Today we are talking about 5 very cheap stocks
- STRI -STR Holdings
- SPRT – support.com
- MILC – MILLENNIUM INVESTMENT & ACQUISITION CO INC.
- LTRE – Learning Tree International, Inc.
- CBAI -CBA Florida Inc
19) 4 Cheap stocks with Braxton Gann MILC, SPRT, LTRE, STRI & CBA
Ney Torres: [00:00:00] Quick disclaimer. This episode was recorded three months ago before publishing. Well, coronavirus was starting out, but he has four very, very cheap stocks you may want to check out.[00:00:18] Welcome to Financially Free Podcast with your host, Ney Torres. One of the reasons Ney could retire when he was 25 years old is, because he was coached by the best, and now through this podcast so can you. [00:00:30] Ney Torres: [00:00:30] Mr Braxton Gann, welcome to the show, sir. [00:00:33] Braxton Gann: [00:00:33] Great to be here. [00:00:34] Ney Torres: [00:00:34] Thank you for your time. Can you tell us a little bit about you? [00:00:36] Braxton Gann: [00:00:36] Yeah, I’m a Christian. I believe that the Bible is the inspired word of God. Everything it says is true. And so I worship Jesus Christ and one of the things the Bible says is that we are to spread the word. So, money’s helpful to do that. [00:00:52] Ney Torres: [00:00:52] Okay. Very good. How do you come across the stocks? [00:00:55] Braxton Gann: [00:00:55] I think when I was, well, when I was just a kid, I had these entrepreneurial things. I had these businesses that that never really worked out but they made a few dollars but so it just built up in my bank account and I never could figure out what to do with it. So,eventually, I figured out that you could buy a piece of someone else’s business and maybe they could do a little bit of a better job than I did. [00:01:19] Ney Torres: [00:01:19] How old were you when you decided that stocks was a good way to do that? [00:01:22] Braxton Gann: [00:01:22] I think I was about 14. I had read (laugh) the intelligent investor, which was a pretty good book. That was, I had read that the year before. [00:01:29] Ney Torres: [00:01:29] So,that’s a very dense book and very technical. How did you come across to that? [00:01:34] Braxton Gann: [00:01:34] Well, I had been reading books before then, so I built up to that, and some of them didn’t make very sense. But I noticed that the ones that made sense talked about something called Value Investing, and they sometimes talked about Warren Buffett or that, or Benjamin Graham. So, and then I decided that one day I found in a used bookstore, I found the copy of it. Selling for about $0.75 cents. So,my mom bought that for me. [00:02:00] Ney Torres: [00:02:00] I’ve read the book when I was probably 21. I still have problems to catch everything it said. Yeah. I’m looking at millennium investment and acquisition. It has a tangible book, which means if it dies today and we sell everything, it’s worth $2 and $0.53 cents per share, but it’s straight enough $0.50 cents. Why will that be? [00:02:22]Braxton Gann: [00:02:22] That’s a really interesting story. Basically, a few years ago, some people got together and said, we have an idea. We want to have your money, so you invest in this company. You give us a lot of money and we won’t tell you what we’re going to do with it, but we’ll do something with it. And you can just hope that we make money for you. So,people thought that was a good idea and they invested a lot of money and it turns out that their ideas weren’t very good. So,they bought a stake in an Indian brokerage firm. They eventually got shareholders mad by losing their money. So,someone who managed a fund of investors money, he bought a big stake in the company and voted out the managers, and he decided he could do better. So, that’s where we are today. [00:03:10] (noise) [00:03:10] Ney Torres: [00:03:10] How long ago was this? [00:03:12] Braxton Gann: [00:03:12] How? I think it was a few years. So, right now this has an accounting book value of $2 and $0.50 cents what it’s recorded for on the book, but that’s not necessarily what it’s worth to figure out what it’s worth. You have to think a little bit, and they have two assets, and the one of them is the Indian stake and the Indian brokerage firm, and I don’t really have much of a clue how to decide whether it’s good to invest in Indian brokerage firms, but they have the financial statements of the company and you can look at what it’s worth from that. It seems like a reasonable company. And also they have this agreement where they can sell share 100,000 shares of the company every month for a price, which abuts around, but it’s based on its supposed value and they’ve been able to sell it for prices that are about a dollar per share. They own 10 million shares and they have a market cap of about 4 million and a market cap that’s just the number of shares in the company, I mean, that’s times the price of each share, so that like what you’re paying for the whole company. So,the for $4 million, that that’s a big discount from the $10 million that they’re able to sell it for that. Then they’re getting like a