold emphasis is added by me.

There's some legislation that is trying to be put on a 2014 ballot measure in Missouri that would adversely affect the company. A good explanation of the situation was published in August 2013 here. Basically the ballot measure attempts to cap the interest rate the Pay Day loan providers (like QC Holdings) near the 36% per annum .... which would effectively terminate the ability for the company to do business in Missouri.

Why is that a big deal?
Our short-term lending branches located in the states of Missouri, California and Kansas represented approximately 24%, 17% and 5%, respectively, of total revenues for the nine months ended September 30, 2013. Our short-term lending branches located in the states of Missouri, California, Kansas, New Mexico and Illinois represented approximately 34%, 16%, 7%, 5% and 5%, respectively, of total gross profit for the nine months ended September 30, 2013. (Source)
Bold emphasis is added by me.

Basically the state of Missouri is the #1 source of revenue and gross profit for QC Holdings Inc. That means this stocks value is closely tied to Missouri.

If a measure to reduce fees collected by pay day loan operators in Missouri, it might be a devastating blow to a company that would potentially loose over 30% of its gross profit. Investing in QCCO means you need to keep a close eye on Missouri politics in 2014.

The Missouri Lending Charge Limits initiative has until May 14, 2014 to acquire the total amount of valid signatures to get it on the ballot. (Source)

Beginners Guide To Investing With Limited Funds

While there are many readers of this site that execute $10,000 trades like it's nothing - many of you might have stumbled upon Seeking Alpha because you are just starting out in your investment journey. For you, investing $50 or $100 a month is about all you have.

Don't be discouraged, or worse yet, not invest money each month just because you don't have very much.
I remember in 2008 and 2009 having no job and very little money. But I wanted to invest the small amount of money I could scrape together each month in what I believed to be undervalued companies that could go up in the years ahead.

I'm sure glad I was right, but more importantly, I'm glad I started investing with a small amount of money because it made me more diligent & careful with where I invested my money.
So in other words - be proud you only are investing $20 dollars at a time. It's better than zero! And more importantly, don't be discouraged or intimidated by not having lots of money to invest ... you can learn a lot with a little.

FEES

The four letter word in finance, that's often buried deep inside financial documents or not properly disclosed to the novice investor.

There are many different types of fees, but the 2 you want to be the most aware of when you are first starting out are Trading & Management fees.

Trading Fees

You've probably seen on TV (and possibly on this website) brokers advertising $8.95 equity trades. That basically means you are going to pay $8.95 each time you want to buy or sell the stocks, ETFs or funds you want to invest in.

Most traders you read about on this website will rarely talk about the $8.95 fee they are paying for each trade because they are trading 100's or 1,000's of shares at a time. However, if you only have $100 to invest, paying $8.95 is 8.95% of your investment whacked right off the top into the already filthy rich pockets of an investment bank.

You don't want that.

Remember, this fee is for both buying & selling. You do want to profit from your investments one day right? That means you can't avoid paying the fee at least twice.

Fees: $8.95 fee to buy + $8.95 fee to sell = $17.90 total.

So you can see how if you only invested $100 - your investment would have to rise 17.9% (or $17.90 dollars) before you break even! In other words, your stock could perform great and you won't make much (or any) money.

You really don't want that.

Good news is that you have ETFs and mutual funds that allow you to buy & sell with no fee. That means you can buy 1 share for $20.00 and if it goes up to $20.10 - you can sell it and pocket a nifty $0.10 profit (some might laugh, but I've done this before). I will list some commission free ETFs I have traded or own in a little bit, but before I do that, I want to discuss the second type of fee you will want to be aware of.

Management Fees

When you invest your money in a company stock, the 'fees' associated with that investment are basically the costs of running the company. So wages, inventory, sales, administrative, legal ... ect are all costs that will subtract from any profits you might share with the other owners of the stock.

With ETFs and other funds, the investment bank needs to charge you (and the other investors) a fee to cover things like manager salaries, listing fees, marketing costs, office space and more. This fee is usually expressed as the net expense ratio.

For example, a fund with a net expense ratio of 1% "means that each year 1% of the fund's total assets will be used to cover expenses."(WikiPedia)

We know that 1% of your piddly $100 dollar investment is nothing. However, keep in mind that you are trying to grow you money - and with some discipline & luck you might have $100,000 or more invested in the market one day.

1% of $100,000 let alone 1% of $1,000,000 is a lot of money.

Keep in mind that most money managers aren't worth paying for. Warren Buffett once said "Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway." (BrainyQuote)

So in other words, don't let the three-piece suit and Mercedes Benz impress you .... those guys are on Seeking Alpha reading (and writing) articles along side you.

