Flaherty Financial News Newsletter #32
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Flaherty's Favorites of the Famous picks for 2012! 

In a photo finish our proven pros' spectacular streak of beating the S&P 500 Index for 11 consecutive times over the last difficult 12 months ended by a nose! Still the best long -term performance on the planet topping the S&P 18 out of the last 22 tries.
                                                                                                 March 26, 2012
Bob Flaherty Rides Again!  
Swimming nearly every day and doing surprisingly well for 78. I am still having fun and hope all of you are too. Spring has sprung and it feels great to be alive! Be well and be happy.

Welcome to our 32nd issue of Flaherty Financial News Newsletter which contains our most popular annual feature, Favorites of the Famous. Truly, we get by with the help of our friends. With trust in God and in ourselves we will face whatever challenges arise in the storm of our lifetimes.

If you have not already done so, please join our financial family. To receive our next issues of Flaherty Financial News and also our sister Flaherty Special Situations simply go to our website www.flahertyfinancialnews.com and opt in as a reader. You can opt out any time you wish.    
"If You Could Love Only One..."

In a photo finish our proven pros' spectacular streak of beating the S&P 500 Index for 11 consecutive times over the last difficult 12 months ended by a nose! The S&P 500 rose 11.72% versus 11.24% for the combined 2011 portfolio of our guest Favorites of the Famous pros. We were beaten by just a fraction of one percent.

Now let's start a new streak. We are thrilled to present 12 new favorite stocks for 2012 from the group with the best long term annual favorite stock record on the planet. These special people topped the S&P 500 Index 18 out of the last 22 times. New global bargains involving Brazil, Canada, India, Russia and New Zealand plus ventures from clouds to swimming pools here in the U.SA.  


By Robert J. Flaherty and Arnaldo Arroyo    


In our politically- correct, overly- litigious era, everything you say or write may be flyspecked. So Editor Bob Flaherty warns all his readers to be aware that all of our guest stock pickers will have conflict of interests involving their stock choices. Typical is old friend  Russell Cleveland, who is often a direct or fund investor or even on the board of some of his stock selections. Russ never fails to warn that he should not be considered as objective as a disinterested outsider. (This general conflict of interest warning also applies to all our Favorites of the Famous guests interviewed in this feature and naturally Bob F himself. Also remember to read the FFN Disclaimer at the end of every newsletter.) Now let's open what our late guru Sir John Templeton used to call, "this year's treasure chest of ideas!"

Strange things have been happening. Stocks are incredibly volatile and flash traders just crashed trading in Apple and have turned investing into more of a casino than long term profession. Worse, in spite of all the new regulations customer's money still disappears from brokerage accounts and no one knows who dunnit. Most of the annual stock gains appear to bunch up in the first quarter and the rest of the year becomes a rollercoaster ride.

Alas the U.S. stock market has recovered a lot more than the tepid American economy were growth is modest, unemployment is unacceptably high and soaring gas prices make the average Joe feel insecure and poor. Housing remains in the doldrums while interest on savings or bonds is not high enough to protect against inflation.

All the large-cap-stock indexes have soared as flight-from-risk investors flee to the safety of cash rich global multinationals. Invisible are the thousands of small- cap and micro- cap entrepreneurial companies which can't raise the growth capital to execute strategic plans and create the new breakthroughs and vital jobs our nation needs.

Tiny stocks are illiquid and many are failing because they cannot attract new investors. Desperate promotions promising impossible gains by a minority make the legitimate claims of more conservative players boring and 50% to 100% gains are not boring in the real world!

Globally Europe is still being dragged down by its sovereign debt problems while accounting scandals in China have cast a pall over the stocks of that former world growth favorite. Year after year our U.S dollar continues to lose its buying power so we can't stay still! With panic selling all over the world people feel confused. Events are being communicated so quickly there is no time spent processing the stream of bad news and putting their meaning in perspective. Where should we invest?

Once more we turn to the wisdom of the group with our most popular annual feature "If You Could Love Only One..." Here seasoned money management professionals and financial journalists pick just one favorite stock to hold for at least one year.

