The category of stocks under $1 billion in market capitalization is called by Credit Suisse as the Ultimate Small Caps, and Credit Suisse’s Favorite Ideas are in the following. If applicable, we added in the implied upside, the market capitalization rates, and other color.

Pinnacle Entertainment (NYSE: PNK), in hotels, restaurants & leisure with a $600 million market cap, has an outperform rating, and its $15.00 price target versus a $9.66 target today implies 55% upside.  What is interesting is that the Thomson Reuters consensus is actually even higher at $16.06.

Codexis, Inc. (NASDAQ: CDXS), with a $202 million market cap in biotechnology, has a price target of $25.00 on its Outperform rating.  Keep in mind that the stock was at $10.41 when it was added to the list in June versus $5.63 today.  It is hard to trust exponential gains expectations.  To prove the point, the consensus price target is $12.17 today.

VIVUS Inc. (NASDAQ: VVUS), with an $804 million market cap in pharmaceuticals, was commented on this morning even though it was already on the list after being added only on June 14, 2011.  At $9.00 after a drop of over 13% this morning makes for a questionable target.  The prior $15.00 would imply about 66% upside if it can remain in place. Before the effects of any analyst changes this morning, the Thomson Reuters consensus price target is only $11.33 and the 52-week high is $11.48.

Sycamore Networks, Inc. (NASDAQ: SCMR), worth about $520 million in communications equipment, has a price target objective of $37.00 from Credit Suisse.  That is up double from the $18.00 price today and still up 75% from when it was added to the favorite ideas list in June.

JON C. OGG

Each ETF is said to mirror the way equity managers tend to invest in the small cap asset class outside of mere sectors and styles.  They are based upon the newly created Russell U.S. Small Cap Investment Discipline Indexes. 

The new small cap ETFs are as follows: Russell Small Cap Aggressive Growth ETF (NASDAQ: SGGG); Russell Small Cap Consistent Growth ETF (NASDAQ: SCOG); Russell Small Cap Low P/E ETF (NASDAQ: SCLP); and the Russell Small Cap Contrarian ETF (NASDAQ: SCTR).  The companies which appear in more than one of the new funds in the top ten holdings are as follows: Liquidity Services, Inc. (NASDAQ: LQDT); Ulta Salon Cosmetics & Fragrance, Inc. (NASDAQ: ULTA); Ameron International Corporation (NYSE: AMN); and Southern Union Co. (NYSE: SUG).  The breakout of the top holdings (as of 9/30) is below.

We wanted to take a look at Level 3 Communications, Inc. (NASDAQ: LVLT), RF Micro Devices Inc. (NASDAQ: RFMD), Alcatel-Lucent (NYSE: ALU), Flextronics International Ltd. (NASDAQ: FLEX), Sprint Nextel Corp. (NYSE: S), Netlist, Inc. (NASDAQ: NLST), and Conolog Corp. (NASDAQ: CNLG).  Some of these seven cult stocks are big companies with a broad customer or broad investor base, while some are mere cult stocks that have seen the sort of trading activity that raises the eyebrow of the skeptics.

Level 3 Communications, Inc.

Level 3 Communications, Inc. (NASDAQ: LVLT) reported a $182 million net loss, with earnings at -$0.11 EPS, as revenue fell 12$ to roughly $924 million. The wild card for the quarters ahead is the launch of Level 3 Tower Access, a ploy to gain off the overly stretched wireless networks due to all the smartphone data usage.

The company claimed improvement in its customer buying behavior and also saw positive free cash flow.  It is adding more sales staff but the company keeps rolling its debt.  Ultimately this debt level has to come down even if the company is getting better debt terms.

Level 3 shares fell from $1.38 to $1.27 with earnings this week and it effectively doubled its daily volume to over 20 million shares before Thursday’s recovery to $1.30.  The 52-week trading range is $0.60 to $1.77 and shares were as high as $1.66 on January 5… shares are 21% off the highs a month ago.

RF Micro Devices Inc.

RF Micro Devices Inc. (NASDAQ: RFMD) actually beat earnings on January 27 but was short against revenue estimates… Revenue was down 2% sequentially but up 24% year over year at $250.3 million; Net income was $24.9 million.

The company said sales from cellular products group will be better than normal seasonality, with multi-market product sales flat to up sequentially.  The opportunity for the company is the growth of smart phones, netbooks, data cards and internet connectivity devices.  Merriman Curhan Ford started this with a Buy rating after earnings with an upside seen to the $7 to $8 range.  This has been one of the duds of Cramer’s Mobile Internet Tech Tsunami stock picks.

