Archive for January, 2011

1/25/11 Midnight Report: Jury Duty Keeps Money McBags From Pinching Out A Column

Yep, that’s right, Money McBags had jury duty today and as a result, there will be no fucking column as he simply didn’t have time.

As for his foray in to the justice system, they tried to seat him on a 3 day lame ass civil trial but when he calmly explained to the lawyers that he is a misanthropic antithalian, they were nice enough to overlook him in the final jury selection.  That said, it still took most of the day which means Money McBags didn’t have the proper time to get to the market (it also meant traffic on Spankwire was likely down ~25%).   Money McBags did get home in time to tweet some shit out, but that is pretty much it.  So he apologizes profusely but he was just performing his civic duty.

If you all want content, feel free to hit the archives where there is more analysis and boobs than a Federal Reserve meeting.

Actually, Money McBags gets many emails a day and he tries to answer every one of them with the proper wit, elan, analysis, and Malene Espensen that his readers deserve (except for the ones soliciting money or telling him his penis is too small) and it is a shame that these emails do not reach the larger public because they can be quite prescient at times.  So fuck, below is a recent email Money McBags answered which hopefully will provide you with some content while Money McBags washes off the stink of despair and Fritos he has lingering on him from being around the proletariat today.

From 1/23/11:

MMB,
Based on the commentary and analysis at the award winning When Genius Prevailed, you are clearly the preeminent investor/soothsayer of all things small cap.  Given that, I thought I would ask for your opinion on what appears to be a strange company that popped up on my screen, Daxor Corporation (DXR).  According to their homepage, they are an innovative medical instrumentation and biotechnology company.  Market cap is $40 mln and (this is where it gets weird) they have about $80 mln in cash, “receivables from broker”, and “available for sale securities.”  As best as I can tell, their medical device company is a front for a hedge fund.  The revenue from the medical device company is $1.7 mln from which they generated an awesome negative $5 mln EBITDA.  However, they paid out $1.35/share in dividends in 2009 as a result of income generated from investments.  In the 9/30/2010 10Q, they discuss shorting stocks, investing in utility companies and Citigroup, and put and call options.  Have you heard of them or performed any type of research on their stock value?  I was initially intrigued by the large discrepancy between the market cap and the cash on hand, but now I’m just curious to learn more about the company.  Thanks for the website.

Money McBags’ repsonse:

Looks like some weird ass shit on DXR.  Money McBags has never heard of them, but there are a lot of things he has never heard of, like Alabama Ice Tea or manners, so that doesn’t really mean anything.  Money McBags did a quick skim of their last release and there was this:

On September 17, 2010, the United States Securities and Exchange Commission (“SEC”) instituted administrative proceedings pursuant to the Investment Company Act of 1940 in an attempt to have Daxor declared an Investment Company. A hearing on the Investment Company issue was originally scheduled for November 8, 2010. A teleconference was held instead and it is now expected that the hearing will be held in the latter part of the First Quarter of 2011.

The Company feels strongly that its history of operations demonstrate that it is primarily an operating medical instrumentation and Biotechnology Company and not primarily an Investment Company. Daxor intends to defend its position before the SEC and if need be, in the courts.


So they appear to be using their status as an operating company for either some kind of tax advantage or just to fuck with people, Money McBags isn’t sure why (though he could dust off his CFA charter and put it to use, but that would require him to unstop his door), but obviously there is something advantageous about keeping up the charade (and Money McBags hates companies that try to skirt the rules).

Money McBags then skimmed their 10Q, just for shits and giggles and found these nuggets (and unfortunately not these nuggets):

“The only person involved in actively managing the Company’s portfolio is Dr. Joseph Feldschuh.  He spends between 25-30% of his time managing the portfolio and is also the Company’s Chief Scientist.  It was disclosed in the Company’s June 30, 2010 10-Q that he has no formal business training and only took one course in economics while in High School. He does not use computer algorithms to make his financial decisions and works with one part time assistant whose responsibility is to update the security positions. “

“To the best of the Company’s knowledge, of the 6,000 companies reporting to the SEC, it is unaware of any company except Daxor where a single individual supports the entire company by cash management, particularly when there are large, continuing operating losses.  The quarter ended September 30, 2010 was the 103 rd consecutive quarter where the fair market value of the Company’s available for sale securities were above historical cost.  If the Company had followed a policy of investing in Treasury Bills and incurred the same level of operating losses, Daxor would have been bankrupt by 2006 or sooner.”


