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Our top biotech, gold, and tech stock picks for 2010

Danny Deadlock Danny Deadlock, TickerTrax
0 Comments| January 4, 2010

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1) BioMS (TSX: T.MS, Stock Forum; 33 cents)

We saw a very positive development on MS several weeks ago in which the company will invest only 1/4 of their cash but gain 48% control of Spectral Diagnostics (TSX: T.SDI, Stock Forum; 58 cents)

BioMS will invest $12 million leaving them roughly $35 million in cash, or 38 cents/share. They then own 30 million shares and 15 million warrants in Spectral, which even at 50 cents will be worth a minimum of $15 million, or 16 cents/share.

The potential for SDI is quite significant as the market for a drug treating sepsis is large (estimated at more than $1 billion annually). In typical biotech fashion it will require patience but our risk is dramatically reduced by holding MS because we are only paying for the remaining cash and the carried investment in Spectral Diagnostics is free.

In recent years we are seeing a significant rise in sepsis at hospitals across North America. Some speculate it’s because we're growing more resistant to antibiotics or because medical procedures are so invasive. Sepsis is a severe, uncontrolled whole body response to infection that can become a fatal complication for hospital patients.

Last year resulted in about 30,587 hospitalizations and 9,320 deaths in Canadian hospitals excluding Quebec. In comparison, there were 30,542 hospitalizations for strokes in 2007-08, with some 6,423 deaths. Of the 49,220 hospitalizations for heart attacks, about 5,684 people died.

A Canadian government report in December said that, in almost one-quarter of 2008-09 sepsis cases, patients were diagnosed after being admitted to hospital. Those who developed sepsis while in hospital were 56% more likely to die than those diagnosed with sepsis before they were admitted to hospital.

In March, 2009, Spectral obtained exclusive U.S. rights to Toraymyxin, a therapeutic hemoprofusion device that removes endotoxin from the bloodstream. Toraymyxin has been used in more than 70,000 patients globally and has demonstrated in clinical trials that it safely and effectively removes endotoxin and reduces mortality in patients with severe sepsis. Spectral anticipates initiating a pivotal U.S. trial with Toraymyxin in the first half of 2010.

Spectral's endotoxin activity assay (EAA) is the only FDA-cleared assay for the measurement of endotoxin in the bloodstream. With the growing awareness for the role of endotoxemia in sepsis, the EAA can be used to identify patients, enable therapeutics and monitor treatment.

"Spectral represents the type of development opportunity that BioMS is seeking and ideally suited for: investment in a late-stage clinical program with a large market opportunity, and the ability to assist in the successful development of a project using our management expertise," said Kevin Giese, president and chief executive officer of BioMS Medical. "BioMS will continue to leverage its resources and management team to pursue additional opportunities to realize shareholder value."


2) Colombian Mines (TSX: V.CMJ, Stock Forum; 82 cents)

Shares Outstanding: 18.5 million

This stock is also followed by Thom Calandra of Ticker Trax (available through Stockhouse)

Typically I avoid any stocks trading near the upper end of its one-year chart - the risks of a pullback typically outweigh the upside. Exceptions do occur if the stock is tightly held and/or if the fundamentals outweigh those risks. In 2009 our top pick was Galway Resources (TSX: V.GWY, Stock Forum; $1.63), which we started following below 10 cents in early February. This was a gold play in Colombia that we took the gains on but CMJ will be our next kick at the Colombia can for 2010.

Columbia is turning out to be one of the hottest gold regions in the world and unlike many companies that have only been there a year or two, CMJ's subsidiary and key people have been working this country for almost 15 years.

What many companies fail to mention and what most investors don't know, is that it takes two to three years just to obtain "formal" approval from the Columbian government that you legally own the exploration license to a block of land. I only learned this recently and now understand the huge importance of CMJ's existing licenses and those in the pipeline (applied for since 2006) that will (if awarded) encompass over 200,000 acres throughout Columbia.

For Reference:

AngloGold Ashanti - one of the world's largest gold miners, announced earlier this year there most significant discovery in a decade was made in Columbia during 2008. I highlighted this fact when we started following Galway in February. The following three Canadian companies have watched their stocks explode this year from discoveries in a region of northern Columbia called the "California Vetas Mining District" - 400 km northeast of Bogota.

Both Ventana and Greystar have drilled and are proving up huge gold deposits - Ventana in fact has 10 rigs running. Galway has moved because they picked up 829 acres one to three kilometres from Greystar and Ventana. The fact Galway actually commands such a big market cap without drilling (on pure speculation) is rather shocking but it shows you what investors are prepared to speculate on in Columbia. The following were values in December.

Ventana (TSX: T.VEN, Stock Forum; $12.19) - 52wk High $12.91; Low 12 cents - up 3400 % in 2009 - market cap $1.1 billion

Greystar (TSX: T.GSL, Stock Forum; $6.25) – 52wk High $7.07; Low 58 cents - up 300 % in 2009 - market cap $450 million

Galway(TSX: V.GWY, Stock Forum; $1.44) - 52wk High $1.50; Low three cents - up 2000 % in 2009 - market cap $76 million

Columbian Mines - market cap only $15 million

It is my understanding that Ventana paid $8 million for their initial 150 hectare license on the La Bodega project in the California Mining District - the gold discoveries of which drove their market cap over $1 billion. Ventana now holds rights to 4,573 hectares of exploration property in the district and have drilled more than 45,000 metres.

