Small Cap Network Blog

Sometimes the positive details of a particular company are clear…the company will tell them to you. When the information comes from an unbiased and unprompted media source, those positive details mean so much more. So what? We’ve spent the better part of the last few months talking about the former for micro cap stock Bio-Matrix Scientific Group (BMSN). But, recent news of an Australian biotech breakthrough - heart cell generation from DNA found in fat tissue - has indirectly confirmed the need for a company like Bio-Matrix.

If the biotechnology sound familiar, it’s because Bio-Matrix has been gearing up to store massive quantities of adipose (fat) tissue for this very purpose – the possibility of creating any sort of cell for therapeutic purposes. Since all these treatments are tailor-made for a certain patient, each of these individuals has to store their healthy DNA (via fat tissue) if they want to be able to receive the cellular therapy later in life.

The underlying messages we’re getting from the Australian announcement are (1) the technology’s development is still going forward, and (2) the benefit of said technology may help treat heart problems…one of the biggest medical problems the world is constantly facing.

Bio-Matrix Solutions’ role in all of this is simply as the storage center for these millions of fat tissue samples; someone else will be developing the demand by advancing the science.

To be clear, the ability to cultivate therapeutic cells is not new – it’s the creation of heart cells that’s the breakthrough. So, Bio-Matrix won’t have to wait years for the technology to be completed before they can derive revenue. In fact, they’re ready to bear revenue now (and are actually in cell-storage negotiations).

Our point was simply to reinforce that the biotechnology of adipose/fat tissue isn’t just a quirky project. It’s getting more and more attention, and the bigger that industry becomes, the more money Bio-Matrix can make.

Here’s the link to the heart cell breakthrough news story. It’s a video clip.

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I’m not entirely sure why, given the market environment we’re in, but Bio-Matrix (BMSN) shares seem to be working on a recovery. They’ve popped back above their 200 day moving average line again, with some pretty good volume behind the effort. Better still, they’ve done so without the benefit of any major news… and certainly in the face of a marketwide headwind.

Maybe it’s something, or maybe it’s nothing. I just find it odd (in a good way) that this bulletin board stock pick of all the small and micro caps we’ve looked at is the one that’s perking up. I have to wonder if there’s something going on that we’ve not heard about yet. I know real revenues and another license - the big tissue bank one - are pending. However, I’m not sure the promise of either is responsible for this rebound move. I like the push, but the volume is really intriguing.

In any case, it is what it is - who said the market had to be rational, particularly when it comes to trading small cap stocks? BMSN is pushing upward. Maybe there’s a trade in there.

For your convenience, I’ve added in the Fibonacci lines. We’re slightly above the 38.2% retracement line with today’s effort.

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I trust you caught this morning’s newsletter edition, which specifically talked about Bio-Matrix, China Energy Recovery, and Spicy Pickle. All three had posted some good news, and all three stocks had a chance at a breakout. My strategy was a ‘wait and see’ approach though. (If you missed those comments, you can read this morning’s update by clicking here.)

Well, I’d be kidding myself if I said I wasn’t a little surprised that Bio-Matrix (BMSN) ended up being the biggest beneficiary today. The news didn’t illustrate any kind of immediate and tangible impact, yet shares are up 71% today. Volume is a little light, but still…

I don’t know where this will go, but my curiosity has really been spurred as a result. Follow through is the key from here, so the next few days will mean quite a bit in deciding if BMSN’s trade-worthy or not.

On the other hand, the move from a high above $1.20 to a low of $0.20 clearly was an overblown devaluation. At the current price of 60 cents, the market cap is still only about $14 million. That’s roughly the kinds of dollars we were expecting for revenue in their first twelve months of operation. Maybe the news was convincing that they’d actually become operational soon. Makes a little speculative sense.

As for Spicy Pickle (SPKL), this is the one I was surprised didn’t take off. The acquisition was accretive immediately, and it will have a very real benefit to the top and bottom line. You could cry ‘dilution’, but the upside far outweighs the downside.

I think 46 cents is the line in the sand. Shares have bumped into that ceiling - or close to it - several times during the consolidation phase over the last three weeks. If it can break out of that range (40 cents to 46 cents), we may finally get some much-deserved movement. That’s why I wanted you to put it on your watchlist.

And China Energy Recovery (CGYV)? What can I say that’s not obvious? This is by far one of the best fundamental stories we’ve covered in a long time. However, somebody has been trying hard to get out of a major position.

