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Playing the Pullback with Highpower International, Inc. (HPJ)

As we’ve witnessed over the past several weeks, when equity markets begin to reel to the downside, the hype surrounding the sector moves and individual stocks in those sectors tend to give way to reality. Selling in momentum names and high-risk issues generally becomes more pronounced, leaving shareholders scratching their heads as to why a stock they bought at $7.50 per share has rapidly traded down to $4.

That set of events seems to apply to the share price movement of Highpower International, Inc. (HPJ), a company I brought to your attention in October, 2013. At the time of that first mention, HPJ shares were pushing to new 52-week highs above the $1.50 level and appeared primed to breakout to the upside based on both business fundamentals and the stock’s technical chart picture. In fact, that’s precisely what they did, ultimately ripping to a new 52-week top above $7.70 reached earlier this month.

To refresh your memory, HPJ is engaged in the production and sales of rechargeable nickel-metal hydride (Ni-MH) batteries, lithium batteries and battery systems. The company also recycles scrap battery materials through outsourcing and resells the recycled materials to some of its customers. The company’s batteries fall into two main categories — consumer and industrial. The consumer batteries category produces Ni-MH and lithium batteries, while the industrial batteries are designed for electric bikes, power tools and electric toys.

At the time of my original write-up, I was attracted to HPJ’s steadily growing revenue stream, which had surpassed $100 million per annum, with the company slowly punching through to profitability. With a July 2013 industry report projecting the global lithium battery market to swell to the $25 billion mark by 2017, Highpower management announced that it was focusing its efforts on its cleaner, higher capacity lithium batteries, and had just completed expanding its production capacity.  The company also projected its own sales to grow between 12% – 15% in 2014, with the company in the black for the period.

From autumn 2013 until early April, HPJ shares vaulted into previously untested waters, first settling in at the $2.50 – $3.00 channel, then using $3 as a springboard to hit parabolic new highs.  A great many factors have transpired to push HPJ higher — as well as lower — over the past several months. In addition to the release of an extremely solid Q4 earnings report in March, the entire lithium-battery sector, and several select alternative energy stocks, had also made parabolic moves in late 2013 and early 2014, leading momentum traders to pile into the sector.

As you can see from the HPJ stock chart, it’s been a wild ride indeed, and certainly not for the faint of heart. Part of the volatility is attributable to the company’s small public float of under 8 million shares, with recent unpredictable market swings contributing to the seesaw trading pattern. In addition, the stocks of so many “go-go” sectors that had made a series of huge upside moves have been especially hard-hit during the recent market pullback, as easy money dreams gave way to the harsh realities of corrective market action.…

Riding the Alt Energy Wave with Capstone Turbine Corp. (CPST)

With the United States’ energy policy focused on ramping up domestic production to reduce foreign oil dependence, shares of alternative energy companies have been in demand so far in 2014. The prices of many stocks even remotely associated with hydrogen fuel cells, for example, have experienced at least a temporary run-up, as have bio-fuel issues. One promising company in the non-traditional energy space, Capstone Turbine Corp. (CPST) and has been hitting fresh 52-week highs in recent weeks. They could be poised for more gains ahead as the company’s business model begins to hit on all cylinders.

Capstone Turbine Corporation develops, manufactures, markets and services microturbine technology solutions for use in stationary distributed power generation applications. This includes cogeneration (combined heat and power (CHP), integrated combined heat and power (ICHP), and combined cooling, heat and power (CCHP)), renewable energy, natural resources and critical power supply. In addition, its microturbines can be used as battery charging generators for hybrid electric vehicle applications. Microturbines allow customers to produce power on-site in parallel with the electric grid or stand-alone when no utility grid is available.

When shares of Capstone first came to market almost 15 years ago, the stock was very much in favor, quickly surging north of $80 per share. As fate and market conditions would have it, however, the company’s highly regarded, innovative technology failed to find enough buyers to support the lofty share price. With profitability years away, stockholders rapidly bailed on the issue. As a result, over the past five years CPST shares have occasionally traded under $1 each, while remaining firmly locked into a $1 – $2 channel during that period. Right now, however, the tide finally appears to be shifting in Capstone’s favor on several different fronts.

SGLB chart

Primarily, Capstone management has weathered the slide and slowly but surely grown sales—with revenues weighing in at a healthy $100 million for fiscal 2012. Analysts expect that number to accelerate to $175 million in fiscal year 2013. Other key metrics are on the upswing as well, as gross margins have doubled to around 20% over the past 18 months, primarily due to larger deals and installations. In addition, Capstone cut its quarter-over-quarter loss from $8 million to $2 million during its most recent reporting period and currently has $31 million in cash.