For 2009 Larry Auriana, co-founder of three Federated Kaufmann Funds picked an obscure  biotech    Dynavax Technologies Corp. (Nasdaq:DVAX-4.64) and it went up 96% and he came in second. In 2011 Larry picked Dynavax again and it went up 74% and he came in first. What's his new stock pick for 2012?

"Let's go with Dynavax again" says a rushed Larry Auriana, who as usual was the last to give us his choice. "I think we can do better than we did last time!"

 

Featured in our still open Flaherty Special Situation #13 on October 23, 2009 at $1.36 our own DVAX recommendation is up 241 % and still appears to be gaining momentum as a famous hedge fund investor has discovered it. Welcome to the party!

Led by colorful President Dr. Dino Dina, Dynvax is progressing with Phase III Heplisav (liver-saver) trials for its hepatitis B vaccine which promises faster more effective life-saving protection with fewer doses and injections. This disease can cause deadly cirrhosis of the liver and cancer. If the trial succeeds, the drug could be a blockbuster. In China alone 120 million people, about 10% of the entire population, already are infected with Hepatitis B and there is a desperate need for an improved vaccination. Heplisav could be a company maker. Dynavax is preparing to submit its first Biologics License Application for Heplisav Hepatitis B Vaccine to the FDA which will be followed by a submission of Marketing Authorization Application for European approval.  

Longer term Dynavax is developing other blockbuster products already allied with partners to help commercialize them. For example, Dynavax and mighty GlaxoSmithKline (NYSE:GSK) have a worldwide strategic alliance to conduct research and early clinical development in up to four programs and Dynavax is eligible to receive sizable   milestone payments for each program.

Beyond the Heplisav vaccine, Dynavax has technology that could lead to a development to treat Lupus and there are really no effective treatments for Lupus. It is also developing a Universal Flu vaccine, a Phase 1b clinical trial vaccine for influenza prevention; SD-101, a Phase 1b clinical trial hepatitis C therapy; DV-601 , a Phase 1b clinical trial for hepatitis B therapy; AZD 1419, a preclinical asthma therapy; and DV1179, a Phase 1 trial autoimmune and inflammatory disease therapy.

Usually Editor Bob Flaherty's pick appears last in every Favorite of the Famous Feature because he prefers to put his Guest columnists before him. But old friend Max Bowser died in January and for this issue Bob decided to let Max have the last word.

So far in 2012, along with his strikeouts, Bob has hit a few home runs. Back in his Flaherty Financial News Newsletter #27 on Nov. 16, 2011 Bob recommended Apple Computer, (Nasdaq:AAPL- then 388.83, recently 601.65), up 65% in 4 months. Doomsayers had predicted the death of Steve Jobs would take a bite out of Apple, and that fear created a bargain. Critics overlooked the uplifts from its upcoming patent victories, its creative new products and above all its expanding cash equivalent which recently topped $100 billion. Besides a soaring stock price the embarrassing cash hoard resulted in both a huge stock buyback program and the initiation of a cash dividend.


For his last year's 2011 Favorites of the Famous stock pick Bob went with an old favorite he knew very well. Way back he even wrote a cover story on PHC Inc. (NYSEAmex: PHC) when the stock of the then tiny tot was only $0.30 a share. In January 2003 Bob closed out his October 2001 PHC BUY recommendation in his special situation newsletter for a gain of 137%. In September 8, 2010 Bob issued a new still open BUY on PHC and again in Flaherty Special Situation #21 which was recently up 222%.

Russell Cleveland would have taken PHC himself if he didn't have another pick he liked too.  He dubbed this "our Charlie Sheen rehab play on America. " This pure play on post 9/11 America treats the ills from stress and violence in the U.S. and substance abuse from drugs, alcohol and smoking plus gambling addiction. In stress-filled dyslexic America substance abuse is everywhere. Even children are turning up with dual addictions.

Fortunately, with treatment and follow up programs miracles are happening every day, restoring our walking dead to useful lives. Treatment works! The stock of PHC was a value packed bargain in this explosive hope for the hopeless growth niche. So more power to entrepreneurs like PHC's Bruce Sheer and all the others offering help and recovery treatment to the casualties in America's substance abuse epidemic.