I’m personally surprised they don’t want to hold onto it - the stock is undervalued by most anybody’s standard. But, not everybody who owns a stock (no matter how brilliant they’re supposed to be) can see the big picture. I think these sellers will be kicking themselves in about six months, even if all of us want to kick ourselves in the meantime.

With that being said, it looks like all that selling volume is starting to dry up; hopefully the big seller is out of the way. I can still see this stock taking off in a flash. Like I said earlier today though, timing is everything. I’m keeping tabs on the chart for the right time….which clearly isn’t today.

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For some of you this might be about as interesting as dry toast. For others, it’s the little details like these that make this job an adventure. I’m in the latter group, though being a nuance-junkie is hardly required to be a successful stock trader.

Anyway, in my routine scans for news and information that didn’t get publicized, I came across an interesting 8K filing for Bio-Matrix Solutions (BMSN). Last week, the Board of Directors authorized 100,000 preferred shares….series AA. They’ve already authorized 20 million preferred shares, and only issued 915K of them. The fact that authorized 100,000 more tells me the new ’series AA’ shares are different than the ones already on the books.

I’m still trying to track down the important differences…I’ll let you know when I do. However, I think the most important characteristic is their voting rights. Each series AA preferred share casts 10,000 votes, compared to each common stock share, which cast one vote.

As for the newly-authorized preferred shares, they’ve granted 4852 of them to CEO David Koos.  

The idea is (and I basically agree) to help stave off any would-be companies looking to make an acquisition. The apparent downside is a concentration of control held by one person. Good thing Koos has a vested interest in the company’s success; he’s made personal loans to the company, so he wants to see it succeed as much or more than anybody.

As far as capitalizations go, this one’s fairly run-of-the-mill for small cap companies. I don’t see any issue with it; I just wanted to make sure all of you were aware in case the question comes up later.

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You don’t need me to tell you half of the trading battle is timing. Owning a great company isn’t enough anymore - picking the right stocks at the right time is critical to making any real money in this business. With that in mind, three charts caught my eye in Monday.

One of them won’t surprise you a bit, and another won’t entirely surprise you….they’re both on our small cap stock watchlist. The third one is a first-mention (or first one a long time anyway) - a large cap biotech familiar to all of us.

I mentioned this a couple of times last week, but after seeing yesterday’s bullish effort it bears repeating - I have to wonder if Spicy Pickle (SPKL) is poised to pop.

The stock pulled back rather sharply last week, but it may have been just enough to convince the majority of traders that now’s not the time to be in. Of course, the best time to get into a stock is when it looks like nobody wants it….the way Spicy Pickle looked last week.

Like I said, it’s just a feeling. It’s a feeling I was feeling back in April too….before the upside move.

On a similar note, Bio-Matrix (BMSN) has put a pretty quick end to the pullback following its recent encounter with new 52-week highs. The peak of $1.29 on the 13th led to a low of 86 cents by the 24th. But, BMSN found footing again; now it’s trading at $1.00. This stock’s uptrend has been resilient.

Still no word on Bio-Matrix’s pending license inspection. It should be soon, if it hasn’t been completed yet. I’m pleasantly surprised to see the stock do as well as it has without that news in place. When-and-if they do get successfully licensed, I expect BMSN to really move….at least for a short time.

On that note though, I have to wonder if we should be thinking like short-term sellers shortly after any announcement from Bio-Matrix. The stock’s been a hot one, and at this point I’ll concede the possibility that getting the tissue bank license is already priced in. ‘Buy the rumor, sell the news’ is a cliche for a reason…as is the whole thing about a bird in the hand. Once the dust settles and the volatility is out of the way, then you can start looking for another entry point. I don’t want to miss a good exit opportunity though, even if only for the short term.

Just something to think about - we can cross that bridge when we come to it.

Now, about this large-cap biotech stock…

I’m not totally sold on the idea just yet, but I could be easiliy convinced that Amgen (AMGN) is positioned for a rally.

I’ve mentioned I like biotech a couple of times recently, and Amgen certainly falls right in the framework of that point of view. Though I’m still looking specifically for smaller biotech companies, I’m not going to pass up a good large cap opportunity.

The chart is the key for me. We’ve already seen AMGN work its way past a moderately significant resistance line. We’re also on the verge of seeing it move back above its 200 day moving average line….for the first time in over a year. If we see it happen, I’m in. I’ll let you know if it happens; we may even turn it into an official trade.