With shares at $4.05, its 52-week trading range is $0.73 to $5.85 and the high in 2010 was $4.98 on January 4.  This only lost about 2.5% after earnings and has actually held its own since the earnings report but shares are down almost 20% from the highs in January.

Alcatel-Lucent

Alcatel-Lucent (NYSE: ALU) proved that what Cisco Systems (NASDAQ: CSCO) was seeing was not universal.  The troubled telecom and communications equipment and service provider gave earnings that showed now real return to normalcy yet and there was very little good news in the earnings report.  The profit was 46 million euros, or $63 million U.S., versus a 3.9 billion Euro loss a year ago, partly on one-time gains.  It saw a 19.9% drop in revenue to 3.97 billion euros to the lower-end of its own estimates and below revenue estimates of 4.3 to 4.4 billion euros.  Operating margins for this year are now seen at 1% to 5% versus 5% previously targeted.  If you go through the notes, this summary is actually being kind as problems exist on many fronts here.

Alcatel-Lucent closed down over 12% on Thursday at $2.79 in its ADRs.  The 52-week trading range is $1.09 to $4.95, and this hit a January high of $3.82 on January 14 for its ADRs.  This puts the stock down about 27% from highs of just a month ago.

Flextronics International Ltd.

Flextronics International Ltd. (NASDAQ: FLEX) was actually one  of the real laggards of the electronics manufacturing services companies this earnings season because it did not have an absolute blowout of the estimates as most peers did.  It was effectively the worst EMS reaction when you consider the double-digit gains from peers.  The earnings Were $0.17 EPS and $6.6 billion in revenues versus Thomson Reuters estimates of $0.15 EPS and $6.3 billion; guidance was the issue at $0.13 to $0.16 EPS on $5.8 to $6.2 billion in revenues versus Thomson Reuters estimates at the time of $0.13 EPS and $5.8 billion.  Flextronics was a victim of ‘sometimes good just isn’t good enough.’

At $6.87 now, the 2010 high was $7.49 on January 4.  The 52-week trading range is $1.81 to $7.97.  A Needham upgrade to BUY kept this reaction from being worse.  Being off only 8% from January highs in this market might not sound bad, but the EMS stocks have mostly seen significant gains during earnings season.

Sprint Nextel Corp.

Sprint Nextel Corp. (NYSE: S) looked more like it should be called “Sprint, Next Sell!” when we saw its earnings reaction this week.  The company has closed on its Virgin Mobile and its iPCS deals and has been building out the Clearwire pact for the 3G and 4G wireless networks.

Sprint reported a loss, lower revenues, and lower subscribers this week.  The hurdles are many.  It is still amalgamated of many brands, has too many networks, and frankly is viewed as having the least attractive smartphone lineup of the 3 US major wireless carriers.  Everyone keeps hoping that Sprint Nextel will be acquired, but that is a rumor and a story that has become as frequent and as credible as the ghost ships and sea monsters of yesteryear.

Shares fell from $3.65 to $3.36 on Wednesday (on over 250 million shares to boot) and then to $3.26 on Thursday.  The high for 2010 has so far been $4.23 on January 26.  So the 10.6% drop from pre-earnings this week paled in comparison to the sell-off of 23% from the January highs.

Netlist, Inc.

Netlist, Inc. (NASDAQ: NLST) has not even reported earnings yet but it has set a date of Thursday, February 18… If there was ever a true tech cult stock in late 2009 into 2010, Netlist is that.  Because of its cloud computing initiatives and because of day trader hype and the never-ending quest of the investment community’s willingness to chase low-priced stocks, this one ran and ran.

One of the issues it has run into is that it is in patent suits as the plaintiff, but more important is that it filed to sell $30 million in stock.  After an exponential run-up from November the market cap here is only $67.5 million now.  The average volume is now over 4 million shares, and it has become frequent to see one-fourth or one-third of its entire share base trade in a single trading day…. a true cult stock.

In November it was hardly a $1.00 stock.  By the end of November the stock was north of $7.00.  The 2010 intraday high was $6.10, although it highest close for 2010 so far has been $5.53.  A close of $3.40 on Thursday puts this stock down 44% from intraday highs of 2010 and down 38% from its highest 2010 closing price.

Conolog Corp.