“In the event that Dr. Feldschuh is unable to continue in his role of managing the Company’s investment portfolio, no new option positions would be initiated and Michael Feldschuh, the son of Dr. Joseph Feldschuh would assist in the process of closing the option positions that would be open at the time Dr. Feldschuh is unable to continue in his current capacity. Michael Feldschuh has eighteen years of experience as a hedge fund manager. The Company would then be limited to dividend income from it’s portfolio of available for sale securities. It is highly unlikely that this dividend income would be sufficient to cover the current level of operating losses. The Board of Directors would then determine what appropriate steps should be taken.

So you have an investment fund run by a 74 year old questionable doctor (he got one terrible review on this site, likely because he forgot to warm up his hands) who has no formal investment training (though formal training can be overrated), with a strategy of writing covered calls on utility companies (though why they own C makes no sense, and to be honest, Money McBags thinks C is a $0 so he would stay the fuck away from anyone owning it).  Money McBags is assuming he does this for the lower tax rate dividend income, but he is not 100% sure.

Not only that, but there is basically no volume on the name and this doctor owns ~75% of the shares.  So in short, Money McBags wouldn’t touch this with Peter North’s dick (and he’s not entirely sure what that means).  They have a bull shit business (and when they had a sperm bank business years ago (no joke), it looks like there was some fraudulent activity) and just some old ass doctor with no support picking energy stocks (though the fact that his son runs a hedge fund could mean something else is going on there).  Anyway, the only reason one would invest in this company is if one personally knew the doctor and was confident in his stock picking, otherwise Money McBags would just stay further away from this than he would stay away from Magic Johnson’s saliva.

Interesting find though, hope that helps.

Bottoms Up,

Money McBags

Money McBags should be back with a full column on Wednesday, but in the meantime, keep the emails coming (or just use the fucking comments section) as Money McBags is always happy to interact with his readers (especially if these are his readers).

1/24/11 Midnight Report: Market Keeps Moving Higher as Investors Now Buy the Rip

Oh shit did the market get it’s buying on today as investors once again shunned the reality of Europe’s tenuous hold on the Euro (and Ireland, as the Fianna Fail party finally fucking failed this weekend.  And note to political leaders, if you’re going to start a party, here are some words you might want to leave out of the name of it: “fail,” “dictatorship,” and “cumshot”), ignored rising input costs (though Money McBags would pay any cost for this input), and failed to blink at the banning of porn at Marriott Hotels (and Romney, dude, seriously?  Perhaps you needed some looser special underwear).

In fact all the market focused on today was mixed earnings and potentially overflowing cash on company balance sheets for executives to either spend on M&A (which there was a shitload of today) or T&A (which is likely why Money McBags’ recent purchase of RICK was up ~5%).  The reality is, nothing can stop the market’s melt up as we now live in an economy where unemployment, actual production, and common sense don’t matter as apparently the wealthiest 5% of the people can spend enough of their easy earned manipulated portfolios to give the illusion of a functioning economy.  Keynes and Ponzi would be so proud.

Anyway, there was virtually no macro news today as the market braces for tomorrow’s State of the Union address to learn how awesome the recovery is and to see who won the fight to sit next to the delightful Mary Bono Mack (and there isn’t an aisle Money McBags wouldn’t cross to show Ms. Mack his “bono”).  That said, the theme of the day was cash; cash for buy backs, cash for buy outs, and cash for buying one too many boob jobs (though Money McBags can think of no nobler way of dying).  INTC announced they will be buying $10B of stock, and if their shareholders are lucky, it will be stock in AAPL, NFLX, or Flavor Flav’s new fried chicken restaurant that they will be buying.  There is also a rumor that BRK may start paying a dividend as they could end the year with $50B in cash and no large acquisitions to spend it on now that asset prices have risen and Kristin Davis has closed for business.

