December 2011


This post describes the methodology [as far as the signal] and position management on the purely ‘swing’ element of the newsletter methodology.

The signal is a weekly call, not a call that is based purely on price, particularly not the ‘last price’. This way of trading is apt and applicable to ‘daytraders’ but very few to none of everyone else.

Focusing on “Change on Day” is like focusing on the score of any one quarter of a football game(innings in baseball, periods in basketball/hockey/soccer, pick your poison); ridiculous even for a bettor. Yet the default scoring method from quote providers and the media is the distance traveled since 4pm yesterday. I care about price change since a major pivot, over the last 5-10 days, over a rolling quarter. Since yesterday? Not so much. Just like a sporting event, yes, a significant quarter or inning could make the difference in the game but there are better measures that indicate shifts without noting an endless stream of false indications. The default way in which I first receive price data, to me, amplifies the potential for distraction.

The second report will be put out over the weekend. It will be free again this weekend, partly while I get the various bits & bobs sorted out, partly also while I finalise the format, and lastly, just to let everyone have a look.

The ‘numbers’ are toxic. Rarely do you see, except in the biotech’s such risk.

On the ability to create value, measured through a return on equity, the returns have been falling over the 4 yrs of statements to the current [-30.91%] The stock currently is creating no wealth, it is destroying it.

Cashflows are all negative, pushed even further into the red by capital spending requirements. This makes the stock totally dependent on outside financing, either debt, or new equity raising via additional shares, or some other method: grants, subsidies, etc.

This makes the liquidity risk enormous. The chance for bankruptcy is ever present. For all intents and purposes, it is bankrupt, so dependent on additional capital is the operation.

Not included in the numbers is the ‘what if”? What if it actually delivers the product that it is researching/developing? Diagnostics are not as sexy as ‘cures’ or rather treatments. Obviously this won’t necessarily impact revenues, but it may impact the multiple assigned to those earnings.

This is either a home-run, or bankruptcy.

The so called ‘golden cross’ probably works as often as anything else.

Of course, the requisite Ducati

A Kawasaki

Gixer

The MV designed by the chap that originally designed the Ducati

China will withdraw its support for foreign capital in the country’s auto-manufacturing sector in an effort to build up its domestic industry, state media reported late Thursday.

The report from the state-run Xinhua news agency didn’t disclose additional details, and it was unclear whether it would impact existing operations by foreign auto makers. U.S. and European auto makers, including General Motors Co. and Volkswagen AG, and Japanese auto makers like Toyota Motor Corp. and Honda Motor Co. have long produced cars in the country through joint ventures with local partners.

Expect this ‘type’ of sanction to increase into 2012

The last time we heard from Codexis, we took a look at the firm’s financials, which all kept pace with estimates. Codexis offers an interesting business model in that the firm focuses solely on developing custom yeasts and other biocatalysts. Currently Codexis is paying the bills by producing high-dollar petrochemicals for the pharmaceutical industry, but has been actively trying to enter the biofuel market by developing yeasts that break biomass down into sugar as part of a research agreement with Royal Dutch Shell.

That research has paid off in Codexis’ newly announced CodeXyme cellulase enzyme product line. The new enzymes are designed to produce sugar from cheap, local feedstock sources. A cheap sugar supply is key for Codexis, whose other biocatalyst work is focused on producing high-value, sugar-alcohol-based industrial petrochemicals.

It also means a potential new source of revenue for Codexis’ customers. Codexis has a partnership with Raizen, Brazil’s largest sugar producer and a massive ethanol producer. With Codexis’ new enzymes, Raizen will be able to convert leftover biomass from sugar production into ethanol, freeing up more of its sucrose to sell in the sugar market. According to Biofuels Digest, Codexis CEO Alan Shaw has priced the leftover biomass from traditional sugar production at $50 a ton, or as low as $10 in Raizen’s case, which, in his eyes, is like “making gold from dirt.”

This is the one to watch. The technology is just about there. With Congress failing to renew the corn ethanol subsidies, that competition is gone, leaving the door wide open to CDXS and its competitors, which aren’t that many.

With the backing of Royal Dutch Shell, capital is not an issue, nor is the risk of bankruptcy, failure to raise working capital etc. This one is fast reaching its time.

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