Conolog Corp. (NASDAQ: CNLG) is about as much of a cult stock as you will ever see.  It spent most of 2009 in the $1 range, at least after a 1-for-5 reverse share split. Forget earnings season here because this is just a classic example of a trader’s tout around news.  The two big issues around this stock that has caught the mind of the penny-stock traders have been that it announced the start of production of its “GlowWorm” fiber optic detector in late-January and the news that it announced advance orders for 280 systems and other equipment valued at over $1.9 million on Feb. 1.

Anything is possible in the world of penny stocks and cult stocks.  But Conolog is a company that has a history as questionable as it gets.  ‘GlowWorm’ is the big attraction for traders here, but this almost sounds more like a product for crazy fishermen or for parasite removal in a colonic than it does a ‘fiber optic detector that may be used in any fiber optic line or network without the need to cut the cable.’ When you see 3 reverse stock splits in four years, what does that tell you?

Conolog closed at $1.41 on January 4 and hit an intraday high of $4.72 on February 1.  The high close was also $4.01 on February 1, a day which saw a whopping 21+ million shares trade hands… that is almost 7-times its whole float of almost 3.2 million shares.  Shares are now back to $2.23 and the market cap here is a mere $7.1 million.

You are invited to join our free daily email distribution list to hear about unusual stock activity, top analyst upgrades and downgrades, IPOs and secondary offerings, ongoing day trader and options trader alerts, stock and market rumors, Buffett and guru investor news, M&A and more.

JON C. OGG
FEBRUARY 12, 2010

The trading volume is there on these today so far.  SCHC as of NOON has traded 46,000 shares and and SCHE has traded 77,000 shares.  Not bad for a first day effort.

Some, including myself, wondered how these would do for trading volumes after they were launched.  Our own bogey for measuring success of an ETF for liquidity is 100,000 shares per day.  That may be a higher bar than others have, and may be lower than others.

The average volume listed for the other recently launched Schwab ETF products is as follows:

• SCHB 192,000 shares per day; 53,000 shares just after NOON today
• SCHX 133,000 shares per day; 41,000 shares just after NOON today
• SCHA 123,000 shares per day; 34,000 shares just after NOON today
• SCHF 150,000 shares per day; 57,000 shares just after NOON today
• SCHV 28,900 shares per day; 26,000 shares just after NOON today
• SCHG n/a on average; 48,000 shares just after NOON today

These might not be liquid as the FAS/FAZ intraday leveraged ETF or the SPY/QQQQ ETF products, but it would be difficult to call these a disappointment so far.  There are still short of 1,000 ETFs in the US, but that may change rather quickly.  Many new ETFs are planned, and many of the large brokerage firms want a piece of the ETF pie.  After all, recent reports put the ETF assets now over $1 trillion……

JON C. OGG

There is also the NYSE Alternext today, what the NYSE calls a tailor-made market for small and mid-sized companies seeking simplified access to the stock market with streamlined listing requirements and trading rules.

BATS has done a great job of capturing share from almost out of nowhere. But the question really remains, does the world in a more highly regulated financial system really need yet one more alternative for companies to raise cash?

In the past there were the old blank check companies where companies would go public with the goal of acquiring any business in any sector.  Then came special purpose acquisition companies, or SPACs, which would generally set at least a few parameters in a sector or of a certain classification of business with size parameters.  These SPACs are still around and are still filed, but they are not coming one per day as it seemed they were in part of 2007 and 2008 when the world of private equity was still booming.

Sometimes there can be too many alternatives to going public.  No offense to BATS, but today’s world of financial markets versus the world of financial markets in 2007 and before are two entirely different worlds.  Companies holding themselves out open to the general public for investments into those companies need to have standards.

To be continued….

JON C. OGG

On Oct. 15, TM Entertainment & Media (NYSE: TMI) will have its deal vote to buy China MediaExpress, an advertising company. The SPAC’s shareholder base is primarily occupied by yield-to-trust investors, which may hobble its efforts to take its target public. Already, one of TM Entertainment’s shareholders, Bulldog Investors, sought to have the company liquidate early instead of pursue a merger.
 
Capitol Acquisition Co. (AMEX: CLA), the SPAC that aims to bring public Two Harbors Investment Corp., will have its deal vote Oct. 26. Ideation Acquisition Co. (AMEX: IDI) delayed its deal vote one day, to Oct. 27.
 
No SPACs have deal votes set for this week.
 
