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Archive for August, 2010

What if Fire Deparments Were Run Privately?

August 29th, 2010 by Yehuda Fruchter   |   1 Comment

A few weeks ago there was small fire in the elevator shaft of my office building. Thankfully, the fire department, staffed with volunteers, arrived literally minutes after the alarm sounded and quickly put out the fire. Since then, however, I’ve been pondering a basic economic question: What if the fire department was owned by a profit-maximizing private company whose CEO needed to earn millions in pay every year. Would service be as quick? Would it be affordable? How would society fare when every fire was handled by a private company eager to “burn” a hole in your pocket?

What I find interesting is that capitalist die hards, and Market purists seem to have no problem with our current system of public service fire departments, but yet cry socialism at the mere suggestion of removing decisions of life and death issues from the hands of a bunch of greedy professionals working at insurance companies and other healthcare businesses.

Why is that as a society we seem to function very well with various public services, like fire and police departments, that provide for a safer society, but when it comes to protecting our individual health and the health of our families, we feel obligated to devise a system that relies on profiteering, and institutes practices that can at best be described as completely barbaric?

Medtronic Buys Osteotech (OSTE)

August 17th, 2010 by Yehuda Fruchter   |   1 Comment

Congrats to all readers. Medtronic has agreed to buy OSTE for $6.50 per share.

We first wrote about OSTE in January at $3.50 per share.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in OSTE. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

Mortgage Debt Forgiveness?

August 14th, 2010 by Yehuda Fruchter   |   1 Comment

This maybe old news to some and I’m not sure how I missed this article, but it’s well worth reading.
http://blogs.reuters.com/james-pethokoukis/2010/08/05/an-august-surprise-from-obama/

I almost fell of my chair when I read this Reuters article, since I’ve been advocating a debt forgiveness plan since the financial crisis started. See this early post in September 2008, about the ancient Shemittah Laws. Amazingly, I still agree with everything I wrote in that article and it’s well worth re-reading.

Even though some people will find a debt forgiveness unpalatable and unfair, the truth is that everyone will ultimately win from such a plan, thru renewed economic growth and a sustained increase in all asset values. I’m surprised this option is now being discussed in the open and I’m hopeful Obama has the guts to pull it off. It would mark the first economic policy, I’ve seen coming out of this administration that would actually work to get us out of our negative feedback loop. Next up should be some major tax breaks to fuel the demand side of the economy.

Still Hopeful on ENER

August 11th, 2010 by Yehuda Fruchter   |   No Comments

Since I’m still long a bit of ENER (and losing money), I decided to finally check the financial numbers again given the current stock price. So I quickly pulled up the last quarters’ financial release and saw this:

“Total revenues for the third quarter of fiscal 2010 were $72 million, an increase of nearly ten percent from $66 million in the third quarter of fiscal 2009, and 36 percent from $53 million in the second quarter of fiscal 2010.

Net loss for the third quarter of fiscal 2010, was $385 million, or $9.10 per diluted share. Excluding the impairment charge, the quarter’s net loss was $27 million, or $0.64 per diluted share. The company reported net income of $1 million, or $0.03 per diluted share, in the third quarter of fiscal 2009 and a net loss of $39 million, or $0.92 per diluted share, in the second quarter of fiscal 2010.”

Well, after seeing this again, I feel a bit more comfortable in my position in ENER junk. You have to love a $385 million loss, or $9.10 per share! Seems like exactly the type of massive loss that signals a bottom in the abysmal financial performance. And sales are beginning to increase? I’m hopeful that things can only improve from here. I guess their next step is to somehow refinance all their convertible debt issued during the last solar boom.

In any case, the next quarters numbers should surely prove interesting and provide evidence of continued improvement or descent into oblivion.

Not that history repeats, but I encourage readers to check out PWER’s quarterly report last year when the stock was less than $1 (thru June 2009, the company had lost over $60 million and looked headed for bankruptcy). A year later, it’s up over 1,000%, profits are soaring, and everyone loves the company.

Lesson: Things change (or so I hope).

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in ENER. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.

LoJack (LOJN): Is a Turnaround in Store?

August 10th, 2010 by Yehuda Fruchter   |   2 Comments

Current Price of LOJN: $3.70
Shares: 17.4
Cash: 33
Debt: 8
Enterprise Value: $40 million
Business: LOJN operates one of the most well-known stolen vehicle recovery systems. The company also has two relatively new initiatives to track people with serious illnesses, e.g. Alzheimer’s, as well as recovery systems for lost cargo.

Why LOJN May Offer Investment Potential
Recession has destroyed LOJN, whose main business driver is auto sales. Stock price is near all-time lows, down from $25 in 2005. EV/Revenue to ratio is less than 0.30, despite gross margins over 50% and cap-ex at about $5 – $8 million a year (beneath D&A). Balance sheet is strong. Interestingly, my rough numbers suggest that the stock price is likely beneath replacement cost, given about $40 million that was invested in the Lojack network since just 2004. All of these figures suggest that LOJN’s stock price is basically “washed out.” Any positive news, or continued improvement, should therefore give the shares a nice boost.

Timing of LOJN Turnaround
Most recent quarter was on the surface abysmal, with a massive accounting loss (i.e. this is the “it’s always darkest before dawn” investment strategy). However, in looking deeper at the financials it seems clear that the company’s revenues have stabilized, and profitability has been restored. The company has also taken specific steps to reduce costs/restructure the business and the former CEO has again assumed that position. At the same time, auto sales are slowly recovering from their massive slide during the recession.

LOJN Growth and Hype
The main issue with LOJN is that there is not much that is “sexy” about this stock. The company is already well-known and the auto sector is obviously not about to embark on a massive growth phase. Nevertheless, LOJN does have some interesting growth opportunities in its overseas operations, as well as in the company’s efforts to apply the technology to track the recovery of cargo and missing people. I think all these areas have good growth potential. It is worth noting that LOJN’s technology powers the most popular computer laptop recovery system offered by Absolute Software (LOJN once had a large investment in Absolute). This provides some evidence that the company’s technology can be leveraged to create new growth businesses.

Recent Financial Trends and Future Comparisons
Recent financial results indicate stabilization in the business, as well as, some modest growth. More importantly, given the dismal results in the last two years, the company’s financials should look dramatically better on a year-to-year comp basis both later this year and next.

Future Scenarios and Risk/Reward

Positive Case: Economy keeps humming along at a slow pace, or even surprises and grows a bit. Auto sales continue to show modest improvement or simply maintain current levels. New growth opportunities for LOJN start to have a greater impact on overall company results. In this case, LOJN’s stock will undoubtedly recover in time from the current depressed levels.

Negative Case: Economy slips back into recession, and auto sales plummet again. In this case, LOJN will start losing money again and the stock would probably decline further. However, given the company’s strong balance sheet, and management’s recent actions to rightsize the company, I think that LOJN would survive another economic set back. In other words, the downside is limited.

I honestly have no idea which scenario above is more probable, since I don’t have a clue where the economy is headed. But, even assuming a 50/50 probability, since I am certain that LOJN is not going anywhere close to $0 any time soon, and the prospects of a double in price over the next few years is not unreasonable, mathematically LOJN shares offer a positive expectation at current prices. However, it is worth remembering that since LOJN’s core business is no longer really in growth mode, the company’s near-term fortunes will probably be dictated more by macro economic conditions, than any company-specific actions. My bet is simply that the stock price already appears to reflect dire economic conditions, so the price may not even decline much (and would rebound quickly), even if the economy begins another downward trend.