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This is why you get into a stock even when it doesn’t ‘feel’ perfect. Shares of small cap company Bio-Matrix Scientific Group (BMSN) are racing, up 33% today, and hitting new highs of 80 cents. Why? I was hoping it would be a pre-curser to a successful inspection from the California Health Department. I had forgotten they’re paying their preferred stock dividend tomorrow…as long as shareholder’s common shares were properly registered.

To receive the dividend, most owners just decided to push their shares out of margin accounts and into cash accounts. The result was that many - if not most - short positions have been ‘buying to cover’, as shares held in cash accounts can’t be loaned out to short. It’s akin to a margin call. The long-owners are the beneficiaries, and I doubt any short traders are interested in trying their hand again. That’s exactly what we wanted to see.

The upside is also technical; now that BMSN has broken out of a range and is at new monthly highs, other investors are likely to get interested.

The icing on the cake is that we still have the potential news about their licensing inspection. If that goes well, we’ll look for yet another pop in the stock.

The lesson to be learned? Sometimes you just have to get in the batter’s box and take a swing when the story is right. The other lesson to be learned….more often than not your friends at the Small Cap Network steer you in the right direction. BMSN is up 41% from where we picked it, and more inspiring news may be on the way.

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A few days ago I discussed a concern I had with small cap stock Bio-Matrix Scientific Group’s (BMSN) breakout above 63 cents. That concern? That the stock wouldn’t be able to hold onto those gains. Well, I feel a little better now (and more so every day). We’re now into our fourth day of trading above 63 cents. Though the volume has tapered off a bit - along with the momentum - I don’t see anybody wanting to get out.

Ideally, I’d like to see a base established here at 63 cents. Actually, ‘ideally’ I’d like to see BMSN race to $5.00. Realistically, I’d accept seeing BMSN set up a base here by retesting 63 cents a few times, yet staying above it. Based on the March/April flat period, this bulletin board stock has proven to be in an ‘up-flat-up-flat’ pattern. It requires patience to be an owner, but it’s better than ‘two steps forward and one step back’ (and certainly better than ‘one step forward and two steps back’). 

I hope you saw yesterday’s news about this small cap company’s basic revenue plan. The numbers they were using were basically in line with our guesstimates, though it’s nice to see the company confirm them. We’ll be using those numbers in tomorrow’s (Saturday’s) edition of the newsletter to review - and possibly revise - our valuation of this company.

On that note, don’t expect to see us scale back on our expectation, or our recommendation to be in a trade now rather than later. We still don’t know when the tissue-bank licensing inspection will be, though we’re also still sure we won’t hear about it until it’s done. Once completed - and if it’s awarded - we can foresee BMSN being catapulted to new multi-year highs. Trying to get into this small cap pick after the fact may be tough to do at levels anywhere near where they are now.

We’ll take an in-depth look in Saturday’s edition.

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Though it was only on Monday we heard about small cap company Bio-Matrix Scientific Group (BMSN) officially starting the tissue-bank licensing process, they seem to be proceeding as if they expect to get it. Of course, they have to - they want to be sure they’re ready to go when and if they get the approval from the California Department of Health.

Anyway, the news is simple. Bio-Matrix is acquiring a blood bank labeling system designed by a company called Computype. The technology will allow Bio-Matrix to properly manage what will be thousands and thousands of stem cell samples. Such a system is crucial in this type of operation, because when you’re talking about a person’s individual DNA, clearly there can be no mix-up.

Besides, the FDA requires this type of system for all blood banks.

Though we nor the company want to appear presumptuous, the fact that they’re proceeding as if they’re going to be licensed soon is an encouraging sign. And, it reinforces an idea we’ve mentioned several times now…if they do get this tissue bank license, we’re not going to know about it until afterwards. But, when they do get it, they’re going to be fully operational (i.e. able to bear revenue) the very same day.

That was and is the urgency here. The market may be flooded with traders who are all going to jump on the stock simultaneously if this bulletin board company gets its license. We contend the better time to be in a trade is before that might happen.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

I don’t mind gloating a little here regarding yesterday’s comments about our bulletin board stock pick Bio-Matrix Scientific Group (BMSN). I said the stock was on the verge of a breakout above 63 cents. As it turns out, this small cap stock decided today was the day. It’s up 18%, and more importantly, well past its resistance at 63 cents. I think that qualifies it as a ‘hot stock’.