Predicting it would be acquired, Bob was right on target. PHC was taken over by a much larger private company, Acadia Healthcare Company Inc. (Nasdaq:ACHC) for a gain of 61.9% for second place. The union creates an even larger play in patient behavioral health and should make it possible to make even yet larger mergers. Alcohol and substance abuse remain one of American's largest and most neglected problems.

Bob 's goal for Acadia remains the same as it was for PHC alone: Hope! Treatment! Recovery! A 100%+ Profit Opportunity! And for all the Charlie Sheens out there who are not celebrities remember that today is the first day of the rest of your life. Take the first step to a new life.

What do- gooder stock will Bob pick now? How about one that offers improved relief for 50 million Americans? Got a migraine headache? Try Bob's 2012 favorite stock PuraMed BioScience's (PMBS.OB-0.28) gel LipiGesic�M. This still unknown over-the-counter herbal remedy is delivered under the tongue for quicker, safer relief and spectacular profits! Lead by veteran marketing entrepreneur Russell Mitchell, PuraMed has recently achieved nationwide distribution in Walgreens, CVS and now Rite Aid. Soaring revenues have produced its first net income. Now the next step is to execute a marketing strategy and print advertising campaign to get LipiGesic moving off the shelves. Current prescription alternatives are much more expensive, less effective and have some serious side effects.

PuraMed has by far the lowest stock price of all of this year's new picks and a total stock market capitalization of only $6 million. Bob already recommended this Up and Comer as a BUY in his Flaherty Financial News Newsletter #29. Our report and some subsequent updates are archived at www.flahertyfinancialnews.com. Bob enjoys working with New Enterprises and he believes that PuraMed has a shot to be a big winner. Tune in next year and see if we hit a homerun or struck out.

Celebrating his 26th anniversary of starting the first African-American founded mutual fund, John W. Rogers Jr.'s Chicago-based Ariel Investments keeps adding more mutual funds and now tops over $6 billion in assets under management. For daring to pick a real estate management company Jones Lang LaSalle (NYSE:JLL) for 2009 during the horrible real estate collapse, Rogers was rewarded with a 250% gain.

 

In 2011, out of the sixty stocks he personally follows closest John picked for his favorite stock another comeback company Fair Isaac Corp. (NYSE: FICO), which recently soared 54.6%. FICO provides analytical solutions, credit scoring and credit account management products and services to banks, credit reporting agencies, credit card processing agencies, insurers, retailers and healthcare organizations worldwide.

 

To keep fit and relieve tension, John loves basketball and sometimes plays with his friend President Barrack Obama. His interest in the game also led him to his favorite pick this year of Madison Square Garden (Nasdaq: MSG - 33.99). This company owns world-class venues (Madison Square Garden and The Chicago Theatre); iconic sports franchises (New York Knicks and Rangers); and lucrative regional sports networks (MSG and MSG+).

 

Madison Square Garden owns unique assets with wide - and growing - economic moats based on the quality of the company's sports franchises and real estate. This value isn't fully reflected in near-term earnings expectations, especially as normalized earnings power of the business has been obscured by noisy short-term issues - particularly the transformation of the Garden, the NBA lockout and the Time Warner dispute.

Disputes often cause bargain prices and another chance for John to make an investment layup. "With these issues resolved, we expect the company to generate significant free cash flow in the coming years," says John. "It should also shift investors focus to the overlooked asset value and cash generating power of the company."

 

Nearing completion of a $1 billion renovation, Madison Square Garden will provide an improved experience for visitors and also generate significant new revenue opportunities from suites, tickets, concessions and sponsorships. Thinking back to when I first wrote about John when he was a minority grad from Princeton who wanted to start a mutual fund, it is amazing how far John has come, one basket at a time.

 

 

Douglas Makepeace of New York City-based Sperry Fund Management, a close friend and country sector advisor to our mutual friend the late Sir John Templeton, also repeated by again picking his favorite from last year AK Transneft Pfd (TRNFP.ME-54,900 Rubles), up 48.6%. At one point this volatile stock had topped all others but then politics in Russia caused some concerns.

 

Together with its subsidiaries, Transneft engages in the transportation of oil and oil products through the system of trunk pipelines in Russia and internationally. It operates approximately 70,000 kilometers of pipelines and 500 pumping stations that transport crude oil in Russia, the Republic of Belarus, the Kazakhstan Republic and Ukraine. 

