What you don’t know has more of an impact on your future than what you know. Under this mental framework, you can effectively make uncertainty work for you or against you. You make it work against you when you buy companies where the growth expectations are priced in and not meeting expectations will potentially crash the stock price. You can make it work for by buying companies that are priced to shrink and are set to grow.
If you’ve been reading me regularly, besides likely being up over 100% this year, you know I’ve been preparing for the wave of the unloved Chinese uplistings for quite some time. Well, it’s time to ring the bell. We have arrived. We are in the middle of the madness. While most of the attention is diverted to M&A’s and huge IPOs, I’m gladly taking advantage of some opportunities that are so good it doesn’t make sense not to take advantage of them. Oriental Paper (OPAI) is reverse splitting 1:4. Great news, they’re still priced for shrinking and they’re set to grow. I pointed them out at $0.22. After the reverse split we’ll likely see $10+. In my personal opinion, $20+ isn’t out of the question. Target: AMEX.
Take a look at MystarU.com (MYST). A month from now you’ll be calling this Subaye. You may even get a new ticker. This one is undergoing a ton of structural change. A reverse split 1:100, a spin-off of non-core assets, an acquisition and name change to Subaye, Inc. and an increase in authorized shares just to name a few. That is one way to turn a penny stock into a 10 dollar or more stock. I suspect that this one will be looking to uplist by the end of the year. My target: NASDAQ. The fear here is dilution of common equity, and this fear is justified. To me, this is offset by explosive growth potential on the cheap. Pay a little, get a lot. Monday was the highest volume in 2 years. This won’t be undiscovered for much longer.
MYST came out with news today
http://www.earthtimes.org/articles/show/subaye-acquires-new-members-and-invests-in-guangzhou-joint-venture,990178.shtml
Longwei Petroleum (LPIH) is a company trading at $1.40 and forecasted $0.80 per share in 2011 and has a ttm EPS of $0.30. I would argue that this is a no-brainer. I’ve told you about it before. James Altucher reportedly likes this one too. I had the pleasure to watch them present at RedChip’s New York Equities Conference on October 1st along with 34 other companies. In my opinion, they saved the best for last. Speaking of that, I want to point out the perspective of what I would call an ignorant investor. A question was raised: “Why are you guys growing at 30%+ and carrying a forward P/E of around 2?” I wanted to interrupt, but let the presenter field the question. My response would have suggested that the abundance of uninformed investors like the one that asked the question has offered up the opportunity of a lifetime. It will be interesting to see if Longwei is able to uplist in the next year without having to reverse split. Hey — It could happen. Target: AMEX. I’ve informed my Financial Statement Analysis class that I believe we’ll see $3 by Halloween; 100% in a month.
I keep getting asked: “How do you find these stocks?”
Prim’s Algorithm
My stock picking strategy is not unlike Prim’s Algorithm for MST that I traversed across in my PhD Combinatorial Optimization class. In a sentence, I quickly branch out from what I know to expose myself to more of what I know that I don’t know, spending as little time on each non-value add activity as possible. So, I specialize in quickly eliminating opportunities that don’t appear to be the best using basic valuation metrics. I’m one of the few people that actually believes in my ideas as opposed to just writing about ideas — as I own them all myself. After sorting through thousands of companies I stick by one guiding principle: When you can be certain that others are uncertain and that the price that you pay is less than the underlying value — buy. Thus, I own when it doesn’t make sense not to.
Disclosure: Bradford was long Oriental Paper, MystarU, and Longwei at the time of publication.