Stock Market Research Report, Penny Stock Research Report

1)Friday April 8, 2011

If you've been with me for a while you will recognize that we have been very fortunate with my oil and gas picks. Usually only one or two per year and they end up being bought out. The past few months however we have ramped up that oil exposure to take advantage of the very strong outlook for oil

In 2009 I picked Highpine (HPX) near $3.80 and within 3 months it was bought out for $7. Next pick was Great Plains (GPX.T at $0.28) and while we received $0.48 on a buyout by Sept 2010, the price was lower than expected because of excess dilution in the summer.

Prospex (PSX.T $2.35)
www.psx.ca

This was my next pick in October 2010 at $1.25 and from day one I have said it would likely be bought out within a year. Initial target was $2.50 to $3.00 but this morning a buyout has been made for $2.40.

While we have now made almost 100% within six months, I personally think we're getting shafted. The company is very heavily weighted to natural gas (which obviously hurts the valuation) but their book value was over $3, they increased production significantly in 2010, and they recently announced they should be able to grow (minimal) 2011 year end production to at least 6000 boepd.

Even with all these "positives" and stating earlier they would shop the company around because they felt it was so undervalued, the board of directors this morning has accepted a ridiculous $2.40 offer (or share swap) from natural gas heavyweight Paramount Resources (POU.T $32.60).

What I find particularly annoying is that management and directors have voted unanimously in favour of accepting this deal from Paramount. They only own 5% of the outstanding stock !! How can this decision to accept such a low offer be in the best interests of the other 95% ?

I agree that pricing for natural gas is weak, but the outlook (because of nuclear) just started to improve and they stated publicly they would increase their weighting to oil - which is now over $110. This seems like a very opportunistic bid that benefits no one but Paramount. I am shocked that this is the best PSX management could come up with.

Normally I would personally sell into the open market, take the cash and the gain, and then look for other areas to invest the money in - as I have no interest in owning a $32 natural gas stock (Paramount). However in this case, I am waiting until the shareholder vote in May to see what general consensus will be.

If the majority vote in favour, I will sell then. Otherwise I will hold out for a better offer from Paramount or someone else. If nothing decent by summer I will sell regardless. For now I am treating this Paramount price of $2.35 as the new benchmark and we'll see if there is any decent value in natural gas or not.

2)European Central Bank our White Knight / Porto & Canaco

It has been a tough uphill fight through paper the past two months but our gain onPorto (PEC.T 18 cents) hit 130% today. We caught the historical bottom on the stock in July but my plan is to hold until we see results on the well currently being drilled.

It may be wise for subscribers to take gains along the way but I am rolling the dice on this one in hopes Porto catches a lucky break from mother nature - I estimate odds of drilling success about 50/50 based upon their 3D seismic. We will likely see some speculation ahead of drilling (target in about 7 weeks) but there could be some shakeouts along the way - which may be volatile because people will think there are drilling problems (which are always a real possibility).

These high impact oil & gas speculations are not easy to make big money on. There are many things that can go wrong and it will take some nerves of steel the next couple months. If a person gets lucky on the drilling and can stomach the volatility enroute, the gains are well worth the stress - but don't expect it to be an easy ride from here.

Thursday the European Central Bank finally admitted that Europe's debt crisis had reached a critical level. And they did what everyone has been waiting all year for - announce that they are prepared to print paper to save the euro.

The Bank Chief committed to buy the bonds of troubled countries. This monetary stimulus is not a long term fix but removes substantial short term risk that has been hanging over higher risk speculations (penny stocks) for 18 months.

I noted a couple weeks ago in an email update that the small stocks were starting to clean up and we appeared to have survived the worst of it. On Thursday's news the better quality companies owned by the big ETF funds moved marginally but there is a huge amount of room for the stocks to gain as we move forward.

GDXJ gained 3.6% - junior miners ETF
NUGT gained 7% - gold miners ETF

Pinetree (PNP.T $0.95) which contains a couple hundred exploration and production juniors across various sectors, has been unable to break 0.98 since early June (at that point it had been on a slide since January). So we will be looking for a move through $1 to indicate more broad based buying next week.

