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The liquidation equation: The StreetSignal Report

Danny Deadlock Danny Deadlock, TickerTrax
0 Comments| April 12, 2010

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A year into this market rally from the March 2009 lows, everyone (ourselves included) has waited for the shoe to drop and a correction to commence. But as the Dow continues to test 11,000 and brilliant analysts like Morgan Stanley’s Teun Draaisma call for a correction, the market itself is not listening.

The next test will likely commence in a month as we test the old market proverb of “Sell in May.” In 2009 this would have been a huge mistake and no one knows if the same will be true this year. We have seen a significant aversion to risk for the past few months and this has had a particular impact on penny stocks (microcaps). Not that money hasn’t been made, as some stocks have still done quite well, but overall we continue to see resistance. In particular, with both gold and oil sitting near highs, we should have seen more broad based rallies in these two sectors, but it’s been pretty muted.

With the StreetSignal report here on Stockhouse, I took a pretty conservative approach heading into February and have stuck with that same (trusted) theme of focusing on microcaps with lots of cash – and trading near those cash values. If the market was to hit the skids, these stocks would allow you to sleep at night. The problem however, as this market slogs along, is whether or not we die of boredom first !

It’s tempting to take on more risk but I am just not comfortable doing that ahead of May. For this reason, I am reviewing those stocks that I have introduced since February 1, which fall within this cash-rich category. This will not only serve as a review, but assist new readers in what we’re following into summer. I have included links to the original reports as today is only a summary.

Please keep in mind that the Liquidation value I refer to includes a close approximation of a company’s cash, investments, and accounts receivable, less debt. It’s a pretty safe number to use as it ignores the value of all other assets and determines the proceeds that could be realized for shareholders if you liquidated the company.

1) Western Uranium ($0.86) –– The company’s (TSX: T.WUC, Stock Forum) cash in the bank is about $43 million or 73 cents per share, but it owns a large position in Western Lithium (TSX: V.WLC, Stock Forum), which is worth a substantial amount of money. It also has interests in several large uranium exploration projects, and will be drilling a gold project in Spain over the next several weeks.

Please see the original article.

2) Phoscan ($0.40) –– The company (TSX: T.FOS, Stock Forum) has almost $65 million in the bank (about 40 cents per share) and owns a large undeveloped phosphate project that currently carries NIL value by the market. The capital costs to develop the project are too high for a company like Phoscan but renewed interest in this sector may eventually spark interest from overseas investors. Problem is that the market has little faith in this company or management and for the past year have given up hope.

3) BioMS ($0.35) –– The company (TSX: T.MS, Stock Forum) has a liquidation value of $50 million or 54 cents per share. Current price is pure cash value and the balance is a large investment in Spectral Diagnostics (TSX: T.SDI, Stock Forum), which allows people to play that stock for no cost. SDI has significant potential as a play on Sepsis.

Please read the article about BioMS.

4) Intrinsyc Software ($0.075) - The company (TSX: T.ICS, Stock Forum) has a liquidation value of $11.5 million or 7 cents per share. Earnings positive on annual revenue in the range of $18 million. In business for over a decade and provides software and services for a blue chip list of clients involved in mobile computing and telecommunications.

Please see the original Intrinsyc Software article.

5) OSI Geospatial ($0.19) –– The company’s (TSX: T.OSI , Stock Forum) liquidation value is near $7 million or 15 cents per share. It has been in business for three decades with annual revenues of more than $20 million and an order backlog in excess of $40 million. OSI specializes in technology and services for the international marine and defence industry.

Our original report on OSI.


Disclosure: Danny Deadlock owns 75,000 shares of ICS, 50,000 OSI, 35,000 FOS, 50,000 MS, 30,000 WUC


To send a confidential email (tips, rumours, research) for consideration in the StreetSignal report, please visit www.StreetSignal.com or post directly to our moderated message board at: https://stockhouse.com/Groups/GroupInfo.aspx?g=50540


Danny Deadlock has specialized in microcap and smallcap companies for over 25 years and is a registered member of the Stockhouse community since 1997. You can find his website at www.MicroCap.com - a service which has specialized in TSX and TSX.V penny stocks since 1998. You can also email Danny at microcap@telus.net



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