"The p/e ratio is 1.6 times last four quarters' earnings, and the market cap is perhaps a tenth of the replacement value for their pipeline and other assets," says Doug. "Once they start pricing properly, the stock should go up five times and trade at 8 times earnings."

Transneft appears on the Bloomberg machines with the symbol TRNFP.RM, but only is traded in Russia on the Moscow Interbank Currency Exchange (MICE). If one's broker will execute in Russia, Pershing will clear the stock.

"While the stock was up over 48% last year, the price still reflects an extremely low valuation," Doug notes. "Most institutional brokers can buy the stock in Moscow, along with any broker that clears through Pershing." But Doug thinks this obscure oil play is worth the trouble. It was willingness to make that extra effort that made Sir John Templeton so special.

 

Our old friend Mario Gabelli's GAMCO Investors (NYSE:GBL) with numerous Gabelli Funds   (www.gabelli.com) now manages over $34 billion in assets. Not bad considering in our first interview way back in my days as a cub reporter at Forbes Mario had just passed $3 million. For his last year's pick around Mario Day in the U.S.A. , Gabelli , an old auto parts analyst who still keeps his hand in, chose one of the world's largest providers of automotive repair, including brake, maintenance, tires, steering, suspension, and exhaust services Midas, Inc. (NYSE: MDS) up 28.6%. As car owners post delayed buying new cars, Mario correctly figured they would have to shell out cash to keep their current vehicles road-worthy.

For 2012 instead of keeping his feet on the ground, Mario has his head in the clouds. There he found cloud play Internap Network Services Corp. (Nasdaq:INAP: 7.35). Internap, based in Atlanta, GA, provides co-location, managed hosting and "cloud" services utilizing 38 domestic data centers. Mario finds the IT infrastructure industry attractive: (a) secular demand for data center capacity is strong, driven by the growing need for computing power and information storage and transmission; and (b) data centers possess a recurring revenue model with high returns on capital and "sticky" customers. Internap is still in the early stages of an operational turnaround led by Eric Cooney, CEO since March 2009. The company has spent the last two years transitioning from re-selling partner data center space to the more profitable expansion and sale of its own data center space. Mario believes the high quality of Internap's assets, breadth of its services and digestible size make it an attractive acquisition candidate. The data center industry continues to consolidate with three major transactions completed in 2011 at multiples exceeding 10 times trailing EBITDA. TWC and CenturyLink have signaled they would like to add to recent data center purchases and it is likely that Comcast will also add a data center skill set to its business services suite. At 10 times 2013 EBITDA, Internap's estimated Private Market Value exceeds $12 per share versus a recent market value of $7.35.  

 

It is surprising how Mario can always apply his Private Market version of the old Ben Graham value investing idea. No matter how large the company or how much the world changes Mario can always find a stock where he can buy a $1 of value for $0.50. With his feet on the ground he has found his new pick in a cloud! 

 

Tom Putnam, who is descended from the Patriot at Bunker Hill who ordered, "Don't fire until you see the whites of their eyes!" always gives us a solid steady new pick each of the 31 years we have called upon him. This founder and CEO of Fennimore Asset Management with two no loads FAM Value Fund and FAM Equity-Income Fund (www.famfunds.com) likes his team to fill his portfolios with quality companies that have good market share positions not only in their industries, but have strong characteristics of generating free cash flow accompanied by low debt balance sheets. Tom seeks not only survivors in a correction, but winners in an economic rally.

 

Last year, Tom bet on Home BancShares, Inc. (Nasdaq: HOMB), up 26.4%. This Conway, AR-based bank holding company's wholly-owned subsidiary Centennial Bank provides a broad range of commercial and retail banking plus related financial services to businesses, real estate developers, investors, individuals and municipalities. Centennial Bank has a number of locations both in Arkansas and in Florida.   

                 

Tom's favorite pick for 2012 is Rofin-Sinar Technologies Inc. (Nasdaq: RSTI -26.29), which develops and produces a broad range of laser sources and systems that are utilized across multiple industries.  Their laser technologies include CO2, lamp-and diode, solid-state, fiber, and diode lasers.  Major applications for their lasers include cutting, welding, and marking. 