—-

In M&A news, Rock-Tenn announced they will acquire Smurfit for $3.5B after barely outbidding Gargamel.  The combination of the two will form North America’s second largest container board company which should benefit from the global trend of cardboard packaging being up 6% this year as both shipping is coming back and more people are losing their homes and having to look for alternative forms of shelter.  Also, Novartis is set to buy Genoptix for $470MM which represents a 27% premium above the closing price after Novarits found Genoptix’ balance sheet not to be cancerous (and seriously, you try writing a joke for a cancer diagnostic company acquisition and then let Money McBags know if you have anything better).  Genoptix basically has diagnostic tests to help understand who would benefit from certain medications, and all joking aside, this is a trend Money McBags has talked about before as medicine is becoming more personalized and we already saw CLRT being taken out, so keep your eye on these companies or others such as BRLI (and as always, keep your eye on these too).

In company news, RSH dove 11% as their CEO resigned claiming something about “you can just buy all of this shit on the internet” while JC Penney shot up 7% on news that noted hedge fund self-fellaters Bill Ackman and Steven Roth will be joining the board.  Ackman’s fund now owns 16.5% of the retailer and when asked what he would to to help Penney recognize value, he said “I’m going to take Eddie Lampert’s plan at Sears, and just do the exact fucking opposite of it.

In earnings news, MCD announced their Q and investors weren’t loving that MCD came up a penny short of analyst guesses of $1.16 per share thanks to snowstorms, rising commodity costs, and apparently taste buds.  MCD had 5% global comp store growth for Q4 but US comp store growth in December slowed to 2.6% as a result of the aforementioned snow as poor people had to spend their lunch hours digging out fucking driveways to earn extra money and thus didn’t have time to get their Big Macs on.  Guidance for January is 4% to 5% comp store growth, new items such as frappes and oatmeal continue to drive traffic, and the Hamburglar is still in jail for grabbing Grimace’s greasy fry (and thus causing him to literally grimace), so MCD remains a long-term, though expensive holding of Money McBags.  The one thing of which to be aware is that if you go to Argentina they are getting serious about collecting taxes, but the other thing of which to be aware is that MCD is going to be raising prices as the cost of meat is expected to rise as much as 3.5% per year according to the USDA and Peter North’s manager.  But remember, the Fed said inflation is minimal because according to core inflation, you can still buy shit you don’t need for the same price as last year.  The point is, rising costs are a huge theme for 2011, more so than Hayley Atwell‘s upcoming break out in that Captain America movie or the burgeoning Femen movement.

In small cap stocks, if you invested with Money McBags you likely spent all day salivating over the price action as if price action were your neck and you had Roger Ebert’s chin.  DTLK was up 16% (now up >50% in the 3 months since Money McBags pointed them out), RICK danced its way up ~5%, TMRK bounced back 4%, KITD stopped sucking and was up ~2%, shit even ININ, QCOR, CRUS (who Money McBags doesn’t own but is watching) were up 2%, and most importantly, the cute girl of the day was actually cute (though the lack of a bikini shot makes Money McBags think she may be hiding something, like a bacne or a gunt).  Mama always told Money McBags there’d be days like this, so hopefully you all got your dicks sucked with the rally (or for Money McBags female friends, a pedicure).

That said, if you follow Money McBags on the twitter, you can see he tweeted early on about a small stock, NEI, when it was up ~10% and it closed the day up 22% on almost 5x the daily volume.  Now look, this is kind of a shitty do nothing company but Money McBags used to own it a few years ago and actually met with management back in the day when Money McBags worked for the man (unfortunately, the man Money McBags worked for turned out to be a shit bag who cheated on his rich wife by fucking hookers off of craigslist, and that story never gets old, so Money McBags hopes that scumbag gets anal herpes and AIDS of the penis).

It’s not that NEI is a bad company, it’s just that what they do isn’t really all that differentiated and 75% of their revenue comes from two customers (EMC is ~50% and Tecktronix is ~25%).  Of course all of that is irrelevant right now because the company took a huge jump on no news other than an announcement almost a week ago that they are expanding their European manufacturing facilities, and as Money McBags pointed out with DTLK, when small companies make jumps like this, if they can build a base and not sell off, it usually means there are real buyers and something real is happening here.

