Like any investor, I love making a profit.
But I have a confession to make. As your basic, nosey ex-journalist, I love the research that leads to that profit almost as much.
That affinity for research and digging goes back to my newspaper reporter days – so we're talking about a set of habits that date back nearly 30 years.
If you don't believe me, just ask my wife: She long ago learned to accept my coming home each night with a briefcase stuffed with printouts – and got used to our kitchen trash can being filled with ground-down, dried-out, fluorescent-yellow "Highlighter" markers.
The reason I like research so much is because it's a relatively simple way to put the odds in your favor.
There are always going to be wildcards you don't anticipate and factors that you couldn't possibly know. But the more you do know about the trends, companies or trading opportunities you're playing, the stronger your odds, and the more successful you're likely to be across your portfolio.
Fortunately, research is one of our strengths here at Money Map Press.
And here are some of the insights we uncovered yesterday.
Let's start with LeapFrog Enterprises Inc. (NYSE: LF). LeapFrog shares jumped as much as 6% yesterday (and closed 4.33% higher) – the same day we profiled the educational-toy company in our Private Briefing column: "This Bargain Stock Just Got Cheaper."
The company's product portfolio consists of multimedia learning platforms and related content and learning toys. LeapFrog's stock is currently selling at nine times earnings – roughly 30% less than stocks in general, is debt-free and has about 10% of its market value in cash.
As we told you back on Nov. 28, the latest Securities and Exchange Commission (SEC) filing showed that LeapFrog company leaders spent more than $845,400 to buy more than 109,000 shares of the company's stock out on the open market earlier in the month. CEO John Barbour spent more than $108,000 to buy 15,000 shares himself – and the average purchase price of $7.23 is only slightly below where the stock closed Thursday.
Wall Street currently has a one-year consensus target price of $14.40 on the stock – more than 80% above where the stock closed yesterday. And several analysts have a target price of $15 on the stock.
Cyclacel Pharmaceuticals Inc. (Nasdaq: CYCC) – featured in the Dec. 5 briefing "Are These the Next Two Biotech Blockbusters" – said it's entered into a common-stock-purchase agreement with Aspire Capital Fund LLC in a move that will help Cyclacel finance its Phase III clinical trials for its leukemia drug Sapacitabine.
The agreement calls for Aspire to purchase up to $20 million worth of Cyclacel's common stock – as directed by Cyclacel. Aspire apparently already invested its first $1 million at $6.29 a share back on Dec. 13 – immediately after executing the purchase agreement
Aspire is a Chicago-based investment fund that makes direct investments in publicly traded companies in many different industries. It targets "companies whose prospects are bright, but who need additional capital to fuel their growth."
That's a pretty good description of Cyclacel, a blood-cancer researcher we believe holds great promise. As we noted, financing was key. And this should help.
One other point worth noting. We talk a lot about how insider buying is an important indicator of a stock's upside potential. Outside investments like this can serve as a similar sort of indicator for you.
Indeed, in our 1998 book "Contrarian Investing: How to Buy and Sell When Others Won't and Make Money Doing It," co-author Anthony Gallea and I said that major investments by what we referred to as "knowledgeable outsiders" could serve as a close proxy for insider buying.
If you think about this, it makes a lot of sense. Before it releases even a penny, you know that a fund like Aspire gets access to the target company's books, gets multiple lengthy sit-downs with the top executives, and gets detailed briefings on anything the company might be working on.
I've come across Aspire before and have seen it make investments in energy firms, biotech players and other up-and-coming ventures.
The consensus target on Cyclacel is $17.50 – which is roughly 180% above where the stock is trading right now. I think that's probably a bit optimistic, and you have to remember that this is a high-risk stock. But if there's a successful trial, a partnership or an outright buyout, a double isn't out of the question.
Goldman opened with a "Neutral" (essentially a "Hold/Buy Selectively" rating) and a target price of only $11 (about 9% above yesterday's late-afternoon trading price) – a combination that seems rather tepid on its face. But the fact that Goldman weighed in at all is telling. The investment bank is hedging its bets here: If the stock falls a bit from here, it can point to the noncommittal "Neutral" rating; and if Molycorp shares were to run, it can still come back with a "See, we told you the stock was going to move."
This "Sell Side" pronouncement tells me that the institutional money sees more upside than downside in Molycorp's stock, meaning the "Buy Side" has already established positions.
The Goldman missive says analysts finally see a beginning payoff on Molycorp's mining operation ramp-up. And it also likes the company's plan to create "downstream" value-added products – such as specialized rare-earth magnets for alternative-energy vehicles.
But it cautions that the soap opera in Molycorp's executive ranks slightly offsets those positive developments.
"Molycorp stock returns remain tightly correlated with commodity rare earths pricing, and we see potential value in the company's growing leverage to higher-value, downstream products (e.g., 65% of earnings in 2013E), as well as share gain potential in China," the analyst report notes. "That said, our positive view is balanced by management uncertainty and execution risk ahead of a big capacity ramp in early 2013, and we await visibility into achievable cost targets to get more constructive."
Again, we don't follow analysts' leads. But we find it intriguing when they start to buy into an opportunity that we've been telling you about for some time.
One last point: Schaeffer's Investment Research yesterday reported another surge in bullish call-option buying on Molycorp shares. The last time this happened, the stock spiked shortly thereafter. That's not to say it will happen the same way this time, but it is an observation worth noting.
[Editor's Note: We generally recommend investors employ a "trailing stop" of 25% on all holdings.]