"Rofin-Sinar can be thought of as the supermarket of lasers, offering the broadest range of solutions out of any company in the industry," says Tom. "For years lasers have gained adoption in manufacturing as a more efficient and cost effective solution to more traditional processes.  New applications for lasers also add to market growth as laser technology has continued to develop and companies continue to develop new and innovative products.  In many cases, like the precision cutting of stents, a laser may be the only feasible solution." 

As for the financials, Rofin-Sinar is highly profitable and remains financially strong with $3.50 of cash on the balance sheet.  At around $26 a share, after backing out the cash, this high quality company trades at just 13 times this year's estimated earnings.

 

     Chairman Russell Cleveland of Global Entrepreneurs Fund, Inc. thought his last year's pick Bovie Medical Inc. (NYSEAmex: BVX - 2.76) would double but it only gained 3.9%. Stubbornly Russ has picked Bovie again as his favorite stock for 2012. Several years ago the stock hit a high of $9 versus a recent price of under $3. With its J-Plasma technology having recently received FDA approval, Bovie is poised for a big rebound.

 

The technology represents a potential breakthrough in electro surgery. J-Plasma is created by passing an inert gas, such as helium, over a sharp conductive point which is held at high voltage and high frequency, producing a luminous discharge beam. The sharp conductive point can also be in the form of a retractable surgical blade, providing multiple modes of operation in a single instrument. The extended surgical blade can be used for incisions and other cutting procedures, and when retracted, the blade is used to form the J-Plasma beam for coagulation. The extended blade can also be used in combination with the J-Plasma beam, providing an enhanced cutting capability with minimal impact on surrounding tissue.

 

To put the technology in the most basic of laymen's terms, think of Luke Skywalker's Light Saber - although this beam is only a few inches long, as opposed to over a meter in length.

"In January, the company's new medical device called J-Plasma was approved by the FDA," says Russell. "While it took a lot longer than we thought, this surgical instrument will revolutionize many types of surgery."

With the assistance of leading surgeons, Bovie plans to introduce J-Plasma at selected hospital beta sites including several university teaching facilities, in preparation for a market launch later this year by its independent sales distribution network. It is also continuing to explore and review added applications for J-Plasma which include gynecology, dermatology, plastic surgery, infection control, use in robotics and other surgical techniques.

To date, Bovie has four patents related to its J-Plasma technology with three additional patent applications pending. "I was one year early recommending Bovie Medical," says Russ, who expects Bovie to generate robust earnings this year. "Last year Bovie wrote off some good will and law suits. So I'm expecting some improved  numbers and that we'll see the introduction of J-Plasma. As a result, Bovie should be a very big winner in 2012."

 

 

In the Soaring Sixties 74-year-old Larry Rader was known as "The Go Go Kid!" But after a rollercoaster ride from hero to bum, he did the hard work to become one of the steadiest growth stock performers ever. His success as a student of identifying outstanding small-cap, non-technology growth stocks brought him to head small-cap research at Merrill Lynch in the days before long-term investing was replaced by momentum gambling. Larry is the only person Editor Bob Flaherty featured in three different cover stories.

 

Last year, Larry liked 3M (NYSE: MMM), which recently showed a 3.7% increase. This diversified multi-national technology company has a presence in industrial and transportation; health care; display and graphics; consumer and office; safety, security and protection services, and electro and communications. The company's products such as Scotch Tape are sold through numerous distribution channels, including directly to users and through numerous wholesalers, retailers, jobbers, distributors and dealers in a variety of trades in many countries worldwide.

 

This year, Larry's favorite pick is Pool Corporation (Nasdaq: POOL - 36.51), the largest wholesale distributor of swimming pool and related backyard products. Since it was founded in 1993, Pool has grown to over 290 sales center locations in North America and Europe. In March, the company's board declared a quarterly cash dividend of $0.14 per share payable on March 28, 2012 to holders of record. 

The Covington, LA-based company boasts a large and impressive customer base which includes swimming pool remodelers and builders, retail swimming pool stores, swimming pool repair and service businesses, landscape construction and maintenance contractors, and golf courses. In all, the company has roughly 80,000 wholesale customers.