The trend in firming margins is directly related to the growth in deal size. The average selling price per micro-turbine rose from $158,000 a year ago to a recent $184,000. “Capstone used to be considered primarily for 1- to 5-megawatt opportunities or installations, so we migrated up in project size, so that Capstone is now being considered frequently as a solution for projects that are in 25-megawatt range,” said CEO Darren Jamison in a recent call with analysts.

As long as the improved margin and pricing trends remain intact, Capstone appears destined to enter the realm of profitability sooner rather than later. For its most recent reporting period the company’s quarterly loss fell to just $2 million, down from quarterly losses that routinely exceeded $8 million in recent years.…

Going Long with Stigma Labs

If you’ve ever bet on sporting events, then you probably know that professional handicappers look for strong trends to help determine winners and losers. In the stock market it’s no different—with the exception that uptrends in stock sectors are generally more reliable for generating profits than their sports counterparts. This year, it’s all about fuel cells and marijuana. Today, however, I want to revisit an under-the-radar play in one of last year’s strongest sectors—the 3D printing space.

 

While the pure momentum run in many large cap issues in the sector has cooled a bit (DDD, SSYS), there are a host of emerging plays related to the field that continue to attract marketplace attention, and appear to be true ground-floor opportunities in a rapidly expanding industry. One of the strongest, in my opinion, is Sigma Labs, Inc., currently trading over-the-counter under the symbol SGLB.

 

Based in Santa Fe, New Mexico, Sigma Labs, Inc. engages in the development and commercialization of manufacturing and materials technologies, and R&D solutions. It also focuses on commercializing technologies and products in various industry sectors, such as in process quality assurance for manufacturing; aerospace and defense manufacturing; additive manufacturing; active protection systems for defending light armored vehicles; advanced materials for munitions; advanced materials for sporting goods; advanced manufacturing technologies; and dental implant and biomedical prosthetics technologies. In addition, the company provides consulting services to the public and private sector, with regard to emerging technologies and alternative applications of established technologies for Federal government and commercial clients.

 

Sigma Lab’s ace-in-the-hole is its focus on developing advanced, real-time quality inspection systems for 3D metal printing and other technologies. Manufacturing integrity is key to the success of the 3D printing process, which presents unique quality-control challenges. Compared to traditional casting, welding, or machining manufacturing methods, additive manufacturing is slower and has its own issues with imperfections due to process variations. Any system that can minimize these quality issues will accelerate production, and that’s precisely what Sigma Labs’ PrintRite3D system is designed to do.

 

Unlike other micro-cap companies in the 3D space which are long on claims but short on real products or potential, Sigma is already doing business with manufacturing giant GE. GE has asked Sigma to develop its PrintRite3D system to the point where it will operate as a “closed loop”— feeding information back to the printer so it can make real time adjustments. GE’s key concern, and what Sigma Labs is best prepared to address, is unmelted metal powder entrapment in the additive manufacturing process.

 

Regarding the partnership, Christine Furstoss, Technical Director for Manufacturing and Materials Technologies at GE, stated “we have a joint technology development agreement with Sigma Labs Inc. to develop in-process inspection technologies of additive components with the goal of reducing production time up to 25 percent.” Currently, Sigma is the only company known to be working on this closed loop inspection technology, and their impressive array of patents protecting the process should make it difficult for other companies to compete any time soon.…

Playing Blowout Earnings (Again) with EnviroStar, Inc.

Sometimes the market provides investors with gifts—great entry points for stocks of up-and-coming companies which are flat-out performing and profitable. Right now, I believe that’s the case with EnviroStar, Inc., a “low-floater” that just reported blowout earnings, and whose share price should be in line for some nice gains ahead if you’re patient enough to stay the course.

EnviroStar, Inc., through its wholly-owned subsidiary, Steiner-Atlantic Corp., distributes commercial and industrial laundry and dry cleaning equipment and steam and hot waters boilers manufactured by others, supplies replacement parts and accessories and provides maintenance services to its customers, and designs and plans laundry, dry cleaning and boiler systems to meet the layout, volume and budget needs of its diversified institutional, retail, industrial and commercial customers. The company, through its DRYCLEAN USA License Corp. wholly-owned indirect subsidiary, owns the global rights to the name DRYCLEAN USA, which the company franchises and licenses to retail drycleaners in the United States, the Caribbean and Latin America.