My junior gold valuation table of approx. 60 companies was showing an average of $ 41.01 early in the week - on Thursday it moved up only marginally to $42.11 - but there was a very noticeable increase in dollar volume for many of the stocks.

The 90 companies on our cash rich list have only moved up 2% to 5% since late May - that month was close to a low in valuations for the past 18 months (other than July) so we have a LONG way to move from current levels.

Stocks like Levon (LVN.T $0.54) we started following in May at 35 cents and as low as 31 cents this summer in updates. We have seen significant gains the past month because of the move in silver but now given their large cash position and resources, we should start to see better gains if the overall risk appetite increases - because there is estimated to be Trillions in cash sitting on the sidelines globally.

Canaco Resources (CAN.V 34 cents)
www.canaco.ca

Shares Outstanding: 200 million
Net Cash: $95 million / 47 cents per share

Canaco management as I have discussed in the past, desperately needs to be replaced. Likely this won't happen and because of that, big shareholders have continued to sell paper all summer. This has kept our gains near 10% but I still think this is a good one to tuck away from this level.

Even you ignore the incompetent management team, it is hard to ignore the numbers. A move back to cash value alone is worth a 35% gain and if we give them $20 per ounce for 50% of their gold project in Tanzania, that could be worth another 5 to 10 cents. It appears one of those stocks that is a laydown to make "something" in a decent market.

If they ever made good use of that $95 million we would make a lot more - but I don't have a lot of faith this management is capable of doing that so it is hard to speculate on that side of it.

They partnered with the Chinese this summer so that might bring more value. If you haven't bought anything the past few months, this might be a safe one to dip your toe in the water without incurring a lot of risk.

http://www.canaco.ca/i/pdf/CANpresentation.pdf

3)Tuesday December 13, 2011

Takeover Offer for Crocodile Gold at 60% Premium

I know cash has been tight for many of you but I sure hope a few were able to take advantage of my report two weeks ago on Crocodile Gold. I took some flack for this one from a few professional money managers who said I must be out of my mind for writing CRK up -in fact, I had to follow up with another report the next day to further explain myself (although I am still not sure why I felt that was necessary).

Well for all those Crocodile Haters - the company has a takeover offer tonight and anyone who bought will have made 60% in two weeks. I know these little stocks have been terribly frustrating lately but this takeover is the perfect example of why my bottom fishing strategy makes sense in this market. I expected we would wait one or two quarters into 2012 for "any" type of decent bounce on CRK but the whole point was to manage risk and target realistic gains for next year.

As I indicated at the time, CRK also gave us the opportunity to lock in tax losses on less attractive companies, and re-deploy the money into something stronger. Hopefully that worked for a few of you.

Tonight's offer on a "per ounce basis" is still terribly low but I have been saying since summer that junior gold stock speculators need to have a much more realistic outlook on valuation. The Croc offer only re-affirms that companies are trying to build ounces as cheap as possible - and unfortunately these offers are very opportunistic. Luxor Capital is the large shareholder making the offer and depending upon what the board suggests, we "may" be able to hold out for a higher price.

Even with the beating gold has taken the past week, I still think these golds are going to bounce back in January (somewhat). If that occurs before this goes to vote, then we might squeeze out more. Personally I am going to hold my position for a month or so and see what transpires. Either way, the 60% should be a lock-down.

Crocodile investor Luxor to make 56-cent takeover offer

2011-12-13 18:57 ET - News Release

Investment funds that Luxor Capital Group LP manages intend to directly or indirectly initiate an offer to acquire up to 215,386,435 common shares of Crocodile Gold Corp., which, together with the common shares already owned and controlled by funds managed by Luxor, would constitute approximately 85 per cent of the outstanding common shares. The purchase price under the offer will be 56 cents per common share in cash.

The offer represents a premium of 60 per cent to the closing price of the common shares on the Toronto Stock Exchange on Dec. 13, 2011, the last trading day prior to the date of this announcement. It also represents a 61-per-cent premium to the volume-weighted average trading price of the common shares for the last 20 trading days prior to the date of this announcement.