As for the company, what NEI does is that they deliver application platform solutions which are “pre-configured server-based network infrastructure devices, engineered to deliver specific software application functionality, ease deployment challenges, improve integration and manageability, accelerate time-to-market and increase the security of that software application in an end user’s network.” Now Money McBags is no IT guy (though he would be “it” for Sara Jean Underwood) so his explanation of NEI’s business is likely way too rudimentary, but as far as he can tell, they basically take off the shelf hardware, like servers and then customize that shit for a specific client by adding software (usually off the shelf as well) which can be updated remotely and better meet client needs.   So if you need custom software on a server (like a financial services company), NEI will load the shit on for you, help you manage it, and then sell you a few years of servicing on the back end (and Money McBags would love to service this back end).  The point is, it’s not clear that there is a huge competitive advantage to what they are doing as they are basically just taking a lot of shitty busy work away from IT departments which is a nice cost save for companies, but it’s not like NEI is selling some hot shit product.

Anyway, EMC looks to be ramping up and introducing a new product, so perhaps that is what is driving NEI here because as EMC goes, so goes NEI (which you can see is what caused sales to slump in the downturn).  The company is now at a ~$60MM quarterly revenue run rate and has managed to keep operating costs in check ~$6MM per Q, but gross margin has slipped from 14% to almost 10%.  So if we say growth will be flat this year, gross margin will be 11%, operating costs stay flat, and NEI won’t pay taxes because of their NOLs, we get ~$.07 eps and ~$6.5MM EBITDA and with ~$15MM cash and no debt, that gets NEI to an EV/EBITDA of ~12x and an earnings multiple of 30x after today’s 20% run up.  So doesn’t seem all that interesting, even trading at 1/3 of sales.  But here’s the thing, they said they could grown revenue to $300MM to $400MM on basically the same infrastructure so there is huge fucking leverage in their model.  Let’s say this new EMC project takes off and they can grow revenue 20%, that gets them to $265MM and if we only tick up their op costs to $25MM, that would bring them to $.10 eps and put the company around 20x earnings right now, which again, isn’t really that cheap.  So what the fuck?

Well here is the fuck.  If this company can go from $60MM in revenue per Q (and guidance is for $59MM to $64MM) to $75MM per Q and hold costs flattish, then all of a sudden they are at ~$.20 EPS and trading at ~10x that with a nice balance sheet for what would be ~35% growth.  So is that scenario possible?  In the last few years, their growth has been 65%, -25%, and 50% so it is clear that they are basically at the whims of the market and EMC but if companies are going to spend on upgrading and adding new servers (which seems to the case right now), then perhaps growth can be maintained.

Anyway, Money McBags is just guessing on numbers there, he has no idea what scenario is right, but when shit names like this jump 22% on real volume, usually someone is on to something so spotting this shit early is key.  Fuck, if they can get to $300MM in revenue and put up ~35% growth, Money McBags could see people paying 20x for that and then all of a sudden this is a $4 stock which is almost 2x the current price.  So if NEI management is reading this (and why wouldn’t they be?  And shout out to SVP of Marketing Rusty Cone whose name could be a synonym for one of Joan Rivers’ boobs), they are welcome to email Money McBags at moneymcbags@gmail.com and help him better understand:

1. Their competitive advantage and who their competition is.

2. EMC’s new product release and the impact that could have.

3. Why the gross margin decline will stop here.

4.  What secret Oprah Winfrey is going to reveal (and Money McBags thinks that it will be that her real name is Dave and she pees standing up).

5. Why growth is real this time and not just a herky jerky hope for a big deal at the end of the Q like the last few up and down years (or what Jenna Jameson calls, her 20s).

Money McBags hates to be a trader, but good small cap investors have to realize when positive shit is happening at companies and if a jump like this can hold, this is a name with enough potential upside to buy.  So let’s see what tomorrow brings and then maybe dip our toes in to the NEI water.  Do some more research here but even with the 20% jump on no news (and that is the worrisome part to Money McBags because it is usually news that moves shit like this), there could still be a ton of upside.