The best part - even better than the big gain - is volume. I was blown away by yesterday’s volume, which was the most volume we’d ever seen in one day from BMSN. Being a news-based surge, I kinda’ figured it would have tapered off today. Nope. Today’s volume is even better…one day removed from the news. That’s what I really like to see - follow through.

The most impressive part of all? Though the news was good, it wasn’t a game-changer. The tissue bank license is the key. My point is, if this is what happens when they submit paperwork, I can’t even fathom what’s going to happen if they get the approval from the California Health Department. 

I don’t know if BMSN is forever going to remain above 63 cents. It might, but even if it doesn’t, this is still a bullish day. Once the wall is knocked down, it’s easier to re-cross.

Longer-term, this bulletin board equity has a milestone at $1.20, which was where we saw 2007’s double-top. We may be revisiting this chart if we get to that point. Heck, we may even decide to take some profits there. Our ultimate price target is still $1.45 for this small cap name though. So, we may jump back in after a healthy dip. That’s still quite a ways down the road.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.

Sorry I haven’t had a chance to get to all your small cap questions lately. Between V2k (VTOK) and Bio-Matrix (BMSN), I haven’t had much time to get to them. That’s all going to change today though. Anybody who’s sent in a question to the Small Cap Network within the last couple of weeks is about to get an answer…or at least a response. I’ll put them all here in the blog so everyone else knows what other readers are thinking.

1) Hi, Can you provide a recent Balance Sheet for Bio-Matrix?

A. Sure, though I don’t think it means much for this particular stock pick. They have next to nothing. They’re staying afloat by issuing a little debt ($50K for the last round) until they can get licensed…which should be (hopefully) in less than a couple of months. Here’s the last balance sheet: http://yahoo.brand.edgar-online.com/fetchFilingFrameset.aspx?dcn=0001157523-08-001453&Type=HTML

2) Hi Can you recommend a small cap company like mos (Mosaic), pot (Potash) or mon (Monsanto)? Would like to find one to invest in.

A. I can’t, but if you have a brokerage account you may have a screener that could do the job. Yahoo’s stock screener is actually not bad, though I don’t know if you can get that detailed with the industry. MSN’s isn’t bad either. Agriculture has been a good one of late though…maybe worth a look. Here are the screener sites:

http://moneycentral.msn.com/investor/finder/customstocksdl.asp

http://screen.yahoo.com/stocks.html

3) On their (Heritage Capital - HCPC) website they show they close a $672,000,000 BCLOC loan. Their current listing price on the otc.bb is .0004. There has been a lot of talk on Allstocks and IHUB forums that it could explode into the pennies after the funding clears. Any thoughts?

A. I’m nowhere near as enthusiastic as anybody on the boards. Sounds like a pump and dump. I’d steer clear.

4) Delcath (DCTH) Believe this company (Delcath - DCTH) fits the profile of the type of companies your profile. 1. $40mill cap 2. about 18mill cash 3. pIII liver cancer study 4. multiple pII liver cancer studies 5. published data thus far has been outstanding (70%+ response rates) 5. NCI partnership 6. Huge upside on FDA approval (could see in the next 12-18 months)

A. Not bad. We’re including it here so our readers can make the decision for themselves. Thanks.

5) Is ZUPC completely worthless now. Is the company still here?

A. It’s still ‘alive’, though barely. We dumped them long ago. Yeah, basically worthless (in more ways than one).

6) i cant understand why you aren’t recommending shorting - this is a phenomenal bull market for shorting - one of the best in years - and i can’t understand why you aren’t recommending short positions - you just plain short every rally and will succeed a minimum of 3 out of five times - the shorts not working you just cover - no big deal at around 7 bucks a trade

A. Oh, we don’t disagree. We personally don’t mind shorting, but not everybody on our list can, or wants to. For those folks there’s always the option of a short ETF or put options. Point well made though…if you’re not playing the downside, you’re missing opportunities.

7) You wrote up a report on SWEB I believe and was wondering how you feel about that now with these big ups and downs. I have held onto it and actually have owned it for sometime. Also could you give any thoughts on ATML.

A. There’s been more down then up for StockGroup, but here’s what we see now…the stock is a nice value idea. I also think the company has been distracted by the new website, which cost more and took longer than they planned. It’s over now though, so maybe they can get something going. Personally, I love the concept of what they do. They just haven’t made enough money (or progress) to justify the share price….at least not yet. Maybe 2008 will be the breakout year (not out of the realm of possibility). At this point you have more upside than downside, I think. As for ATML, I’m torn.