hundred thousand dollars a month from that. So,say that’s worth $10 million dollars. You’re buying it for a 60% discount. And then they have this other asset, which is somewhat sketchy sounding, but it’s a macadamia nut charcoal factory. They use macadamia nuts to make charcoal, which they used to make high-tech batteries, which didn’t sound like a good idea to me, but I looked at the guy who is doing it, and he’s actually someone who is intelligent. He had a lot of experience in Energy and Sciences and stuff, lots of advanced degrees and all of that and he’s been managing a fund of other people’s money since 1996 so if they’re still letting him invest his money after 24 years, then he can’t have done that batter job. So,he bought, and what’s interesting is that he bought this out of bankruptcy. The previous people who were trying to do the same thing, they ran out of money. So,they had to shut down. And these people were the only people who would buy it from him. So,they got a good price and the CEO right now, he says somewhere, I believe that he thinks that if they’re successful in getting this factory to work properly and get all the bugs worked out, that it could produce about $5 million in annual cashflow. [00:05:50] Ney Torres: [00:05:50] And that’s from macadamias in Hawaii? [00:05:53] Braxton Gann: [00:05:53] That is correct. [00:05:56] Ney Torres: [00:05:56] What did they used it for batteries, you said? [00:05:58] Braxton Gann: [00:05:58] Yeah. I have no idea how it worked, how it works. Very strange. Like capacitors or something. I’ve never been a science guy, so I have no idea what he’s talking about. But it’s in the filings. They have filings with the SCC, which you can find online. Maybe you can understand them better than me. [00:06:16] Ney Torres: [00:06:16] Yeah. Well, there’s no much information there for the last eight K but it sounds definitely interesting. It’s trading about a fifth of his book value. And if you say that their potential for cash flow in is 5 million per year, that means you’re, you’re doubling your money every year. If you buy at the market cap right now is 5 million. [00:06:37] Braxton Gann: [00:06:37] Alright. [00:06:38] Ney Torres: [00:06:38] So,there’s a huge upside. [00:06:39] Braxton Gann: [00:06:39] Yeah. Cause if they get factory operational that would be very good. Provided that they can sell it and people want to buy it. [00:06:47] Ney Torres: [00:06:47] Wow. Interesting. I’m definitely going to look into this one. Let’s jump into the next one. What is support.com and how did you find it? [00:06:55] Braxton Gann: [00:06:55] This one, I didn’t find myself. I had an a friend Evan Blacker, who told me about it and he said it was like $3 $2.40 cents something like that at the time. And he said, you’ve got to buy this stock. They’ve got this business, which was basically a call center like Comcast and other companies would outsource the tech support to customers. They would outsource that to support.com and it was making quite a lot of sales, but it wasn’t making any money because the previous guys in charge had run it into the ground. It was one of those companies back in the 2000s where they added a .com to their name, and then it suddenly, the stock price went up 10 times because everyone thought it was going to be the next Microsoft, which it wasn’t. [00:07:42] Ney Torres: [00:07:42] I see. [00:07:43] Braxton Gann: [00:07:43] But anyway, it went down for not really any reason. And you know, they kept fixing up the business. They started actually making money and that the stock kept going down because they were having a bit of trouble with Comcast because they said that we don’t really want to want this so much. We’re going to cancel this contract. We’re going to cancel that contract. But they had other customers that was just their biggest one. So, he did some research. He figured out that that was conservatively worth $2 that call center business because that was at least, I mean like even if you assume that they lost a good bit of the Comcast business. And then you had these activists who are fixing it up and they were cutting expenses, and then they decided that they were going to start up this, this startup, which the same thing, but directly to consumers. So,they have a subscription service where you can go online and “Hey, $10 a month.”, and they’ll just fix all of your problems, computer problems. They’ll say, “Oh, you need to click this button to fix the internet connection. Oh, you need to keep the computer to make it work.” And they hired guys in India to do this, and they pay him $3 or $4 an hour. So,if it can be pretty profitable in theory, and you can look at their website for this, and it’s getting a lot of hits with the website are growing exponentially. So,in theory that could be quite successful, but I have no idea. [00:09:07] Ney Torres: [00:09:07] So,what were you looking into the stuff, you thought he has a lot of cash. Even he died today, I’ll make a lot of money because they’re sitting in a lot of cash. And you