|edig mention:Analyst Profile |
For our final profile of the year, TipReporter is proud to bring you an in-depth interview with Peter Scott, president of Stock News Media Corporation, and co-founder of one of our favorite websites, OTC Net Stocks.com (OTC).
OTC Net Stocks is a credible source of information on high tech OTCBB stocks. Peter and his partners have done a terrific job in producing a well-designed website with a wealth of research resources, such as CEO interviews and the Focus30, that you'll find nowhere else. Believe or not, the markets will go back up again. When they do, I believe that quality high tech stocks, which have been beaten down so badly this year, will once again lead the way. Peter's "3P/3C" strategy is one way to identify the winners now, while they're still priced right. Read on for more!
TR: How long have you been an active investor?
OTC: I have been actively investing for about 15-years, with the first ten years being predominately in blue chips, bonds and some occasional options strategies for risk management. My partner, Ed Koziol, has been investing for about 25-years, successfully utilizing both blue chips and speculative investment strategies.
TR:What are your credentials?
OTC: I Have a degree in Finance and Economics and have been both a Certified Financial Planner and an Adjunct Instructor of Financial Planning for the University of Central Florida. My previous experience has afforded me the opportunity to own two businesses; a financial and money management practice and a business consulting practice. Prior to that, I worked with the nation's largest savings and loan and a Washington, DC-based financial planning firm.
Ed has had the opportunity to own several very profitable businesses, starting them from scratch and developing them into multi-million dollar operations. He has also been a financial consultant for two of the country's largest financial institutions, as well as co-founding a business consulting practice with myself.
TR: What kind of experience do you have in investing, accounting, management or private business?
OTC: Again, we have both been responsible in managing money for private clients, as well as starting, operating and building multi-million dollar businesses in the financial, marketing, and construction fields.
TR: What kind of securities do you specialize in?
OTC: Currently, we specialize in small and microcap securities that trade on the NASDAQ, American and OTC BB markets. While we enjoy some of the great stories that come out of the technology and biotech sectors, we do not limit our scope to any one particular sector.
TR: How long have you maintained an investment newsletter and/or website?
OTC: We initially launched our site as www.OTCInternetStocks.com in December of 1999. In June 2000, we redesigned the site and relaunched it under our current brand, OTCNetStocks.com. Before that, our money management practice was confined to a small private clientele.
TR: OTCInternetStocks was originally designed to track OTCBB companies that were Internet-related. How did you change the focus of the site with it's re-launch in June?
OTC: The change went hand-in-hand with the so-called bursting of the dot com bubble, combined with a huge number of requests from our subscribers to increase the focus of our site. Someday in the future, we will probably go back to a strict Internet focus as we are able to launch and maintain other sites that we want to develop. We currently have plans to launch other industry specific sites in telecom, technology, healthcare/biotech, restaurants, Pink Sheet stocks and others. We both prefer the niche approach as we are confident that investors enjoy reading targeted content not only on microcap companies, but those companies in a specific sector as well.
TR: In your opinion, what are the key factors in identifying a profitable investment opportunity, especially in microcap stocks?
OTC: For profitable opportunities, I look at a number of different criteria. First, the story should be exciting and make sense at the same time. It does not always have to be a tech or biotech stock, but the company has to be going places with some exciting news. The business plan also needs to make sense. Investors who, in a minute or two, can understand the concept and see how the company can make money will catch on fast and tell their friends.
This brings us to point number two. The stock has to be in the hands of many small individual investors. I believe this is what made EDIG such a profitable stock in 1999 and for much of 2000. The message boards were full of posts by loyal and committed long-term shareholders. I may be a bit of a cynic, but I have not seen many cases where shares that are held by a few people (known as being "In friendly hands") ever amounted to much.
Third, I would prefer a stock with a relatively small number of shares, both outstanding and in the float. This is not a hard and fast rule, but a preference.