8) Hello, I’m interested in investing in ADR’s but do not want a mutual fund type of investment. Can you recommend sources for independent investors to purchase them for their portfolio?

A. Not exactly sure what you mean here, but I think this will answer…..an ADR is just a single foreign stock traded on an American exchange. As long as you have a brokerage account, you can buy anything any U.S. exchange trades. Technically it’s not direct ownership of foreign stock, which is either difficult or impossible to do for most retail investors. To facilitate the American ownership of foreign stocks, a company will buy foreign stocks, and issue what are essentially vouchers for that stock to U.S. investors. It’s a basket concept (like an ETF or fund), but there’s only one stock in the basket. As for resources, find all the ADRs right here. http://www.adrs.com/. In terms of other resources, you’ll find most ADRs peppered in along with American stocks, so wherever you find those, you’ll find most ADRs.

9) Ran across this on spng from Beacon (traders notes) Link: http://www.beaconequity.com/index.php?option=com_content&task=view&id=885&Itemid=73 Does this mean it is now a good entry point on spng. Thanks for the input

A. It should mean it, but nothing has helped SPNG yet. So, no.

10) Can you tell us what has happened to or the latest info on Source Petroleum Inc. (SOPO). The stock seems to still be trading but the last news information they released was in 2007. I cannot find a quarterly report and the web site Source-Petroleum.com has been taken down.

A. I can’t find anything either, which is never a good sign. They also stopped reporting to the SEC, which is a particularly bad sign. I say take the non-presence at face value….they’re dead or near death.

11) Hello. Thank you so much for the stock picks over the last several months. You guys do a great job. I was wondering if you could find out the first couple locations of the kiosks that are going to open up selling the window treatments, etc. I like to see things first hand, and this will allow me to get an early read on the worthiness of this extension. Thank you.

A. I can’t, because they don’t want anybody to know (including me) for proprietary reasons. I can show you one though….it’s then image nearby.

That’s it for now, but keep ‘em coming.

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Looks like I’m on something of a roll here….I called for a pullback yesterday morning, and got it yesterday afternoon. The NASDAQ was off 2.2%, the S&P fell 0.3%, and the Dow sank 0.6%. I still think there’s a little more selling needed to shake-off the recent exuberance, and getting to the end of the week today is likely to be all the excuse the market needs to drive ‘em down one last time. The fact that we’re starting the day out above yesterday’s close just makes it that much more likely.

After that - a.k.a. next week - I’m looking for more bullishness. We still have a bigger oversold situation to burn off, which was jump-started by the mini-capitulation signaled by too many new lows on the 17th. So, don’t sweat the weakness too much.

By the way, I had an ‘aha’ moment after I submitted yesterday’s morning call. An easier way of saying what I meant would have (basically) been ‘bet against the open’.

Ingles Market (IMKTA) is strong, AmeriCredit (ACF) was weak, and railroads….well, 2 out of 3 ain’t bad. It’s only been two days though - you think I should work on patience?

Anyway, for those of you who’ve been around a few months, Smart Energy Solutions (SMGY) has taken another big step towards their end goal. Click here for the detailed comments; here’s the teaser….they have another dealer, but this one has access to largely a new audience.

Chew on this…imagine 21,200 potential ‘retail stores’ all suddenly selling your product. Now imagine more than 40 million potential new ‘customers’ created every year. If you’ve only sold a few hundred thousand pieces of your product to date, it’s exciting news, right?

I’m telling you people, I think Smart Energy is one of those companies that’s gonna’ quietly work they’re way into success, and then be ‘found’ overnight by the market. Maybe it will be tomorrow, next month, or next year. Sometime though. The hare may be sexy, but don’t forget the tortoise won the race.

Regardless, click here for the full scoop.

Pick of the Day: Bio-Matrix (BMSN). Come on - you didn’t expect is to say anything else after yesterday’s profile, did you?

By the way, check out another of our recent picks…Tenet Healthcare (THC). Not bad…for those who got in and stayed in. The chart looks a little cup-and-handle-esque, which may turn good news into great news here. The trade is up about 30% from our pick price, but the slingshot effect of a good cup and handle pattern could swell that number up pretty nicely.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.