said you actually bought the stock, right? [00:09:19] Braxton Gann: [00:09:19] Yeah, I did. And it had $2 of cash. The call center which was worth at least $2 and a free startup which could be worth a lot if it worked out. I had no idea about. So, and what was funny is that they had announced that they were going to be paying out a lot of this cash, and apparently people didn’t really care. So,a few months after I had bought it, they paid out about a dollar per share. So,I’m really owning all of this for $0.50. [00:09:46] Ney Torres: [00:09:46] And right now it’s trading at around $1.19. And he has $2, and they have over $2 and a half in value. So,technically, if you buy this stock any dies today, you’re going to double your money, and then some. The market capitalization is $22 million and so how big do you think you can be before you start moving the price? [00:10:10] Braxton Gann: [00:10:10] It depends. You don’t have to buy all at once. I bought a lot of pretty sizable position for me, and I bought most of it in over two or three days. So,if you’re an individual investor, you’re not going to have any problem buying stocks like this. Even if you get more money, you can still invest some in it. If you have a hundred million dollars, it’s a lot harder to invest in stocks like this, but if you have a hundred thousand dollars or $500,000 or a million dollars, you can invest a significant amount and a lot of these stocks enough to be meaningful. [00:10:43] Ney Torres: [00:10:43] And I love that because that’s exactly what we talk about in this podcast, is that the fact that you are a small investor, you’re now managing a hundred million dollars or more. Actually gives you an advantage. And, what do you think about another step call Learning Tree International? [00:11:00] Braxton Gann: [00:11:00] That one was a really interesting one. Well, all of these are really, it’s very strange. Some of the things you find looking at smaller, obscure companies trading over the counter where no one else is looking. So, Learning Tree that they trained people to do IT stuff, Information Technology. So,something else I don’t understand very well. But I did know from looking at their filings with the sec that they had $64 million dollars in revenue, and the, the stock was trading at $0.45 cents, which valued the company at 6 million or something like that. The market was saying that those 64 million in revenues were worth 6 million, which kind of made sense since they were losing money. They were not doing very well, not doing too badly, but they had these activists going in or they bought a big share of the company, but 60% and I looked at their record. Very smart guys. And they had really good connections like to the people that they were going to be selling to. One of the guys was a former purchasing manager, I think it was at one of the director at one of the government agencies they were going to try to sell the service to, and so the big problem was that they hadn’t made money, that they hadn’t made the shift to online class, that you had to go in person to do the classes to a physical building, and that’s not really the way the trend is going right now. Like we’re doing a podcast, we’re not doing a seminar. So,if you looked at what they were making before the internet bulldozed their business over, they converted about 10% of their revenues, over 10% of their revenues into pretax earnings. So,$64 million in revenue that apply 10% to that. And that says they can get $6 million in pretax earnings and they don’t have to pay taxes on that because of all the money, prior management loss. They can just use that to shield the money from tax. It’s trading it if they fix it like one times their annual earnings. [00:13:04] Ney Torres: [00:13:04] P of one. Wow. Yeah, you’re right. Very interesting. So,why do you think they will be able to turn around because of the activists that just bought the stock? [00:13:14] Braxton Gann: [00:13:14] Yes. They actually bought for over twice what I paid for it. They bought in a substantial holding for $1 per share, and now it’s $0.45 cents. And they put a lot of money online, millions of dollars. And that they’re very successful people. They’ve had good lives. One of them was worked, I believe, at a trading desk or an investment bank, and he’s the one that’s funding this. So, and if it just cause they have the money, you know. They’ve been doing a pretty good job. And if there’s no reason for them to do a bad job because they’re the ones that will get hurt the most. [00:13:47] Ney Torres: [00:13:47] So,you’re betting on these guys basically. [00:13:49] Braxton Gann: [00:13:49] Yeah. [00:13:50] Ney Torres: [00:13:50] Very good. [00:13:51] Braxton Gann: [00:13:51] And when I look at these companies, I liked to see them changing things for the better, because the reason these companies get cheap a lot of the times is because the people in charge, they don’t really care. They just want to not rock the boat or they have something wrong and they can’t figure out how to