Original November 30th MicroCap.com Report

Assuming Wednesday is indicative of a near term bottom, I am introducing another company in the gold sector as the commodity continues to look great. Just keep in mind that microcaps will need to eat through three more weeks of tax selling.

The following is a very interesting bottom fish in the gold sector. Their gold in-ground valuation (especially for a producer) is extremely attractive and their chart position makes it a good one to do some portfolio shuffling.

Because it trades in the $0.30's a person can sell something less appealing in their portfolio and possibly swap it out for this one. For example, you might own 10,000 shares of XYZ stock trading in the $0.20's, $0.30's or $0.40's. If you paid substantially more and could use the tax loss, you would sell XYZ and re-invest in CRK and get a similar number of shares in a stronger company (in theory).

The risk in this strategy is that CRK remains stable or drops heading into January, while XYZ moves higher.

Crocodile Gold (CRK.T $0.36)
www.crocgold.com

Crocodile is a Canadian company with operating gold mines in the Northern Territory of Australia and a land package of over 3,300 sq. km. They are currently producing from the Howley, Princess Louise, North Point and Mottrams open pit mines. The flagship property for the company, Cosmo, is currently being developed as an underground mine with production ramping up into 2012.

Crocodile Gold has 3.2 million ounces of NI 43-101 compliant measured and indicated resources and 2 million ounces of inferred resources. Their main focus is on the Cosmo/Howley corridor which contains a substantial amount of the Company's resources within a five kilometre strike length of a 25 kilometre trend.

52wk High $1.63 Low $0.32
Shares Outstanding: 320 million / market cap $115 million / Financials as at Sept 30th
Cash and Receivables: $60 million / Inventory $9 million / Plant and Equipment $38 million
Accounts Payable: $15 million / Provisions $14 million
Last financing March 2011: $81 million at $1.05 with $2.25 warrant

Nine month revenue: $90 million ($3 million operating loss)

Very Attractive Gold Ounce Valuation

I am offsetting their $14 million in provisional liabilities with their inventory and ignoring the value of the plant and equipment. If we then take their $60 million in cash & receivables less the $15 million in accounts payable, we are left with $45 million.

Subtract the $45 million from their market cap of $115 million and the market currently values their gold resources at $70 million. We will assign 80% of that value to measured and indicated (M&I), and 20% to inferred.

I. M&I $70 million x 80% = $56 million / 3.2 million oz. = $17.50 per ounce
II. Inferred $70 million x 20% = $14 million / 2 million oz. = $7 per ounce

Heavy rainfalls last year this past year hurt Croc's production targets and operating costs. The company hopes to turn this around in 2012 but even without this, the underlying value of their gold is incredibly low for a producing company with large reserves in a stable country.

The large share float is hurting their share price even worse than normal but I am convinced there is substantial opportunity here.

WE ARE ALSO ADDING VICTORIA GOLD

Victoria Gold (VIT.T $0.36) - volume 256k
www.vitgoldcorp.com

Shares outstanding: 341 million
Yukon Gold Project: 6.3 Million Oz. (valued at $14/oz)
Cash: Approx. $30 million
Institutions own 65% including Kinross at 16%

Victoria Gold is targeting the Yukon's first new gold mine by 2014. Production would be 175,000 ounces per year with cashflow in excess of $200 million annually at current gold prices.

Corporate Presentation:
http://www.vitgoldcorp.com/site/vitgoldcorp/assets/pdf/VIT_November_Corporate_Presentation_V4__3_.pdf

I am not a fan of the shares outstanding but it doesn't take away from the grossly depressed value of their gold ounces. This is another one that really stands out from the table I posted last week on ww2. Their last financing was only 2 months ago when they raised $30 million at $0.46 with a $0.55 warrant. I find it very frustrating to see these companies financing when prices are so depressed at it really hurts existing shareholders who paid much higher. However, so long as we are on the bottom-fishing end and not the ones being thrown to the sharks, it is a mute point for the time being.

