By
Dr. Steve Sjuggerud
Wednesday, October 14, 2009
I couldn't believe David handed it to me.
I was holding seven-figures of value between two fingers, inside an impenetrable vault.
I knew exactly what I was holding... It was one of the world's rarest stamps. Ounce for ounce, it might be one of the world's most valuable items.
When I entered the Collector's Universe building, I'd asked David if he'd ever seen one of those stamps in person before. He grinned, but didn't say anything. He simply started the tour. When we later got to the vault, he explained that grin. (I enjoy going on company visits... you learn so much.)
David Hall is the president and cofounder of Collector's Universe, a company that authenticates and grades a variety of collectibles, including coins, stamps, sports cards, autographs, and more. So it's not surprising that one of the world's most valuable collectibles was there that particular day.
David's company single-handedly changed the way rare coins are traded. Before 1986, you had to be an expert in coins. After 1986, you didn't have to know much at all... You just had to look for the company's patented sonically-sealed container. (The coin-grading division is called Professional Coin Grading Service. And today, thousands of PCGS-graded coins sell on eBay every day, sight unseen.)
Collector's Universe trades on the stock market under the symbol CLCT. As of its latest report, it had $24 million in cash and no long-term debt. Yet its market value is only $42 million. Subtracting the cash, what the market is essentially saying is David's highly successful coin-grading and collectibles-grading business is only worth $18 million.
For years, David had been using the cash flows from coin grading to expand into other areas, most recently grading and authenticating diamonds. But this year, the expansion plans got nixed. The company is going back to its bread and butter.
With no plans for expansion now, there's no need for over half of the company's value to be sitting in cash. If I were on the board, I'd recommend distributing most of that cash to shareholders... either in a one-time distribution or with the start of a dividend. If the grading business truly generates the cash flow David described, and there are no expansion plans at the moment, then the company could sustain a high dividend for a long time.
I haven't done the research into David's company's stock to recommend it in my newsletter. The reason is, quite frankly, it's too small to recommend to my paid subscribers... The bottom would fall out the day I say "sell."
I tell you this story because there are hundreds more stocks like CLCT out there... hundreds of microcap companies that have no brokerage-firm coverage selling for little more than cash in the bank. Yet they have legitimate cash flows from their businesses.
With a little digging, you can find them. I love these ideas because they're "too small." You're not going to get burned in Wall Street's game because companies this size are too small for Wall Street to pay attention to.
The work isn't that hard if you know a bit about investment analysis... but it is work. Read the 10-K. Read or listen to the quarterly conference calls. And then call the company and ask questions about things that don't make sense or add up. If you're paying next to nothing and you're buying into an uptrend, then your chances are better.
If you're willing to roll up your sleeves a bit, you'll find hundreds of microcaps worth digging into deeper. You could make a few times your money in them.
Good investing,
Steve
P.S. My DailyWealth colleagues Tom Dyson and Brian Hunt run a trading service in stocks like these... looking for similar criteria. It's called Penny Trends. They're looking for stocks with the potential to rise four or five times over. For more on Penny Trends, click here.
Read five different analyst reports and you'll come away with five different opinions on where the economy is. Some popular ones go from "major recovery on the way" to "we're sort of recovering" to "we're screwed."
That's why one of the most popular investment strategies right now – both with professionals and amateurs – is confusion. Is big inflation on the way... or big deflation? Is the American consumer on death row? Is the dollar imploding?
Our advice: Form your opinions on these complex questions... but let the simplicity of the market judge how useful they are. Monitor "real world" market indicators like Intel, copper, and bonds to see if we're "recovering" or "screwed." Monitor the Baltic Dry Index, too...
The "BDI" is a widely followed gauge of the cost of shipping raw materials across the seas. If the economy is healthy, the BDI will trend higher. If the economy stinks, the BDI will trend lower. As you can see from today's chart, the BDI collapsed during last year's credit crisis... but has rallied hard since. As long as this rally holds above the 2,000 level, one has to trade from the "we're sort of recovering" camp. No confusion needed!
Two Ways to Profit on a Huge New Currency Trend By Tom DysonTuesday, October 13, 2009
While other central banks are considering raising rates, the Fed has so far refused to join the party. The dollar is the worst-performing major currency in the world this year as a result.
What the Man Behind the Most Profitable Short Sale Ever Says Now By Tom DysonMonday, October 12, 2009
As Prechter warned, a wave of optimism is washing across in the investment community. Except for his remark about the President's popularity, which is waning, Prechter's description of the social mood in America could not have been more accurate.
A Simple, Incredible System that's Beaten the Market by 10% a Year By Dr. Steve SjuggerudFriday, October 9, 2009
Now you can easily backtest the performance of a portfolio that simply follows the stock ideas of the biggest and best money managers as soon as their portfolios are available through government filings.