Time To Start Trading

Okay, so it's time to put some money to work. One hurdle I had when wanting to only invest $20, $30 or $100 dollars at a time was most brokerage accounts required a minimum deposit of $1,000. When I told you I was broke in 2008 & 2009 - I wasn't lying. I didn't have anywhere near $1,000 to my name.
However, many investment banks started retail banking divisions during the financial crisis and started accepting regular ol' check & debit card transactions. One of those companies was Charles Schwab SCHW.

This might sound like a complete sales pitch, or that Chuck himself is somehow paying me to write this - but honestly it's been the best bank account I've ever had. They refund every single one of your ATM fees (including the $5.99 ones in Las Vegas). It's $0 minimum balance.
And the best part about it? Schwab waives the $1,000 needed to open a brokerage account.

Awesome, so now it's time to invest some money.

Schwab allows you to trade their ETFs (and Schwab mutual funds) along with a list of about 100 other ETFs commission free.

Additionally, many of Schwab's ETFs have some of the lowest expense ratios (manager fees) of any ETFs on the market.

Sweet - so we're avoiding trading fees (by trading in a Schwab account), and the management fees are some of the lowest in the industry, lets take a look at some of the funds.
SCHB - Gross Expense Ratio = 0.04% (that's really low)
The ETF offers diversified exposure across large- and small-cap U.S. stocks. It seeks investment results that track performance, before fees and expenses, of the approximately 2,500-stock Dow Jones U.S. Broad Stock Market Index.
SCHX - Gross Expense Ratio = 0.04%
The ETF provides exposure to large-cap U.S. companies. It seeks investment results that track the performance, before fees and expense, of the Dow Jones U.S. Large-Cap Total Stock Market Index made up of approximately the largest 750 U.S. stocks.
SCHG - Gross Expense Ratio = 0.07%
The ETF provides exposure to large-cap U.S. stocks that exhibit growth style characteristics. It seeks investment results that track the performance, before fees and expenses, of the Dow Jones U.S. Large-Cap Growth Total Stock Market Index, representing approximately half of the market capitalization of stocks in the Dow Jones U.S. Large Cap Total Stock Market Index.
SCHD - Gross Expense Ratio = 0.07%
The ETF seeks investment results that track, as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Dividend 100 Index.
SCHV - Gross Expense Ratio = 0.07%
The ETF provides broad exposure to large-cap U.S. stocks that exhibit value style characteristics. It seeks investment results that track the performance, before fees and expenses, of the Dow Jones U.S. Large-Cap Value Total Stock Market Index, representing approximately half of the market capitalization of stocks in the Dow Jones U.S. Large Cap Total Stock Market Index.
SCHM - Gross Expense Ratio = 0.07%
The fund's goal is to track as closely as possible, before fees and expenses, the total return of the Dow Jones U.S. Mid-Cap Total Stock Market Index.
SCHA - Gross Expense Ratio = 0.08%
The ETF offers exposure to small-cap U.S. companies. It seeks investment results that track the performance, before fees and expenses, of the Dow Jones U.S. Small-Cap Total Stock Market Index SM made up of approximately 1,750 U.S. small cap stocks.
This is just a summary of Schwab's ETFs. It also seems like every few months they send me an e-mail with new offerings. You can also invest in Mutual Funds, which can be traded with no fee & no load as well. The list of one's Schwab offers is here. Keep in mind with Mutual Funds, often the minimum initial investment is $100 or more. That being said, most subsequent investments can be as little as $1 dollar.
My experience has been with Schwab, but you will find others in the brokerage community offering similar services. I encourage you to investigate and find the one right for you. Feel free to call these people on the phone and ask them a bunch of questions before you sign up - that's what those management fees you will be paying are for.

I hope, if anything, this will encourage you to invest & save some of your money, even if you don't have very much right now. By avoiding trading fees - you will be able to put more of it to work.

Speculative Penny Stock Purchase: Metabolix, Inc MBLX

Disclosure: On January 3, 2014 I purchased shares @ 1.23/share

I found this speculative penny stock by screening for companies that were trading near the cash value of the stock. While this is only one way to scan for an undervalued stock, it comes with risk, as investors probably believe that the cash is going to run out. With Metabolix, Inc. that is certainly a risk.