fix. So,just if they’re changing something for the better, that that’s likely to do more good than harm. Just if they’re changing something, it’s likely to be for the better when you get to companies that are small companies that are not doing very well. [00:14:22] Unknown Speaker 1: [00:14:22] This podcast references opinions and is for information purposes only. [00:14:26] Ney Torres: [00:14:26] So,can you tell me about two other stocks? [00:14:29] Braxton Gann: [00:14:29] Yeah. One of them I bought was called STR Holdings. It was a solar encapsulant company. They apparently encapsulated solar panels. And that’s all I know, but that didn’t really work out. They had for like a decade. It was really terrible that it just kept losing money. They lost money doing this. They lost money doing that, and it’s quite impressive how much money they incinerated. If you look at the long term stock chart. Of the stock charts since 2016 or 2011 it’s really terrible, but right now the stock trades at $0.12 cents and it looks like a couple of a few good things have happened. At first they sold their factory in Malaysia for $5 million. Their factory in Spain, they’ve not been getting much business for their encapsula business. So,they have realized that if they can use it the same equipment in a different market for wrappings for meat and cheese. So,instead of making plastic coverings for solar panels, they can use the same coverings for meat and cheese, and they can get better margins there if they refer to purpose their equipment for that. In the chairman’s letter, he actually said that their product that they make is superior to a lot of the other products on the market because of their technological expertise. And this isn’t a great business, certainly are a great company, but they ha there’s so much suck cost in this company that it seems reasonable that they could do pretty well and turn this around and the stock price, the market, the stocks valued at $2.5 million dollars, so you don’t need too much heroics for the company. The stock to be worth more than it’s trading at today. The only trouble with this has been that they need to certification, BRC certification, and in order to get the certification. In order to get customers, they need the certification. And in order to get the certification, they need to have a record of producing it, which means they need customers. So,that’s a tight spot. But they have gotten a few customers who are willing to just leave it at BRC compliant instead of BRC certified. So,if they get this worked out, as they expect in this year, then who knows how much they could get in read me from that. And at the same time, there’s this US Solar Encapsulant business. They just signed a big contract for under the minimum purchase requirements would add up to $5 million a quarter in revenue. And the market cap 2.5 million. So,they’re doing all these things that seems like they’re turning the ship around and apparently the market hasn’t figured it out. [00:17:11]Ney Torres: [00:17:11] Because it’s so tiny, right? [00:17:13] Braxton Gann: [00:17:13] Right. [00:17:14] Ney Torres: [00:17:14] Yeah. And I haven’t seen here tangible book value is super high for $0.74 cents versus the $0.13 cents that the stocks are trading right now. [00:17:23] Braxton Gann: [00:17:23] Right. I don’t have a super big amount in Math but I have 2% or 3% in that. So,I have a lot of stock sort of like this. Some of them work out, some of them don’t. [00:17:33] Ney Torres: [00:17:33] Yeah. That’s a good position size for that because it’s a lot of uncertain information, right? Depends on the management executed the right plan. [00:17:44] Braxton Gann: [00:17:44] Yeah. [00:17:44] Ney Torres: [00:17:44] Right? [00:17:45] Braxton Gann: [00:17:45] Right. This has a lot of data. Easily work out very badly if they don’t turn it around in time. But if they do the stock so illiquid, so tightly held, it could just spike to some silly number. [00:17:58] Ney Torres: [00:17:58] How you can get a financials for this? Will they file with the SCC or is this a dark stock? [00:18:03] Braxton Gann: [00:18:03] They did file with the SCC until recently. It’s the same story as with Learning Tree. So,I actually researched it and you just using SCC filings, but the stock is actually no longer filing with the SCC. The last financials are from September, I think, but it’s very recent. But we do have fairly recent financials for it. But from here on out, they’ll either post it, the financials on their website or they’ll hide the financials and tell shareholders to sell their stock and go bother someone else. [00:18:37] Ney Torres: [00:18:37] Okay. Interesting. What’s the other stock that you were looking into? [00:18:42] Braxton Gann: [00:18:42] That’s a really interesting one. [00:18:44] Ney Torres: [00:18:44] Okay. [00:18:44] Braxton Gann: [00:18:44] They all are, but it’s very strange that it was actually at CDA Florida. It was a radio, and it was a telecommunications company where they had radio and TV and, or supposedly