This section highlights our approach to filtering for stocks based on criteria we feel to be most important when discovering new investment/trading opportunities:
52-wk high Screen — This is a momentum based screen. Our goal is to assess why a company is attaining a high to see if we have both a timely growth and value proposition. This tool was our primary screen for the first several years of our involvement in the equity markets. Tracking new highs is helpful to identify stocks that are bucking the trend in weak markets. We look for value at any price.
Fundamental Screen — Stocks under $30 with low floats and or minimal outstanding shares where the most recent EPS growth was at least 30%. We run this screen periodically, up to 4 times per year.
Speculative Screen(Pump and Dump) – These often include pump and dump stories, hype stories that might attain a cult following or stories that look appealing on the surface yet may still be subject to doubt. Stocks in this list can either be long or short plays, depending on when they are identified. Once in awhile, we find a legitimate company that may be more than just a hype play.
Corporate Restructure- Over our more than twenty years of investment experience, buying stocks that have emerged from bankruptcy has been a highly rewarding strategy. During the chapter 11 process, a company communicates with the courts and debt holders to develop a viable operating plan that will ensure the survival of the company, while satisfying its obligations. Typically, all (or a good deal of) the common stock is cancelled and new stock is issued upon exiting chapter 11, often resulting in a tight float. Many times, the restructured firm is eventually acquired. The chance for investment success in these situations often depends on the terms of the restructuring arrangement as it relates to money the company owes to debt holders, vendors and suppliers.
We have found the best opportunities occur when most of the debts are forgiven in exchange for newly issued stock. The fact that debt holders are willing to accept stock shows a confidence in the long-term survival of the company. We also look for companies that have put forth restructuring plans to avoid filing for chapter 11 bankruptcy.
Tier 1 Pink Sheet Screen – This is a screen of companies that we feel are or once were legit companies that are now trading on the pink sheets, as opposed to speculative ones which generally are getting pumped that we track on our speculative screen. Some of these companies choose to voluntarily migrate to the pink sheets to reduce expenses associated with listing fees, while others (often coined as Fallen Angels) may have been forced to de-list because they did not meet listing requirements precipitated by a scenario of weakened financials. Generally, investors are told to avoid Pink Sheet stocks. However, over our 20+ years of participating in the equity markets the Pink Sheet companies have offered us bountiful returns. The Pink Sheet venue offers a great opportunity to identify companies that are selling well below their valuation supported by their fundamentals; A truly inefficient market that gives non-professional investors an opportunity to take advantage of this valuation gap. In the end, investors could gain alpha by playing in a market that many other investors, including institutional investors often ignore. Specific companies that are on our tier 1 list are often companies emerging from chapter 11 bankruptcy. These chapter 11 companies are classic Fallen Angels that often reemerge as stronger companies, ripe to grow earnings. Many tier one pinks also become acquisition targets. INRB and ex-GeoBargain YoCream (YOCM) are just two examples of tier one pinks we owned that were acquired. Of course, there are risks to trading in these stocks, including the existence of small floats and lack of liquidity. Tier 1 companies are typically those that are investor friendly by issuing press releases, publishing financials and providing routine updates on business operations.
Energy Exploration Boom - This is a screen of companies we feel could benefit from the current energy exploration boom going on in the U.S. The market is clearly telling us that it is excited about stocks currently benefiting from this mini energy exploration boom. Several articles have begun to highlight this explosive undercurrent. Ryan Dezember and Matt Day of the Wall Street Journal state ” Oil-drilling activity in the U.S. has accelerated to a pace not seen in a generation as energy companies, oilfield contractors and landowners rush to exploit newly profitable sources of crude.” See Seeking Alpha articles,”Shale oil is the New Energy Boom in the U.S.” and Wall street Journal Online article, “Oil-Drilling Boom Under Way“.
IPO Arbitrage- The GeoTeam routinely tracks recent IPO’s that have not traded much higher than their going public prices. We seek to track stocks in hot industries and/or those rare IPO’s that are selling at low valuations. We also look for stocks that are overpriced as possible short candidates.
6 month highs- Many members of our subscriber base do not totally agree on our emphasis of researching stocks that have recently obtained 52 week highs. Thus, we will routinely preform 6 month high research to accommodate the need of our subscribers. We like to use this screen as a possible precursor to our 52 week high screen. The reasoning is similar in that it is a momentum based screen. Our goal is to assess why a company is attaining a 6 month high and to see if we have both a timely growth and value proposition. We do not view the 6 month high screen as definitive as our 52 week high screen. Therefore, there are likely to be more false positives from the 6 month high research then the 52 week high research.
13D/G Arbitrage/Buyout– 13D or 13G forms must be filed when a group or person owns between 5% and 20% in a company. The difference between the 13D and 13G is that in a 13G filing it must be clearly understood that the party acquiring the stake in the company is only a passive investor and does not intend to exert control. When a % stake higher than 20% is taken or if there is interest in exerting control over the company in some fashion a 13D must be filed. The GeoTeam believes tracking these filings can many times be the first steps towards a company being acquired. We also track companies as buyout candidates that have hired a financial advisory firm to pursue strategic alternatives.
BioTech Screen – The Geo-Team would like to introduce a new screen on the GeoBlog dedicated to the healthcare Industry, mainly bio-techs. While we do not normally tread in this space, we understand that some of our members may. Furthermore, this industry has been in play for some time. Our goal is to provide our members with information on certain pharmaceutical companies to help in the due diligence process. We will focus on keeping abreast of where certain companies stand in the FDA process, as well as other catalysts that may affect share prices, such as the receipt of funding from partners.
SaaS Screen – Software as a service (Saas), sometimes referred to as “on-demand software”, is a software delivery model in which software and associated data are centrally hosted on the cloud. SaaS is typically accessed by users using a thin client via a web browser.
SaaS has become a common delivery model for many business applications, including accounting, collaboration, customer relationship management (CRM), management information systems (MIS), enterprise resource planning (ERP), invoicing, human resource management (HRM), content management (CM) and service desk management. SaaS has been incorporated into the strategy of all leading enterprise software companies. One of the biggest selling points for these companies is the potential to reduce IT support costs by outsourcing hardware and software maintenance and support to the SaaS provider.
Fiscal Cliff Screen – This screen was formed to track companies that may benefit from the resolution of the fiscal cliff. “The ‘fiscal cliff’ is the popular shorthand term used to describe the conundrum that the U.S. government will face at the end of 2012 (now extended), when the terms of the Budget Control Act of 2011 are scheduled to go into effect.” Clarity on exact spending cuts may lead to more confidence among customers in the AeroSpace/Defense and infrastructure sectors.
Hurricane Sandy Screen - This screen was formed to track companies that may benefit from the rebuilding efforts related to the impact from Hurricane Sandy. Sandy is seen as boosting the U.S. with as much as $240 billion in rebuilding efforts. Please see Bloomberg article for more details.