THE THREE AMIGOS
How we pick stocks
<Picture: 3amigos.gif (90198 bytes)>INTRODUCTION
ÿÿÿÿÿ The Three Amigos first met in cyberspace. We kept bumping into each other inside the myriad of "threads" that make up Silicon Investor, an internet cornucopia of investment topics and ideas. We found that we shared similar stock evaluation methods. More importantly, on stocks that all three of us liked, 80% to 90% of the time the stocks were successful. It was only natural for us to pool our interests together and maintain a mutual portfolio of long term investments and short term trades. While we've been successful on both short and long term plays, we take greater pride in our work on stocks that we feel are good enough to buy and hold for a while.ÿ
ÿÿÿ As with many other successful investors such as Buffet and Lynch, the long term method usually provides the safest opportunity. Not only do our picks have an opportunity of making a very good return, they present very little downside risk.
STOCK SELECTION
ÿÿÿÿÿ We prefer to invest in small companies - fully reporting small companies.ÿ Stock ideas come to us from news items, recommendations from friends and other sources. The source of the stock idea is not as important, as is the evaluation of the stock. We factor in the business plan, the balance sheet, the management, insider ownership, institutional following, the industry sector, the competition and how the stock is currently performing.
ÿÿÿÿ Business Plan/Management: This is THE "STORY" portion of the puzzle... the key to properly begin evaluating a stock. In order to accomplish our goal, we must first understand what the company does and what their goals are.ÿ We review the company's history, it's position in the marketplace and management's ability to steer the course. We must be convinced that theÿ story is solid and the goals attainable. Sources for this type of information include company filings, news releases, media coverage and most importantly....direct communication with company officials or a good IR firm. If we are convinced that the story is a good story, we dig deeper.
ÿÿ Balance Sheet: This is the part of the puzzle where the story meets reality. Is the company sufficiently capitalized to meet the demands of its business plan? We like to see a profit margin or the potential for a profit margin that exceeds industry averages and we keep an eye out for successful debt reduction efforts. We examine the historical performance ratios and the potential numbers. If the story passes the balance sheet test then we expand our examination.
ÿÿÿÿ Industry Sector/Competition: Our stock, so far a well funded story must get by the big bad wolf. Industry sectors turn hot and cold. We need to know the cyclical, seasonal, political, economic, technological, etc. etc. factors that affect the company's sector. We also need to know how the competition's products stack up against our company's offerings. This information is available in trade journals, industry magazines, financial newspapers company filings and through media coverage. The Amigos like to see that our good story, good balance sheet company has important and relevant alliances, increasing or potentially increasing market share, products and or services that are in demand and able to withstand the competition an industry maladies.
ÿÿÿÿ The Three Amigos now have a company with a good story, capable management, a balance sheet that indicates that the business plan is feasible and the company is sufficiently prepared to weather problems particular to its industry. How about the insiders and the investment community? Do they like the stock as much as we do? Our ideal investment has a minimum insider ownership of at least 10%, institutional ownership of at least 10% and is followed by at least one analyst. We also like to see that the company is interested in promoting itself in the media, conferences and institutional circuits.
ÿÿÿ Two stocks that fit our parameters are APCO and ANTX
ÿÿÿ We were hooked by APCO's business plan. The company offers first class service combined with an exceptional automobile warranty plan that is insured by a third party (mostly by Lloyd's of London) The Company made a commitment to stick to what they do best. Management or the head of Investors Relations has always been available to answer any questions we might have. APCO has continued to increase revenues by adding new dealerships, introducing new products and signing new agreements with strategic partners such as Allstate and Bank One.
ÿÿÿ With approximately 22 million in cash and no debt, it's safe to say that their balance sheet is something most companies strive for. Unlike their competition they have no loss of claim exposure making them more attractive. With less than 2% of the market share, growth seems very positive. Especially in a sector like automobiles. Cars are always going to be essential and warranties on both new and used vehicles are very appealing to lots of car buyers.
ÿÿÿ With insiders ownership at about 20% and recent increased institutional interest, APCO looks as if they have the market's attention. When you add recent new analyst coverage ( we bought before in anticipation of this) along with the two analysts that were already covering APCO, it makes the story even more appealing.
ÿÿÿ Another small company we like is Antex Biologics (ANTX).
We do not usually purchase bulletin board stocks, however, we feel Antex may provide HUGE profit potential long term. It is undiscovered and undervalued at this time.
ÿÿÿ Antex is a biopharmaceutical company with two proprietary patented technologies which they use to develop vaccines for bacterial infections and disease. These illnesses are becoming more drug resistant each and every day. The Antex technologies destroy the bacteria without drug use. Antex currently is working on 7 different vaccine candidates. 3 are in clinical trials. These technologies hold enough promise that SmithKline Beecham, Pasteur-Merioux (2 largest vaccine cos. in the world) and the US Department of Defense have signed alliances with Antex.
ÿÿÿ Antex's business plan basically calls for the alliance partners to provide all the necessary funding for trials. Antex will develop complimentary diagnostic and therapeutic applications to the vaccines. Antex is fully reporting and has a spotless balance sheet with no debt. Antex's Campylobacter vaccine (Phase II about complete) is now gaining attention from the national media. This vaccine prevents travelers diarrhea but Antex will also use the vaccine to develop animal applications. Campylobacter is found in 70% of live chickens in the US.
ÿÿÿ No other company has this. Two other vaccines have huge potential.
ÿÿÿ Overall, good management, excellent useful technology, solid financials, big alliance partners and solid business plan make Antex a solid risk/reward investment. |