I first put EnviroStar on my radar screen last September after the company issued a nice fiscal year earnings report, complete with a solid outlook going forward.  Revenues for fiscal 2013 were $36,226,584, an increase of 61.3% over the prior year’s revenues of $22,457,089. Net earnings increased by 214.1% to $1,607,238, or $0.23 per share, compared to $511,689, or $.07 per share in fiscal 2012.

In that release, Venerando J. Indelicato, the company’s Chief Financial Officer, stated: “As previously reported, we received a number of large orders for delivery in fiscal 2013, which we successfully delivered during the year. We are beginning fiscal 2014 with a solid backlog containing a few large orders, and while comparisons will be difficult when comparing fiscal 2014 with our recent banner year, we still expect fiscal 2014 to be a very successful year.”

As it turns out—at least so far—Indelicato’s projection was prophetic.  On February 14, the company reported improved operating results for the six and three month periods ended December 31, 2013. For the first six months of fiscal 2014, revenues increased by 41.4% to $18,328,643 from $12,958,823 for the same period of fiscal 2013. Net earnings increased by 226.0% to $903,077 or $.13 per share compared to net income of $276,994 or $.04 per share for the same period of fiscal 2013.

For the second quarter of fiscal 2014, revenues increased by 52.6% to $9,835,413 from $6,445,709 in the comparable period of fiscal 2013. Net earnings for the period increased by 281.4% to $477,306 or $.07 per share compared to $125,155 or $.02 per share for the second quarter of fiscal 2013.

Once again, Chief Financial Officer Indelicato weighed in with some bullish comments on those results and EnviroStar’s future performance. “We are pleased with the company’s performance for the six and three month periods of fiscal 2014. As already reported, we began the year with a solid backlog and we projected fiscal 2014 to be a successful year. At this point in time these projections are on track, although individual quarters may differ depending on future scheduling.”

As you might expect, market participants responded with enthusiasm to the mid-session release of EVI’s earnings numbers, initially driving the share price up to an intraday high of $4.27 after the stock opened for trading at $3.43 per share.…

Taking Stock – Following Up On Some OTC Winners

It’s been a rough and highly volatile start to 2014 for market players. That makes now an opportune time to look at the performance of some recent recommendations and close out some older OTC positions, as the “easy money” bull market days of 2013 appear to be coming to at least a temporary halt.

 

Fusion Pharm (FSPM)

This issue was one of two plays that appeared primed to benefit from the capital rush into marijuana stocks that accompanied Colorado’s legalization of the substance in January, and plans afoot in many other states to pass similar legislation. As hoped, FSPM shares raced all the way to and through the $8 mark after we wrote about the stock in early January when it was trading at $2.90 per share. Currently sitting at about $6 per share, I would reduce my position here by half, take the 100% return, and hold on to the rest in anticipation of ongoing sector strength.

 

Endexx (EDXC)

The second of two “pot stocks” we profiled in January, this company’s shares have also seen a nice jump from about $0.14 each, to a recent trading print of $0.21. I like the nice steady rise in EDXC’s price, along with the fact that the company is well-positioned geographically to benefit from the Colorado law change. Until the sector shows signs of buyer’s exhaustion, I expect these shares to continue to grind their way higher. If you took a position in this one, I recommend leaving it open.

 

DLH Holdings, Inc. (DLHC)

This Christmas Eve pick from December truly was a gift if you chose to play it. Shares quickly ripped from the $1.60 – $1.70 channel they occupied when we issued an alert on this company as a potential breakout candidate, and that’s exactly what happened. Within two weeks DLHC had established a series of new 52-week highs, quickly pushing up and through 100% gains to a $3.50 top. Market conditions and profit-taking have since conspired to push this issue back down to about $2.50, but I would keep my position open pending the market’s reaction to the company’s earnings report set for the end of the week. If those results are good, I expect DLHC to eventually take out new 52s.

 

Emmis Communications (EMMS)

This bread and butter play in the radio broadcasting industry remained stuck in neutral for several weeks, hovering around our entry point of $2.30 per share in September, rarely budging more than a few pennies a day either up or down. Finally, buying interest increased dramatically at the end of 2013, pushing shares back through the $3 level. Although I still like this company as a long-term hold, market conditions are such that it’s a good time to cash out, with the stock still holding at about $2.80 per share—good for a nice gain of over 20%.

 

Information Services Group (III)

Also recommended in the summer of 2013 when shares were trading at $2.50, the stock has simply headed north, recently touching a new 52-week top of $5.50 per share.…

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