In This Edition....

* Is The Market Truly Healed? 
* Interesting Insider Activity 
* A Stock Buyback That's Not Just Hypothetical
 

	Is The Market Truly Healed?

Anybody else tired from this past week? I'm glad it's over, mostly because we can now move on to bigger and better things. I've got some thoughts on the short-term and long-term impact of the bailout, the likes of which we've never really seen. First though, some perspective on just how wild the ride was... 

• The gains from Thursday and Friday (at one point anyway) made up the best two-day gain since October 21st and 22nd of 1987. 
• The losses taken between Monday and Wednesday (also at one point) put the market on pace for the biggest weekly loss since immediately after 9/11. 
• The guarantee of all our money market funds is backed by a fund not used since the Great Depression. 
• The total bailout 'package' is - needless to say - the biggest ever. 

Crazy stuff, huh? Though completely late to the party, Henry Paulson (head of the Treasury), Chris Cox (SEC Chairman), and Ben Bernanke (fearless leader of the Federal Reserve) all finally stepped up to the plate to do something. The question is, is the equity market truly in a healing-mode now, or is this band-aid going to fall off soon? 

My two cents: The actions themselves are not going heal anything. The only thing the bailout does is buy some time for financial markets to patch things up themselves. 

However, now there's a clear, negative result for failure. Those results vary anywhere from a CEO losing a job, to the government forcing the sale of your firm (via a bailout), or in Lehman's case, outright bankruptcy. That should light a fire under most of these organizations; the support from the government just gives them a chance to get started. 

Or, my short answer to my own question is ... when the band-aid falls off soon, there will be some healing already done, and hope for more on the way. 

I probably haven't answered your question yet though, have I? Should you be a net buyer or a net seller? 

Here's what I think - If you truly are a long-term investor, and intend to hold stocks for years and not worry about them in the meantime, yeah, I think the values are great right now. If you only wish you were a long-term investor but are actually a pot-watcher, I think you're still going to see some uncomfortable volatility in the near-term. 

If you're a true short-term trader - and can play both short-term bullish and bearish moves - I think you could be in heaven for a while longer.... lots of volatility to work with (in both directions). 

No matter which of those three types you are, Friday threw all of us a curve ball. The short-term oversold condition was wiped away and it looked like a rally was forming. But, we actually ended Friday's session with very little enthusiasm. 

That's one of the big frustrations with opening gaps inspired by pre-market news. If we had just started the day where we left off on Thursday, and then gained 3%, people probably wouldn't have thought much of it and the rally could have been sustained. When you start the day 4% higher though, those overnight/instant profits are kind of hard to resist taking. 

The right thing to do is just enjoy the weekend, and observe how things take shape Monday. To make a guess today is nothing more than a coin toss. 
 

	Interesting Insider Activity

I've mentioned a couple of times now that out of the ashes of this marketwide mess you'd be able to find good values. And, while I have no strong personal opinion either way of the company, I have to call a spade a spade - Stockhouse.com (OTCBB: STKH) may be worth a look at the current price of 20 cents. 

The reason I say that? There are actually two. 

The first reason is CEO Marcus New's big purchases of the stock recently - out of his own pocket. If my math is right, Mr. New bought 550,000 shares of STKH since the beginning of August ...after it plunged from 32 cents to 16 cents. He now owns about 6 million shares of the 41.3 million issued and outstanding. I can respect a guy who's not only eating his own cooking, but buying more of it on a dip. 

The other reason I think it may be time to look at STKH ...at 20 cents, the market cap is $8.2 million. Folks, the company did $6.7 million in sales during the first two quarters of the year. If they stay on pace and pull in $13 million for the year, the price/sales ratio is going to be 0.63. That's stunningly low. 

So what's the problem the rest of the market sees? I can only think they're dwelling on a tough first two quarters. Expenses were higher, and revenue was lower, than anticipated in the first half of the year. Certainly that's an understandable frustration. As if it weren't enough, the company doesn't think they'll see a profit in Q3 either (which ends at the end of this month). 

So unfortunately for STKH, the expectation of a return to profitability in Q4 doesn't seem to be inspiring anybody. Again I can understand why - the first half of the year was supposed to be considerably better than it was, so investors aren't jumping too quickly now. 

Or, maybe STKH fell with all stocks as the tide went out. 

Either way, on a sales-basis alone STKH is priced oddly low. If they do indeed swing to profitably in Q4, the price/earnings ratio is going to turn oddly low as well. 

So, the question here is do we think they'll actually be profitable in Q4? I think I believe them when they say they will. The reason I believe them is that they pretty much said it wouldn't happen in Q3 ...lingering expenses from the new site would be booked in Q3. They knew that would be an unpopular answer (and they were right), but gave it anyway. 

If they're willing to deal with the fallout from an answer they knew the market wouldn't like, I'll give 'em the benefit of the doubt regarding their optimistic outlook for Q4. 

Anyway, when the CEO buys 1.2% of the entire company in the environment we've been in the last few weeks, I think it's worth mentioning. 
 

	A Stock Buyback That Wasn't Just Hypothetical

Color me impressed. 

Prior to August, SpongeTech Delivery Systems (OTCBB: SPNG) had bounced around the likelihood of buying back 267 million restricted shares of SPNG owned by RM Enterprises. I figured it was likely to happen eventually, though it was never clear when or if it would happen. 

Then in mid-August they threw us a curve ball, authorizing a repurchase of 25 million of the 133 million free-trading shares (the ones owned by everyone else). That was even better news, as it could help crank up demand for the stock, pushing the price upward. 

My only beef with the idea was that it didn't guarantee one single share would be bought back - it was just authorization of a buyback. Actions speak louder than words. 

As it turns out, SpongeTech wasn't kidding. They've already bought back 10 million of those free-trading shares. That sure explains the heavy volume recently. Now that they've actually put some money on the table, I have no reason to doubt they won't keep at it. 

More importantly, like we saw with Stockhouse, these shares are being picked up for practically nothing. SpongeTech could certainly do other things with the cash, but when they choose to do this instead? It just makes me curious ...in a good way. 

In fact, SpongeTech has bumped up the plan from 25 million shares, turning it into a buyback program of 50 million free-trading shares. Ironically, 51 million shares traded yesterday; maybe that was more of the repurchase plan being executed. 

The point is, despite the fact that the market may not see the value right now, the company does. And, they're taking advantage of the market's low tide. Frankly I'm surprised the buyback hasn't had a bigger impact on the stock's price. Do the math though - the supply is drying up. Eventually, it'll push SPNG higher. On that note... 

I have no specific reason whatsoever to think this (so don't turn it onto a rumor), but I have to wonder if privatizing the company is on the radar now. 

With 123 million remaining free-trading shares at 2.75 cents each, the company could own or control all their shares - restricted and unrestricted - for only $3.4 million. 

Just for perspective, they produced a net income of $1.2 million in their most recent quarter, and the numbers have been getting better each quarter. So, it's not like they couldn't afford it in a short period of time, if they wanted to. 

Just thinking out loud. If this really is the case though, it bodes well for the stock.
 

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