Small Cap Talk: Flowtek Industries

April 22, 2008

I usually don’t dwell much into small cap company investments, but one exception is Flowtek Industries (FTK). Flowtek is a supplier of drilling products to the energy and mining sector. Their core business revenue comes from specialty chemicals that they sell to the oil services industry. These specialty chemicals help soften up the hard layers in the earth that prevent oil and gas companies from extracting the most amount of oil out of each oil well. Some of their big name customers include Schlumberger (SLB) and Haliburton (HAL), who uses Flowtek’s drilling products.

The reason for their dropoff from a high attained in October of $55/share to their current valuation of around $17/share is due to two straight quarters of missing analyst expectations. They missed expectations by $0.02 last quarter and $0.05 the previous quarter. Four analyst currently expect a $0.32 per share earnings during their next earnings release and a 39% increase in revenues in the same quarter from the previous year.

With oil prices at an all time high, Flowtek is poised to be able to rebound in the next half a year and should show some promising results as their specialty chemicals are their bread and butter product.

Notable Signs of Rebounding

  • 2 analysts have initiated this stock as a buy in the last 2 months
  • 3 straight years of increasing operating cash flow (note this company has been around since 1983)

What May Keep it Down

  • they have missed earnings two quarters in a row and being a small cap company, may take longer to recover toward beating estimates
  • any negative news hurts small cap companies much more than larger companies

All in all, I believe a lot of downside has been factored in and it’s a good opportunity to make 20-30% easily (especially at entry levels below $15). I have made 30% on Flowtek in the last month and so can you! I currently don’t own shares in Flowtek.


Application of Stock Picking Basics (2)

November 2, 2007

It is very easy to get carried away and buy stocks when the market is up to ride the positive upward momentum. But it is much more difficult to invest in declining markets. Declining markets provide opportunities to buy stocks that are oversold or undervalued. Investors need to realize the following points when investing in declining markets:

a) Make sure you have the cash available to invest in new options. This is why it is always a good idea to keep a share of your stock portfolio liquid on the sideline for major drops in stock prices.

b) Selling a stock at a loss may be necessary to get into another investment opportunity with more potential. If you think the stock you currently own can only go back up 20%, but another company has the potential for 30% gain, write down the loss for the year and make a better investment choice.

c) Keep your head up and don’t get discouraged by all the negative news because people will panic and it’s your job to find stocks that don’t deserve to be at their current valuations. Think of down markets as discounts the market is offering you.

d) Don’t just buy whatever has dropped the most, but still concentrate on what businesses have the best future growth prospects. Remember, some sectors are not very attractive markets to buy whether you’re in a bull or bear market. Right now, I feel that way about home builders and mortgage companies. Maybe a company like Home Depot (HD) would be a safer bet if you want a company that has some direct correlation with the housing market.

e) Mentioned in the Application of Stock Picking Basics (1), make sure you only invest in companies that you understand. If you don’t understand how the company makes money and will be able to increase profits domestically and globally, it doesn’t matter how much they are down.

The NYSE was down 2.6% (more than 360 points) and will probably feel some negative effects tomorrow with much uncertainty in the market. Stocks from all sectors got pummeled, and some stocks of note to take a look at that were down at least 4% are:

  1. Las Vegas Sands (LVS): -5.6% in regular session and -15.1% after hours to 106.402
  2. Peabody Energy (BTU): -11.3% to 49.47
  3. Wynn Resorts (WYNN): -4.0% in regular session and -8.3% after hours to 142.084
  4. Aluminum Corp of China (ACH): -7.1% to 68.02
  5. KB Homes (KBH): -6.4% to 25.88
  6. Merrill Lynch (MER): -5.8% to 62.19
  7. Flotek Industries (FTK): -28.3% to 36.45
  8. Aéropostale (ARO): -7.2% to 21.26
  9. Nucor Corporation (NUE): -6.6% to 57.91

There are so many stocks down over 4% today that it’s hard to pick and choose the “best” ones, but there are a lot of opportunities for investors who have the right mind set while others start to panic. Invest wisely!!