Finally, I have a long talk with management. Outside of the facts, I need to get a sense that they are serious business people out to build a serious company. While they know they're not IBM, they strive to emulate a set of Best Practices that can place them in a position to dominate their market -- all without hype and fluff.
Additionally, I almost never invest in a company whose president is too busy "watching the market" to build his own business. Unfortunately, I have seen this dozens of times.
TR: I noticed the "Focus30" list of companies on your site. Could you tell us more about it?
OTC: The Focus30 is a model portfolio of the 30 stocks that we feel are best positioned to do exceptionally well in the long term. All of these stocks once traded on the OTC Bulletin Board and have now made it to the next level by trading on the NASDAQ or American exchanges.
In developing the criteria for our Focus30, we use a "3P/3C" strategy. These are:
CONCEPT - The company's concept should have a strong competitive advantages with high barriers to entry for other competitors. It should also be capitalizing on an up and coming trend (at least as far as Wall Street is concerned).
CAPITALIZATION - We look for companies with no more than 30 million shares outstanding and with a public float of no more than 15 million shares (giving both a little "margin of error").
CASH - Cash is king. The Quick Ratio measures a company's ability to cover its expenses over the next year. The benchmark is 1.0 (meaning that a company with a 1.0 can cover its expenses for a full year). We look for a quick ratio of over 1.5.
PEOPLE - Top companies attract and retain top talent, a task that can be extremely difficult in today's competitive environment. Not only are they attracting a dynamic staff to execute the plan, but they are consistently upgrading their management team - adding to an active board of directors and a diverse advisory board that have both a width and depth of experience within the company's core business.
PRESS - Successful companies attract the attention of the mainstream and industry press. Their businesses are driving ahead to the degree that people are looking to them for leadership within their local community, their industry, or on Wall Street.
PARTNERSHIPS - They build partnerships with high-profile, dynamic companies. In this regard, we mean Fortune 1000 companies that can provide the credibility and drive that their smaller counterparts need to take their businesses to the next level.
TR: What is your overall investment philosophy?
OTC: Well, it depends on what we are investing in. Many small and microcaps fall into one of two camps. As a trading strategy, we do not get greedy. We take a short term 10 - 20% ROI and move on. These stocks can be so volatile, we prefer a "hit and run" strategy for trading. For companies that we really like - whether they be small or large caps, we use a buy and hold strategy. We want to let the company execute its business strategy and "be all it can be." Naturally, we will keep up to date with the company, especially in microcap issues.
TR: Do you use any specific charting methods or other technical analyses in recommending stocks?
OTC: No. We have always used more of a fundamental strategy. Occasionally, we will look to others to help us confirm or deny a trading strategy with someone more adept at the technical analysis. As far as microcap issues are concerned, I do not feel technical analysis is very reliable.
TR: What are your current stock picks and what is your outlook on those stocks?
OTC: Wow. In this market environment I am a little set back on that question. I guess I will look toward some of the companies on our Focus30 list, such as StockerYale (NASDAQ: STKR), Datalink.net (NASDAQ: XLNK), and Focenergy (NASDAQ: FORC). Others would include Genter Communications (NASDAQ: GTNR) and Taco Cabana (NASDAQ: TACO). Long term, these companies have the ability to improve significantly over their current levels.
TR: Which companies are you most enthusiastic about?
OTC: On the OTC BB, I think there are some really outstanding companies that are positioned to turnaround in the next twelve months. Some prices are so depressed that they should trade much higher in the next twelve months. Examples include companies such as M&A West (OTC BB: MAWI) and eDigital (OTC BB: EDIG). On the Nasdaq, there are a ton of stocks, too many to mention, that are looking really nice.
TR: What is the past performance of your stock picks?
OTC: We do not really maintain a history on our "portfolio." Overall, we have more winners than losers. Our short term trading has slowed down to a crawl right now, and our long term portfolio is looking, well, not so good. But we are encouraged for 2001 and expect gains in our long term portfolio as well as our trading account. We are sitting on a lot of cash now (70%) and look for a strong 2001.