That now brings us back to Colombian Mines:

CMJ to date has been awarded more than 20,000 hectares (over 50,000 acres) in some of Colombia's most prospective mineral belts. Many of these applications were applied for in 2006/2007 and are situated primarily in known mining districts with multiple small-scale, historic mines that include massive sulphide, porphyry gold-copper and precious-metal vein targets. Colombian Mines' current portfolio includes contracts, licences and applications covering approximately 222,000 hectares of massive sulphide, porphyry gold-copper, precious metal vein, coal and phosphate properties.

The company's strategy of direct acquisition of mineral properties through the lengthy application process has positioned Colombian Mines as a prospect generator and explorer at a time when Colombia appears to be moving to the forefront of mineral exploration investment in South America. The surge in recent interest in Colombia is a result of exploration success and a stable, pro-industry government. The company now has a pipeline of 100%-owned quality projects providing a basis for the growth of the company through joint venture and further exploration.


3) OSI Geospatial (TSX: T.OSI, Stock Forum; 21 cents)

The threat of terrorism against the U.S. has taken a back seat in the media the past couple years as more important issues have taken priority - Tiger Woods and his mistress count are one good example. This holiday season terrorism surfaced again with airport backlogs and shoe bomber whannabees. Some of you will remember years ago what happened to security stocks when more serious terrorism attacks hit every media outlet - the stocks doubled or tripled within a week.

As we enter the New Year, we will keep one from this sector in our portfolio - OSI Geospatial. The underlying value is very low and the fundamentals very strong. Internal growth (or through merger/acquisition), strong overall market activity, or significant contracts will move the share price. However, we also want the exposure to those unpredictable events like terrorism. It’s the wildcard in the equation but it can also provide the big payout.

With OSI in particular, any terrorist event originating from a sea port would be a huge hit for the company as this is an area of specialty for over 20 years. From researching the company you will see they have a very diverse area of expertise but marine in particular is a definite (large) niche for them.

For a company with almost 200 employees and a market cap of only $9 million, you can see the level of expertise simply by looking at two senior managers running their LS Solutions division:

1) Commander James Gordon Liddy (U.S. Navy Seal Retired) is internationally recognized as one of the nation's premier experts on counter-terrorism and critical infrastructure protection

2) Lieutenant Colonel Erik Nordberg (U.S. Army Retired) with over 20 years experience leading multiple Special Operations units in the conduct of reconnaissance, direct action, and counter-terrorism operations

Specialized staff across all divisions include: computer scientists, software engineers, information scientists, industrial and systems engineers, management and usability analysts, psychologists, cognitive scientists, instructional system developers, social scientists, and military subject matter experts.

As they gain traction with new technology in the military markets, the contracts can often be very large (although the sales cycle long). They also have a very impressive order backlog.

Like Certicom years ago (bought out by RIM/Blackberry), advanced technology that has been incorporated into restricted areas and equipment can often take on critical importance to the government - resulting in a buyout by the major players in that industry - in the case of OSI, defense contractors. We treat this one like we would a company in the biotech space - valuation grows on market share penetration or as a potential acquisition target. If they gain a lot of traction with new technologies, these can also be exciting companies to follow.

OSI division websites: /

- Clean balance sheet with only minor debt and small operating losses

- Annual revenue in the range of $20 to $25 million

- Firm backlog as at August 31, 2009 was $45 million

- Clients include all branches of U.S. and Canadian military plus NATO allies.

- Share Outstanding: 47 million - Market cap $9 million

- Public company since 1990

OSI Geospatial has been an innovator in the situational awareness market since 1977. They provide navigation and command & control systems to military and security customers worldwide. Over the past few years, we have seen huge growth in real time simulations and "situational awareness" of equipment and troops on the ground. This has only been possible through major advancements in GPS technology and tracking. OSI was one of the first leaders in this space a decade ago with their ship navigation software but through internal growth and acquisitions, their business has changed dramatically. Here is a quote from their website:

"OSI Geospatial delivers products and services to a large and fast-growing part of the defense and homeland security markets, which generates an estimated US$1.1 billion of annual spending. Our software and systems address critical issues - namely the need for enhanced real-time situational awareness, interoperability, and network-enabled operations. Our command and control technologies and navigation systems provide essential tactical, strategic, and operational information to help aid decision-making, improve efficiency, and provide real-time access to all available information."

Its markets include marine navigation and high speed command and control, warship & submarine situational awareness, maritime security, situational awareness for dismounted soldiers, training and detection of improvised explosive devices (ied's), and several other specialized areas. For ground troops, they research and model human intelligence and cognition to bring human-like behavior and capabilities to computer-based systems. Their technology gives warships and submarines a clear tactical advantage in both open ocean as well as complex confined battlespaces and is one of the most cost effective solutions available.

The company has some great (military) technology innovations and in August of this year started providing equipment to the department of Homeland Security for border patrol agents. This web page has several articles related to their innovations and its well worth reading to get a better handle on where this company is headed. What Iraq and Afghanistan is teaching the world about military operations is that "situational awareness" is critical to success and survival of ground troops. This entails extensive use of GPS with the software and technology to manage that GPS data. In a nutshell, that is OSI's specialty.

Raytheon Prototype incorporates OSI technology

Full article

Disclosure: Danny Deadlock owns 30,000 shares of Colombian Mines (TSX: V.CMJ), 30,000 shares of BioMS (TSX: T.MS), and 40,000 shares of OSI Geospatial (TSX: T.OSI).

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