   Pool offers approximately 160,000 national branded products as well as its own-branded products. Among those products are chemicals, supplies, and pool accessories; repair and replacement parts for cleaners, filters, heaters, pumps, and lights; packaged pool kits comprising walls, liners, braces, and coping for in-ground and above-ground pools; pool equipment and components for new pool construction and the repair and remodeling of existing pools; and irrigation and landscape products consisting of irrigation system components and professional lawn care equipment and supplies. Pool also offers pool construction products such as concrete, plumbing, and electrical components and pool surface and decking materials. Discretionary recreational and related outdoor lifestyle products include pool toys and games, spas and grills.Earning are expected to rise 20% or more this year. Larry is living proof finding good growth stocks and sticking with them is still a successful philosophy.

Last year Poonkulali Thangavelu, who has written both in India for a local stock market magazine and also for Bob F here on Indian as well as U.S. companies, liked global generic drug maker  Dr. Reddy's Laboratories Ltd. (NYSE: RDY-33.65), up 0.002%. which besides its Big Board listing is also traded at home on the Bombay Stock Exchange. Alas shares of the well-known giant only  eked out a miniscule gain.

So this year for her new pick Poonka is going back to a less globally known Indian company dealing with very basic needs. Her earlier pick in housing development was a big winner, based on the aspirations of newly affluent Indians. Now she is looking at another cornerstone of newly emerging middle-class lifestyle.

TTK Prestige Ltd. (Bombay Stock Exchange: TTKPres-3,081 Rupees) continues to benefit from steaming growth in the Indian consumer goods market and the increasing affluence and spectacular growth of the middle class in India. Once you have a new house or improved lodgings, women want nicer products to use in their new nest. For over five decades   Prestige  has been offering them its wares, which include pressure cookers, non-stick cookware and gas stoves, to become a leader in the Indian kitchenware market.  As disposable incomes have gone up and more women have entered the workforce, Prestige has modernized and upgraded its products to suit the changing market.

Sales have grown almost 600% from 2003 through 2011. For the 2011 financial year, earnings per share were up 73%. With India's increasing prosperity there is more opportunity to grow in secondary and rural Indian markets, as well as through overseas exports.

A recent tie up with WorldKitchen to distribute well-known brands such as Corelle, Corningware and Pyrex in India should also add to TTK's revenues in the Indian urban markets. Based on Prestige's March 23 closing price of 3,081 Rupees on the Bombay Stock Exchange, the stock has a trailing price/earnings ratio of about 31.   To seize the potential for growth, Prestige is in the process of expanding its production capacity. There is considerable scope for earnings growth in meeting the kitchen dinning needs of a country whose population count is second only to China's.

 

Now let us introduce our only husband and wife stock picking combination. Here is a youthful team doing their best to keep alive the Templeton touch of global value investing.

  Before our old guru Sir John Templeton "went home" as he referred to dying, his grandniece Lauren Templeton of Lauren Templeton Capital Management, LLC. was encouraged and trained by Sir John. He even suggested she start a mutual fund as soon as she graduated from high school at 18. After she went to college instead, he helped set her up in her very own investment firm at 24. Value investing the Templeton way still survives.

Now a veteran at 35 and a mother, Lauren and her husband Scott Phillips, who also worked for Sir John, are overseeing assets of over $200 million. Scott is the portfolio manager of their Lauren Templeton Global Maximum Pessimism Fund and the author of "Buying at the Point of Maximum Pessimism." 

Lauren's pick last year was Cloud Peak Energy (NYSE: CLD), down 18.2%, was a pure play on the Powder River Basin coal region, which is in the strongest position to capture future business from exports to Asia where the market is tight and in deficit supply.

 

Her new choice this year is Chorus Ltd (CHRYY.PK-14.06). Based in New Zealand, Chorus Limited is a recent spinoff from Telecom Corp of New Zealand that sells the fiber optic and other networking hardware supplies to the telecom providers for installation.  The firm trades 7.8 times earnings per share, 2.9 times cash flow and carries a 4.5% dividend yield.  