According to most recent SEC filing (November 7, 2013)


Three Months Ended

Nine Months Ended



September 30,

September 30,



2013

2012

2013

2012

Revenue:









Revenue from termination of ADM collaboration

$

$

$

$
38,885

Product revenue

265

70

1,876

457

Grant revenue

563

576

1,871

1,415

Research and development revenue



618


License fee and royalty revenue

27

28

139

162

Total revenue

855

674

4,504

40,919











Costs and expenses:









Cost of product revenue

459

316

2,212

808

Research and development

4,643

4,931

14,446

15,982

Selling, general, and administrative

2,995

3,170

9,728

11,006

Total costs and expenses

8,097

8,417

26,386

27,796

Income (loss) from operations

(7,242
)
(7,743
)
(21,882
)
13,123











Other income (expense):









Interest income, net

10

27

43

102

Other expense, net

(19
)
(29
)
(40
)
(78
)
Total other income (expense), net

(9
)
(2
)
3

24

Net income (loss)

$
(7,251
)
$
(7,745
)
$
(21,879
)
$
13,147












Metabolix is burning through cash like most companies who are trying to bring a product to mass-market. To reach the big leagues, Metabolix needs to grab market share of the biodegradable plastics market - which  is expected to grow 15% by the year 2017. Local government ordinances are eliminating (or charging customers) for plastic bags, the use of biodegradable plastic seems to be a logical solution.

How is Metabolix, Inc situated to capitalize on this market trend?

Per the companies 2012 Annual Report:
Business Strategy
Our goal is to be the leader in discovering, developing and commercializing economically
attractive, environmentally sustainable alternatives to petroleum-based plastics, chemicals and energy. To achieve this goal, we are building a portfolio of programs that we believe will not only provide an attractive slate of commercial opportunities and create value for our business, but will also generate leading and competitive intellectual property positions in the field. 
Creating a Product Portfolio of PHA Biopolymers 
Our strategy is to establish our position in the market with premium priced products that address specialized segments that can be served competitively by the distinctive properties of biopolymers. Through several years of interaction with customers, we have developed formulations of our polymer suitable for injection molding, blown and cast film, sheet and thermoforming. There is the potential to refine these grades further and to tailor them for specific customer performance requirements and applications. In addition, our technology may allow us to develop new formulations and processing protocols to extend the use of Mirel and PHA polymers into blow molding, non-woven, foam and latex applications. 
(Bold emphasis on "premium priced products" added by myself)

Premium priced products work in the cell-phone business (ask Apple) but not always in the plastics business considering most companies are using plastics because it's cheaper than an alternative material. Anyway, given they are struggling finding production facilities & don't have massive capital on the balance sheet - playing in the premium priced market might be well suited for this company. They don't have the ability to create massive quantities of a product - so focusing on more specialized uses might be a better option.

The company had a relationship with ADM (see balance sheet above) from 2004 until 2011. ADM terminated the partnership "citing the projected financial returns from the alliance were too uncertain." (Per 2012 Annual Report)

Okay, so the company was trying to create a PHA Bioplymer product with ADM and it got axed after 7 years of loosing money. That's a big waving red flag saying a big company like ADM invested 7 years and lots of money and gave up.

So, while I do love the overall market story - I don't love (or even like) Metabolix's ability to prove it can actually bring a successful product to market.

So outside the potential growth of the market, what did I see in Metabolix that I liked?

#1 - New CEO Joseph Shaulson has the keys to the car now, and we'll see where he wants to take this company. He has worked in the industry for a a while, so we'll assume he has built up some relationships & contacts that might help the company. We'll also assume Joe Shaulson wants to actually do something, as this business doesn't have a portfolio of products on the market, so he's got some work to do. At the very least, he'll want to get some press-releases out to make it seem like he's doing something.

#2 - Okay, so a new CEO and some press-releases isn't that exciting, but considering where the stock trades ($1.30 as of today) ... some words of confidence or strategy could easily send this stock higher. You also have a 12 month high short-interest building in this stock .... volumes have slid off a bit, so days to cover has risen to about 21 days, but it's off the highs of 2013. So in other words, some positive noise from the C-Suite at Metabolix could squeeze (or at least scare) a few of the shorts out of positions, causing the stock to move higher.

#3 - Short term upside. With some news & movement by the company, I could see it gaping up into the $1.60 - $1.80/share range. Again - there's a new CEO .... chances are he's going to want to be seen & heard. The first chance for a catalyst like this happens January 15, 2014 at the Needham Growth Conference. Just 12 days after I initially purchased shares.

Conclusion

The bio-plastics industry is expected to expand due to consumer demands and government regulation - Metabolix has an attractive story to present to investors. Problem is they haven't proven they can actually manufacture, market, and consistently sell a product of this nature. There's a new CEO, and 2 board members left in January as well too .... we have to assume they will be replaced with fresh faces at some point too.

There are bigger players in this market, so if you want a long term investment - you can find Metabolix's competitors & invest your money with them. I view this is a speculative short-term trade that has the potential to move higher because of new management.

Goals

Projected Investment Length: Short Term (Less than 12 weeks)
Enter Price: $1.23
Stop Loss: $1.00
Projected Exit: $1.60 - $1.80