TR: What were the best and worst picks you've made?
OTC: As for the best, recently, Philip Morris was a winner for us. The old Tylenol scare showed us how stocks could come back after being beaten down. Other winners include two local companies: Airtran Airways (AMEX: AAI) and World Commerce Online (OTC BB: WCOL). As far as the worst picks, Xoom.com (XMCM) comes to mind, as well as almost any time we bought a "Call."
TR: How many subscribers does your newsletter currently have?
OTC: Approximately 10,000 subscribers.
TR: What are your long-term professional/investment goals?
OTC: They are really three fold. Both when I was a practicing CFP and now, I believe in asset allocation and diversification. I know I may not sound as exciting as some of the other fine analysts you've profiled, but I only allocate a smaller percentage to smaller speculative stocks. Annually, I shoot for 15 - 20% returns overall. This is done through a mix of large and small cap stocks and mutual funds. My partner and I are in the financial markets on a daily basis, but the majority of our time is spent running a small business. We both believe that, if we spend too much time watching our own portfolios, we cannot do as good a job running our company and servicing our subscribers and viewers.
TR:So you tend to sell a stock after a 10-20% increase? What do you think about the common microcap strategy of making momentum plays and selling half of your position when the stock doubles and letting the rest ride?
OTC: Good point! Yes, we are big fans of that strategy and have used it many times, especially in late 1999 and early 2000 when we wished that we not only let the original position ride but added more to it! But seriously, we firmly believe that this strategy can be a winner in the markets.
TR: How do you generate revenue from your online activities?
OTC: Our online revenue is primarily derived from small and microcap companies advertising on our site. We do differ from most stock promotion sites in that we generally do not profile stocks that we have an open market position in. We view our site as a hybrid between an unbiased news site and an advertiser-sponsored site. The vast majority of companies we have on our site (90% +/-) have no relationship with us whatsoever. About 10% are advertisers and their sponsorship supports the online operations for the site.
We also maintain other online businesses and marketing consulting services that are unrelated to the financial markets.
TR: Your current site looks great. I noticed that several areas of the site are still under development. Could you tell us what resources you intend to add to OTCNetStocks and how they will benefit investors?
OTC: Thanks! Admittedly, sometimes what we think is a really great idea just doesn't quite work out the way we thought. The Investor Conferences and CEO Summits work well for CNBC, not for us. There was no real interest there, so we'll be re-engineering that section before to long.
As far as the other two areas -- research and stock picks, we are beginning to initiate a plan to increase the text-based research we generate. At first, this will be done through our "TURNAROUND STOCKS FOR 2001" campaign that will be launched in early January.
As for the Stock Picks section, we have been looking for individuals or groups to be "contributors" to this section on a volunteer basis. We do not make our sponsors' stocks our "picks" because they are not -- they're our clients. We want others to participate in this part of the site so that we can maintain an objective opinion and not be just a site that promotes its clients. We are confident that, in the long run, this approach best serves both our subscribers and clients. As for the stock pickers, in exchange for their independent wisdom on the markets, we'll give them a platform and an opportunity to build a following and a name for themselves. Should anyone be interested, please feel free to e-mail us at firstname.lastname@example.org.
TR: Is there anything else you would like to tell the readers about yourself, your newsletter, or your website?
OTC: While there are some tremendous people out there doing some great work to provide potentially profitable stock picks, it is no excuse for people not to do their own due diligence. The Internet, along with some much needed SEC regulation, has given the individual investors the opportunity to discover and do in-depth research about a potential investment. While we hope to introduce people to hundreds of companies a year - we hope that everyone thoroughly does their due diligence and has an exceptionally profitable 2001!
TR: In conclusion, we would like to thank Peter for a great interview. We encourage our readers to click on the banner below to visit his website.