Chorus has a network predominantly made up of local telephone exchanges, cabinets and copper and fiber cables. Around 1.8 million lines are connected to homes and businesses throughout the country. It works with many different phone and internet providers. It currently delivers ultra-fast broadband to more than 830,000 homes and businesses across New Zealand.

 

Husband Scott Phillips' choice last year of electronic giant Panasonic (NYSE:PC), down 20.5%, was play on the fact this blue chip would snap back quickly from the effects of the Tsunami and nuclear plant disaster in Japan. Instead recovery has taken a bit longer. Headquartered in Kadoma, Osaka, Japan, Panasonic remains one of the largest electronic product manufacturers in the world, comprised of over 634 companies. It manufactures and markets a wide range of products under the Panasonic brand.

 

Scott's new pick is Estacio Participacoes (ESTC3.SA - 19.56 Brazilian Reais). Estacio is a Brazilian for-profit educator offering both on-site and distance learning programs.  The company is trading 13.8 times 2012 earnings and 10.5 times 2013, representing a nearly 40% discount to its emerging market peers.  "Likewise, the further enrollment of distance learning students in the years to come represents higher margin business that we do not believe is currently discounted in the shares," says Scott. 

At yearend 2011, Estacio had 240,000 students in its distance learning and campus programs for graduates and undergraduates. Its network consists of one university, two university centers, 30 colleges and 52 distance learning units recognized by the Ministry of Education. Nationwide coverage is represented by 68 campuses in the leading urban centers of 17 states. The educator also offers post-graduate specialization courses, as well as master's and doctorate degree courses.

 

Last year, Greenwich Village gadfly Ray Dirks' favorite stock pick was  Debut Broadcasting Corp. (OTC BB: DBTB then 0.29, recently 0.01), down 96%. Debut is a tiny national radio broadcasting company that owns and operates 11 AM and FM stations with eight towers in the Southern part of the U.S. The company also syndicates radio content to approximately 1,400 small-audience radio stations by means of satellite in the U.S.

     Unfortunately law suits have been flying and Debut has not had the funds to execute its growth plans. Consequently, Debut's stock price, which had been projected to rise to $4 in 12 months and $30 in three years, instead is at $0.01 a share. "I'm hoping it works out," says Dirks. "They have this tremendous network of radio stations around the country. It's the biggest radio station in Mississippi and Tennessee."

 

     This year Dirks' new favorite is green energy play Lithium Exploration Group (OTC BB: LEXG - 0.71). This U.S.-based junior miner's primary focus is on the development potential of lithium brines in Canada. Lithium is experiencing rapidly increasing demand for use in green technologies from consumer electronics and hybrid vehicles to power storage for alternative energy sources such as wind and solar. "In the oil fields, they found lithium, which is an extremely valuable metal, about 1,500 feet down," says Dirks. "They're buying up a substantial amount of property."

     Indeed, environmentally friendly lithium technologies are in big demand around the world. Governments are creating legislation to support the use of lithium technology as a renewable, clean-energy alternative to fossil fuels. For instance, in its efforts for energy independence, the U.S. recently committed nearly $30 billion toward advanced technology vehicle manufacturing and the battery market, while China has dedicated $15 billion to expanding its electric vehicle industry. Like the U.S., which currently offers $7,500 incentives, every major industrialized nation is offering tax rebates to consumers for the purchase of electric and hybrid vehicles.

 As the catalyst for his pick,   Dirks spotlights two huge milestones. The first is acreage astutely accumulated across the Canadian border in an area known as Valleyview Project where inferred resources include lithium, potassium, magnesium and other valuable minerals. The second huge milestone is   a fabulous new technology known as the Ultrasonic Generator, which was acquired and its final testing and implementation at the testing facility in West Chester, PA are underway. Ray believes this combination could enable Lithium Exploration Group to become the world leader in providing lithium brines to the world market at favorable prices in the near future.   He also believes these achievements could propel the stock from its recent price of about $0.75 toward its all-time high of over $10, from which it descended from in May of 2011.

