Here is What Works...

By: Tom Allinder
May 29, 2008

We are now in late May and often times it has been said that the markets weaken going into summer and remain weak until the fall. Many people go so far as to give up on buying and selling stocks once the kids are about ready to get out of school. Vacations, weekends at the lake, beach or in the mountains dominate people’s thoughts. For those not travelling over the summer, yard work, projects around the house and afternoons and evenings of swilling beer or sweet tea on the deck is a way of life… Such is life in America and there is certainly nothing wrong with it.

It is recognized that the small and microcap markets are weak and have been for many months. By weak, I mean that the number of stocks going up are dwarfed by the number of stocks either staying at the same price or those declining in price. Some people have given up altogether and moved on to something else. And now with summer at hand, the effect could be intensified by less volume. This could be considered to be a crisis situation for most…



Danger and Opportunity

In the previous paragraph, I used the word “crisis”. In the Chinese language, the western equivalent of the term “crisis” is composed of two symbols; one representing danger and the other representing opportunity. Danger implies some sort of risk; opportunity is self explanatory. Most people know that there is at least some level of risk involved with any opportunity. Buying and selling stocks has some element of risk but also an opportunity to make a nice profit on the trade.

China Yongxin Pharmaceuticals Inc. (OTCBB: CYXN), is a leading manufacturer, distributor and retailer of pharmaceuticals in Northeastern China. The Company just went public through a reverse merger which was announced on the 20th of May. On that day that the announcement was made, CYXN was trading in the low .80s. As of yesterday (28 May), the stock closed at $1.24, up .10 for the day. This represents about a 50% increase in price since the announcement was made public. Now, if you look around, there are not a whole lot of stocks that have performed this well.

The fundamentals on CYXN support the stock as well. Just yesterday, the Company reported gross profit of nearly $8 million and $5.3 million in net income for 2007. This is impressive no matter how you look at it. The Company’s revenues grew by 23% in 2007, and net income more than doubled. For 2008, the numbers are looking even better: net income increased approximately 53% from a net income of $503,054 for the three month period ended March 31, 2007 to a net income of $767,356 for the three month period ended March 31, 2008. But, the Company is not stopping there; they plan to open 108 additional retail stores in 2008. So, it becomes obvious that these are the sorts of companies that are the real opportunities in a “bad market”. The good ones still work; they are now just easier to spot because they stand out from the rest!

Separate Good Companies from the Not So Good...

When the market is “bad”, I have often said, this gives the investor that is willing to pay attention, do their due diligence and work hard the opportunity to find and invest in the good companies out there. Good companies can easily outshine the lesser companies in an environment that is considered tough by most people. But, how do good companies separate themselves? The answer is obvious to me but is seemingly not so obvious to many…

Growth, Communications and Structure

First of all, to stand out from the rest, a company needs to be growing or be right on the cusp of significant growth. Good stories are nice but unless a company is selling products or services, the good story will only take that company so far then it will collapse. You can’t take news releases or rumors at face value, you must look at the filings and determine if a company is in growth mode or not.

The second component is communications. I preach communications to all that will listen and many think I am a fool because as they say: “no one cares and it doesn’t work.” Well, let me tell you that those people that are complaining about things that don’t work are the same ones that are not making any money and are blaming the markets, the companies, the promoters, the short sellers and anyone else they can think of for their own lack of success. Communications between a company, its shareholders and the investment community is paramount to success in any sort of market. People must know that a company is growing and successful.

The third component is structure. What do I mean by structure? It’s simple: A company must have a manageable share structure in order to see not just short term appreciation but intermediate and long term appreciation as well. Companies that have a bazillion shares outstanding may get a one or two day pop on their stock but, with very few exceptions, their stock will return to its previous level or lower.

iTeknik Holding Corporation (Other OTC: ITKH), a leading provider of innovative worldwide communication services, announced just yesterday that the officers of the company have elected to exchange personally held stock, totaling more than 50 million common shares, for series A convertible preferred shares. This will effectively and immediately reduce the 87,187,606 common shares outstanding to 36,994,103. "We want to show the investment community that the officers have a very positive long-term outlook for the Corporation," said Jeffrey Lauzon, President of iTeknik Holding Corporation. "We are planning several additional moves in the near future to enhance shareholder value."

There is more to ITKH though: For the first 3 quarters of PY 2008, ITEK has generated over $11 million in revenue, turned a net profit of just over $100,000 with over $60,000 of that profit generated in the last quarter alone.

ITKH is serious about reducing their share structure and are in growth mode. They also announced recently that they had purchased a new switching system that was going to save money and make more money at the same time. In my opinion, these are the sort of “stories” that I am looking for… The principles outlined above are all tried and true methods for success in any sort of market environment. So, I will let the complainers complain, whine, moan and cry all they want. But the truth is, that the opportunities out there are greater than ever!

Tom Allinder
NewRiverFinGrp.com
tom@newriverfingrp.com

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