The company hopes to release a feasibility study in Q1/12 and targeting a mining license by Q3. They estimate initial capital cost of $350-million to build an open-pit mine at Dublin Gulch, with mine life at 40 years. In Nevada, they are also drilling a project which is adjacent to Barrick's recent discoveries.

4) Adding Espial as a Very Attractive Long Term Speculation(Potential Takeover Target)

Espial (ESP.T 45 cents)
www.espial.com

I came across ESP a while back but have been unable to discuss the company because it is one of the thinnest traded stocks you will find. If you bring up a chart you will see a stock that almost trades by appointment only. Under normal circumstances I cannot write something like this up because of the incredibly poor liquidity. The risk is that you buy it, and then cannot sell it for a fair price if you need the cash.

So be forewarned, unless you can tuck this away longer term into 2013, I wouldn't touch it. This note today is only because someone has a block of stock for sale at 45 cents AND they released another very positive news release today. However, because of the liquidity issue the past several years, few ever want to touch it - regardless of the news releases.

Currently there is 145,000 shares for sale at 45 cents. This creates very much needed liquidity. Over time maybe the liquidity will improve, but right now this is a stock you would buy and tuck away longer term - literally waiting for a takeover.

With only 14 million shares out, the market cap at 45 cents is $6 million. They are currently on track for $16 million in annualized revenue. However, their technology and software for Televisions appears to be one of the best in the world and today another major partnered with them - Panasonic Semiconductor.

Espial has been in business since 1997 but for the past few years they have been way ahead of the curve with intelligent television or display technology - their browser technology is used in televisions, mobile devices, and automobiles.

So far they have 2.5 million licenses in use for their patented technology but there are several major manufacturers preparing to roll out new devices that will incorporate Espial technology. This provides a long term (and very stable) revenue stream that should keep growing.

Given the strength of the technology and the future growth potential when working with so many majors, this stock should trade as a minimum near 1 times current annual revenue. In theory that is $16 million / 14 million shares outstanding = $1.14 per share. Even trading 2 times annual revenue or $32 million / 14 million outstanding = $2.28 per share.

Fair Value right now should be in the range of $1 to $2 per share.

Those valuations assume no significant growth in licensing revenue - yet they have a LOT in the pipeline over the next year or two as major TV manufacturers start rolling out interactive televisions that incorporate Espial browser technology.

The partnership announced today with Panasonic Semiconductor validates them as the industry leader in this space. And it isn't just Panasonic they work with, but several of the biggest names in the industry.

FROM LAST FINANCIALS....

$13.5 million cash and receivables
$3.7 million current debt / $3 million long term debt
net = $6.8 million

annualized revenue approx. $16 million
$3.8 million last qtr / positive earnings approx. $200k for qtr

With only 14 million shares out, the stock price at 45 cents provides a market cap of $6 million. This is also the same as their net cash value as shown above.

This means that (at 45 cents) a person can buy the company for net cash value and let the underlying technology, licenses, and growth potential for nothing. If they keep growing they should eventually attract some outside analyst coverage but otherwise a person would want to tuck it away and hope for a takeover by a major semiconductor company.

There is rarely a block of stock available so this selling at 45 cents appears an important event. In theory more could show up once this is gone - but it's impossible to tell.

Just don't forget that once this paper goes, a person will be holding a very tightly held stock that will require a LOT of patience. It appears that this valuation is incredibly low and in theory the long term gain potential is very strong. However, it will require locking the money up - that is the trade off.

ABOUT ESPIAL

Founded in 1997, Espial Group Inc. is a leading provider of on-demand TV software and software services including programming and technical support to telco, cable and hospitality operators as well as to consumer electronics manufacturers.

Espial's intelligent and open standards software is used across the world by cable operators (MSO), telco IPTV operators, hospitality operators and consumer electronic manufacturers. Its middleware, browser and video-on-demand solutions provide superior service delivery, advanced service innovation tools and the ability to serve a wide range of market segments - including over-the-top, IPTV, hybrid IP, multi-dwelling unit and enterprise.

With over 2.5 million licenses of its patented technology in use, Espial is a leading supplier of TV software. Its browser products are also deployed in automobiles, mobile devices, TVs and a wide range of other devices.