 

Farewell to Max Bowser: Amazing Max Bowser, the 95-year-old dean of financial writers and highly amusing editor of The Bowser Report. www.thebowserreport.com went for the gold in 2011 with Bullion Monarch Mining (BULM.OB), down 24.8%. This  small OTC Bulletin Board gold stock which makes small investments in other gold companies and collects royalty on its investments had other ways to win. One was a property in an under-explored region in Brazil that is not only resource rich, but also favorable to mining. Another is its interest in shale extraction. It has a patent on a process that it calls EnShale that can extract the equivalent of a barrel of oil at a much lower cost than the current standard price of oover $100. To explore its potential, Bullion has leased mineral rights on 4,650 acres in Eastern Utah. An acquisition is pending with Eurasian Minerals Inc. (NYSEAmex) which is offering $0.11 in cash and .45 of a Eurasian share for each share of Bullion. The combined company will hold more than 145 properties on five continents and should shine in the future.

How do we say goodbye to Max, who died in January? Max was in his 36th year as editor and never missed or been late with a single issue of The Bowser Report. When he was ridiculed by the media and many critics who dismissed all very low priced shares as penny stocks to be avoided   Max doggedly stuck to covering his niche of quality stocks under $3.
Surprise! From September 10, 2001 to January 30, 2012 his Bowser Microcap Stock Index was up 255%, while the Dow Jones was up an anemic 35% and the Russell 2000 Stock Index was up 83%.  

 

Max may not have made 100 but he did function as a financial editor until he died at 95 with all his faculties and wonderful sense of humor intact. That is remarkable! I cannot think of Max without smiling. No matter how dark the current situation he always looked ahead with courage and optimism. As I have grown older Max became my model for striving to exercise and stay in shape and believe after doing our best to serve our readers we will all go to a better place where there are no bear markets. May God bless and keep Max until we meet him again.

Operating in the risky niche of stocks selling under $3, how did Max beat the popular averages by a huge margin? His secret was simply screened out the best buys by sticking mainly with profitable growing companies, checking for quality   management and only then applying Ben Graham value criteria to single out the best relative bargains. When he made mistakes as we all do, he simply admitted them quickly and moved on to the next stock idea.

After a distinguished military career, Max turned to financial journalism to find a new purpose in life. In his optimism and steadiness smiling Max set an example for us all. He knew his duty and he put his own priorities in order.    He enjoyed writing to his readers and put the interests of his "Buckaroos" before his own. Not surprisingly   most of what he wrote in good times or bad helped others.-RJF

 

FFF Chart A 2012
FFF Chart B 2012
Disclaimer and Safe Harbor Statements

 

Disclaimer: This newsletter contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties, and actual circumstances, events or results may differ materially from those projected in such forward-looking statements. We caution readers not to place undue reliance on any forward-looking statements and to supplement this newsletter with specific company SEC filings and their own research. Please be aware that there is risk in every company you buy. Coverage or other mention of a stock in this newsletter is neither an offer nor solicitation to buy or sell any securities mentioned. We are not investment dealers or investor advisers registered with the SEC or State security authorities. We do not guarantee all the information in this newsletter is correct, timely or will be updated. Remember some errors are inevitable. Reproduction without written permission from FFN is forbidden. No one at Flaherty Financial News is a shareholder of any individual company profiled in this issue and our policy forbids editorial from buying or selling any stock mentioned until this issue is out at least ten business days, which for the new 12 Favorites of the Famous stocks featured in this newsletter would be April 9, 2012. None of the 12 companies selected as favorites for this feature paid to sponsor this newsletter issue or even knew they were being chosen as one of Flaherty's Favorites of the Famous stocks for the next 12 months. In cases where FFN receives compensation for writing or for extra distribution we disclose it in the related newsletters and warn that such company coverage becomes an advertorial and does not have the same degree of independence as unpaid coverage. We have tried to be objective, but may have failed. We are not security analysts or stockbrokers but financial journalists with all the failings of that profession. You readers must decide the merits of each company yourself and whether to invest. Bob Flaherty, Editor.

 

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Dear Friends: As you journey through life seeking wealth, fame, power, companionship or other gratifications you desire, make every day count and be the best person you can be. But above all also remember to also seek a return on life. 
 
Sincerely,
 
Bob
Robert Flaherty, editor,  
Flaherty Financial News Inc.