Since many people on SI don't following the Stockhouse thread I am re-posting a recent post with my response. The poster did not seem to know the background of JDX but did have valid points for researching a company.
From canoworms:
There are NO stocks without risk. Jordex is cash-rich.. Attractive to outsiders..Distracting for insiders.. (there are SEVERAL small public companies with healthy treasuries and management with conflicting views on how to spend their nest egg) Their indecisiveness
causes their stock to sell at a discount to its liquidation value. First there's TIME risk. Will the company take too long and miss the favorable market conditions? Will management 'flinch' and decide to sit on the money for a while? Will someone run off with the treasury?
(not likely, but possible.) Are management competent enough in this new line of business to succeed. (The failure rate in new ventures is horrendous). Is the business they're buying into VIABLE? (Or is someone pulling the wool over someone else's eyes). Lots to think about. And beware of technical analysis of junior venture companies. (especially at critical junctures like this). Patterns can be 'manufactured' to frustrate or foil novice speculators. Get to know the PEOPLE running the company. That's your key to the future of their stock. Do they have large holdings? (incentive) Do they sound genuine, competent and forthcoming? I am not a shareholder. I will likely miss this ride unless the train doesn't leave the station for a while.
I agree about there being no stocks without risk. However our job as investors is to look for opportunities which have minimal downside risk with the potential for large price growth. I personally see JDX as a stock with a very favorable risk/reward ratio.
there are SEVERAL small public companies with healthy treasuries and management with conflicting views on how to spend their nest egg. Their indecisiveness causes their stock to sell at a discount to its liquidation value.
I have been following cash rich pennies for since I started investing. Some of the latest group that I still follow include - AAD, ATN, BWD, CHB, CVL, ESX, FFD, FOR, GRM, GNM, HMB.A, IBT, KMC.U, COT/KWE, MAE, NGX, PVO, QMI, SCP, ONV, TCC, TKR, VLG, ZQP to name a couple off the top of my head. Although most of these companies are selling at or below their cash value I do not have an investment in any of them because of many of the same points you brought up. After watching dozen of lousy management teams bleed a company's bank account dry (e.g. MAR, IPJ, EAGI plus many more) I have become very careful about where I put my money.
It is often fairly obvious what direction these cash rich companies are going. If the bank accounts are steadily dropping, the burn rate is ridiculously high, the insiders have few holdings and are pulling down huge salaries and there is no evidence that work is being performed it is time to run for the hills. Many of the companies I mentioned above are in this situation. I follow many of them just out of interest sake…kind of like looking at a car crash as you drive by (just in slow motion).
All of my background research has suggested that JDX is not acting like the normal “cash rich junior” and is actually looking to increase shareholder value instead of management bleeding the company dry through several of the well know “cash disappearing acts”.
JDX has $2.1 million more cash now than they did this time last year ($700,000 for a private placement from insiders). During the last 8 months the insiders have purchased over 4 million shares on the open market. The burn rate of JDX is very low ($140,000/3 month) and the insiders salaries are at the low end of the business scale. Management has shown incredible good timing at selling assets at peak market prices (Loma de Niquel) and conserving cash when the market turned down. This does not appear to be a company looking to bleed the treasury.
First there's TIME risk. Will the company take too long and miss the favorable market conditions? Will management 'flinch' and decide to sit on the money for a
while?
I have no date when management will announce the new business. The recent deal with Medsite.com has already shown that management is out there working and not afraid to spend cash when a lucrative deal comes along. At the last AGM in April, management was very up beat and promised that they would have a new and viable business far before the next meeting. If you call JDX they will tell you that they expect to announce the new business deal before the New Year (less than 6 months). Although I would like for management to close a deal as soon as possible I also want them to do their homework and get the best bang for the buck.