anyway, and they were going to diversify. So,they want her to have all these synergies. So,in order to get the synergies, they bought a cord blood storage business where they crushed up the umbilical cords of babies, and then they stored the blood and the plan was to somehow make money from it. It didn’t really work out well. Well, and they had to dilute shareholders a lot and it exploded all the money. But fortunately for us, a hedge fund came in and bought a big stake, over 30%. And they fired the last guys in charge, and then they sold off all of the umbilical blood storage facilities, and now it’s just a pile of cash, which they’re going to pay out relatively soon actually. They’ve got $11 million dollars in cash and $3 million dollars held in escrow, and that works out to a, well, there’s going to be some wild down experiences to call that a million dollars. You’ve got $13 million in cash, and there’s a billion, 272 million shares outstanding. So,that’s about a penny a share. So,this is literally a penny stock. It’s worth exactly a penny, and they’re going to pay out 0.448 cents in a about a month from now after they have shareholders vote on a liquidation plan. And then a similar, they should pay out a similar amount in the future, possibly probably in 2021 and the stocks trading right now at 0.75 or 0.7 something, it bounces around, but $0.74 cents and that’s so you’re essentially buying the final liquidation distribution at 50 cents for like a 25 cents. So,you’re buying a half dollar for a quarter. [00:20:38] Ney Torres: [00:20:38] Can you explain that again one more time? Cause it is interesting, but the numbers got me a little dizzy. [00:20:45] Braxton Gann: [00:20:45] Yeah. After allowing for some wind down expenses, they’ve cut costs really low, but they still have some expenses. They have about a penny a share to distribute, and the stock price is trading at a 0.75 cents and they’re going to pay out half of the money now and half of the money later. So,if they pay out a half a cent and they’ve got, and you pay three quarters of the cent for the stock, then you’ve pay a quarter now, and then you pay a quarter cause you get a 50 cents back and then you get the remaining 50 cents later. [00:21:20] Ney Torres: [00:21:20] So, okay. Let me see that. So,it’s trading 0.74 cents. [00:21:26] Braxton Gann: [00:21:26] Correct. [00:21:27] Ney Torres: [00:21:27] All right. And they’re going to pay 0.25. [00:21:30] Braxton Gann: [00:21:30] Well, I don’t know the exact number because they haven’t announced it yet, but they’re gonna pay out 0.48 cents in about a month. [00:21:38] Ney Torres: [00:21:38] I see what you’re saying. Okay. [00:21:40] Braxton Gann: [00:21:40] They’ve declared that they plan to pay out the first 0.48 cent subject to shareholder approval at the meeting at the end of May. And I’m sure they’ll get it because he doesn’t want a bunch of money. So,I’m going to vote before it. And the second, the timing on the final distribution is uncertain and we don’t know the exact amount either. But they do have the cash. [00:22:00] Ney Torres: [00:22:00] So,this is more like an arbitrage. [00:22:02] Braxton Gann: [00:22:02] Yeah, exactly. It’s very low risk because they’ve got the cash. [00:22:07] They’re not going to do anything stupid with it because they’re pretty smart guys. They have a good track record. And second, they already tried to look at doing something with the money. They tried to look at maybe making an acquisition or a reverse merger or something. I wasn’t such a huge fan of that, but fortunately they didn’t find anything. So,now they’re going ahead with liquidating the company. [00:22:29] Ney Torres: [00:22:29] Very good. Interesting. All right. That’s all the time we have for today. I really want to thank you for your time and before we go, please tell us where can people find you? [00:22:38] Braxton Gann: [00:22:38] I write a blog at whitechipstocks.blogspot.com because I was too cheap to buy an actual website and yeah, and it tells you the email there, which you can email me at. [00:22:48] Ney Torres: [00:22:48] Thank you very much. [00:22:50] Braxton Gann: [00:22:50] Yeah, I’m paranoid about spammers. [00:22:53] Ney Torres: [00:22:53] Sure. [00:22:55] Braxton Gann: [00:22:55] I don’t usually say into your audio yet, so that’s firstname.lastname@example.org. [00:22:59] Ney Torres: [00:22:59] Perfect. Thank you so much for your time, sir. See you in the next phase. [00:23:03] Unknown Speaker 1: [00:23:03] Did you learn something today? How can you apply your insights? What’s next for you? The fastest way to make things happen is to just share this podcast episode with more people that may find it valuable too. Talk about it with them and surround yourself with likeminded people. Hope you found this valuable. Don’t forget to subscribe. See you next time. [00:23:48] Unknown Speaker 2: [00:23:48] This podcast references opinions and is for information purposes only, not intended to be investment advice. Seek a duly licensed professional for investment advice.