1/18/11 Quick Update: Gone Fisting

Money McBags will be back with a full column on Wednesday night, unfortunately he had shit to do today (and more unfortunately, this wasn’t what he had to do).  It’s a long sordid tale, but see, Money McBags has no income stream right now, and that is no way to live, unless you are a clausterphobic anorexic with a severe case of vestiphobia and thus you are happy not eating anything while sitting nude in the open, or unless you simply hate fun.

Long story short: “Asshole.”  Long story a bit longer: Money McBags worked as a small cap generalist for a hedge fund that had good performance but shut down last year.  The problem was, the guy who was funding it was the fourth worst person ever born in the world, right after Hitler, Fred Phelps, and the asshole who invented television encryption (because Money McBags did not have pay cable growing up and this is no way to watch porn).  Anyway, this rich petulant assfuck treated the business as a fucking hobby and thus instead of marketing and trying to raise money, he spent his afternoons fucking hookers on craigslist (no fucking joke), which would be fine Money McBags guesses if the guy hadn’t made all of his money by simply marrying rich and managing not to get divorced even though he is scummier than Bob Guccione’s taint (that is when Bob Guccione was still alive).

So basically, this rich fuckwad couldn’t raise money because everyone hated him and then lost interest in the business so shut it the fuck down.  This has left Money McBags jobless (and with no severance, so thanks asshole, please die) and is what spurred the birth of the award winning When Genius Prevailed since it was intended to be a way for Money McBags to stay fresh for all of the interviews he surely would be getting.  Well funny thing happened on the way to prosperity, small funds stopped hiring, but especially stopped hiring generalists with no personal track record from failed hedge funds (even though performance wasn’t the reason for failure) so Money McBags became more fucked than Carmen Kinsley‘s sphincter.

As a result, Money McBags occasionaly puts on the monkey suit and goes to interview for jobs for which he is way fucking overqualified and pay less than he made three years out of undergrad.  It is a sad state of affairs and these interviews usually end with Money McBags blowing himself up because the thought of taking some meaningless douchenozzle job is not for what he signed up.  That said, eventually he is going to have to succumb (though hopefully not like Sasha Grey in Deep Throat This 44, and that pun may take awhile to hit you) which is a shame, since he not only can pick the fuck out of stocks, but he can analyze the shit out of them as well (and his readers should know this with KITD, QCOR, CTGX, RICK, ININ, among others.  Shit, he mentioned DTLK on 10/25 and look what the fuck it did today).  Money McBags has actually been very close with three small cap funds over the past year, but one thought he was too senior and wouldn’t be happy having to wait 2+ years to be a PM (even though he had the exact experience for what they were looking), one was long only and thought he would be unhappy not shorting, and one thought he could make them money, but they “didn’t feel a connection” (and you know what?  If Money McBags thought the aforementioned Fred Phelps could make him money, he could give a fuck about “connections.”).

So it’s kind of a shitty life for Money McBags right now (though he very much enjoys writing the award winning When Genius Prevailed which has continued to evolve and gain readers by the day).  He is a fine analyst (and has plenty of references as well as a public website with a year of fucking analysis and stock picks to prove it), he has all of the requisite boxes checked (except for this one) having graduated phi beta kappa from a top ten university, having earned one of those lame MBAs from a top three business school, and having become a CFA charterholder (and all you pantywipes at the CFA, notice how Money McBags didn’t say he is a CFA, but properly used the designation).  Money McBags knows people on the buyside and sellside read this, he gets your emails and suggestions for stocks to cover, so if you’re looking, Money McBags would happily strip out the dick jokes for an income stream because his lady friends are getting hungry and hoes gotta to eat too.

Anyway, after Money McBags is done washing the stench of corporate and failure off of him all night, he will be back with a full column on Wednesday where he will no doubt break down AAPL and their cocknornmous Q, discuss consumer spend and the difference between the haves and have-nots, break down DTLK’s pre-announcement, and perhaps even do as he tweeted today and try to figure out which is less believable, Shitigroup’s earnings or that Christina Hendricks is married to this d-bag.