All evidence indicts that JDX is actively looking for a new business deal. Mr. Staubt was hired on as a director at JDX 6 months ago for the sole reason of finding a new business for JDX. Mr. Staudt has been in the buyout business for over 25 years and is accredited with finding several great businesses for cash rich shells. Their balance sheets show that they have spent $170,000 in project evaluations during the past 6 months and according to JDX they have been close to closing several deals but couldn't work out favorable terms. Since JDX's management are experienced promoters I am hoping that the announced the deal during the normal fall junior run-up which will give the favorable market conditions you are referring to.
Will someone run off with the treasury?
I have seen this happen with several junior cash rich companies (e.g. MAR). However you can usually see this type of activity years in advance. Although the negative burn rate (after interest credits) and small salaries are one positive signal with JDX I think insiders recently buying 4 million shares on the cash market and taking down two private placement is a good indicator that they don't intend on running off with the treasury. It is not hard to steal $3-4 million out of a company but it would be a lot harder to make $23 million plus disappear.
Are management competent enough in this new line of business
to succeed. (The failure rate in new ventures is horrendous). Is the business they're buying into VIABLE? (Or is someone pulling the wool over someone else's eyes
This is always a risk. Management intends to merge with the existing management of another company in the technology or internet sector. Shareholders can only hope that JDX's management does enough research into the new business to make sure it is viable and that the management team of the other business is competent. Mr. Staudt has 25 years experience in the buyout business and Mr. Hinchcliff (president of JDX) was a vice president at Goldman Sachs so I hope between these two individuals they have more than enough experience and knowledge to find a great deal. Because finding the best deal is time consuming I don't mind that JDX has spent a little extra time looking.
And beware of technical analysis of junior venture companies. Patterns can be 'manufactured' to frustrate or foil novice speculators.
I couldn't agree with you more on this point. Although I have posted the odd technical comment on JDX's chart, if you are familiar with my posts on SI technical threads I always tell individuals not to read too much into the short term chart formations of pennies. However looking at the long-term chart formation can often give you a good feel for where the stock is headed. It is easy to manipulate the price in the very short term but unless the stock is illiquid it is far harder to manipulate the price in the longer term unless you have some very deep pockets. For the time being it appears that JDX's downtrend is over but I am still relying mostly on the fundaments for this stock and not as much on the chart.
Get to know the PEOPLE running the company. That's your key to the future of their stock. Do they have large holdings?
JDX's management presently holds over 6 million shares purchased close to the current market price and several million options that are out of the money. This alone should give them motivation to increase the share price.
I have done a lot of research into the backgrounds of the PEOPLE running the company.
Brian Hinchcliffe is a well-respected businessman with a history of timing business deals perfectly. Being a past vice president at Goldman Sach says a lot about his business abilities.
Carlo Civelli is the promoter out of the group. Although Carlo's doesn't have the cleanest record he has a very long history of running up companies huge that he has a large stake in. For example, in Jan. 1998 he took down a large private placement for NIR at .20. In May of 1998 NIR hit $4.88. The companies he promotes are not just pump and dumps…for example in August 1996 he took down a private placement of 100,000 of NMR at $1.76. In Feb. 1997 NMR hit $8 and is present at $6 and there are several other companies that have had longer term price appreciation. All my research indicates that Mr. Civelli has a history of always making money on his investments. Of note is that Mr. Civelli's current holdings in JDX are larger than the stake he had in the dozens of companies that I investigated that Mr. Civelli had taken a private placement in during the past decade and had a hand in promoting
William Staudt is the business hunter of the group. He has a long history of finding the right deals for the right company. He is probably most well known for finding new life for a cash rich NASDAQ shell. Mr. Staudt was hired on as a director in a shell company on the NASDAQ with $15 million in cash selling at cash value. He was hired to find a new business for the company (sound familiar). Within a year he found a new business plan for the company. Two years later the company was takeover by a European company for $240 or 16 times its initial value.
I hope I have addressed some of your questions and concerns about JDX. I would hope that all shareholders/investors do similar due diligence when they invest in JDX.
Best Regards
KEITH |