Bulldog Investors reported in a federal filing that it sold part of its stake in InterAmerican Acquisition Group (OTC:IAQGU), the SPAC that brought public development company China New Cities. The investor previously held about nine percent.
 
Wesley Capital Management revealed it has a stake of nearly nine percent in NRDC Acquisition Co. (AMEX: NAQ).
 
Millennium Management sold out of its stake in Hicks Acquisition Co. (AMEX: TOH) before the blank check got its deal approved. On Friday, Hicks’ deal to buy Resolute Natural Resources was approved by shareholders, marking a surprising turnaround for the blank check that just a couple of months ago had a stalled deal to buy Graham Packaging.

 For more on these SPACs and other blank checks, visit www.SPACupdate.com.

The offers were made to Premier Exhibitions and to Sellers Capital for the right to enhance and expand RMS Titanic, a wholly owned subsidiary of Premier Exhibitions.  WLM offered $25 million for an exclusive, multi-year management agreement of RMS Titanic to include all touring, expedition and salvage rights to the wreck of the RMS Titanic.

In a separate proposal, Mr. Harris offered $3.00 per share to Sellers Capital and its affiliates, which include Contango Oil & Gas (MCF), who are the beneficiaries of 4,778,399 shares of common stock of Premier Exhibitions.  Their holding represents 16.3% of Premier’s outstanding shares, including all board and executive positions.

Mr. Harris is one of the original founders of RMS Titanic, Inc.  With a share price of $1.37 and a market cap of $40 million, this might sound confusing.  But it is a major percentage gain of some 98%.  Again, this does not entail a full buyout on the surface.  But it could and would likely adjust the valuations of Premier Exhibitions in a great way.

Jon C. Ogg

According to MarketWatch, companies such as E*Trade (ETFC) may get the boot soon. But the list of companies that should be taken off does not end with weak financials. The publishing company Meredith (MDP) is still on even though it has a market cap of just over $536 million. So is Office Depot (ODP), which is now a penny stock.

Looking at the list of S&P 500 stocks there are a large number that either have market caps below $1 billion or have stocks trading under $1.

The S&P 500 should probably be the S&P 199.

The firm operates drybulk carriers and has a fleet of 46. DryShips is based in Athens.

Recently the company faced being in breach of its debt convenants. DryShips is trying to sell $500 million in shares. When that news came out, several brokers, including Credit Suisse, dwongraded that stock.

DryShips trades an average of over 17 million shares a day, and its stock price fluxuates wildly.

DRYS has a 52-week high of $116.43 and a low of $3.04. The bad news about the firm’s debt has driven shares down by 25% today to $9.

For traders who look for volatility, DryShips doesn’t have an equal. Over the last three months, it share price has moved from $22 to $9 in five days. Another five trading days took it down to $3.50. Two weeks later, it was back at $11. Its recent move has been from $15 to just over $8. Its most breathaking move was between August and November as the shares moved from over $76 to under $4.

If DRYS does not resolve its debt problems, it could go from its current price of $9 to zero.

Douglas A. McIntyre

We ran a screen for NASDAQ stocks with active trading volume, share prices under $1.00, and those which have traded over $1.00 in the last 52-weeks.  Some of the most usual suspects here are as follows:

Name        Symbol                        Price    Mkt Cap   Avg Vol       52-wk Range
Autobytel Inc. (ABTL)                    $0.40    18.09M    255,678        0.31 – 3.30
Beacon Power Corporation (BCON) $0.62    61.40M    973,758       0.50 – 2.18
BankUnited Financial (BKUNA)       $0.24    8.61M    612,080         0.24 – 8.00
Charter Communications (CHTR)    $0.13    53.58M    5,062,670     0.11 – 1.68
Candela Corporation (CLZR)           $0.53    12.12M    195,383        0.31 – 5.93
Cosi, Inc. (COSI)                           $0.25    10.19M    197,683        0.25 – 3.24
Eddie Bauer Holdings (EBHI)          $0.51    15.72M    288,632        0.30 – 8.72
8×8 Inc (EGHT)                              $0.47    29.30M    157,789        0.40 – 1.30
Emmis Communications (EMMS)    $0.41    14.91M    202,774        0.25 – 4.27
Finisar Corporation (FNSR)             $0.40    171.83M   3,241,740     0.29 – 1.96
Glu Mobile Inc. (GLUU)                   $0.44    13.02M    92,946.2       0.22 – 5.77
Globalstar, Inc. (GSAT)                   $0.22    26.35M    634,428        0.17 – 9.50
ChipMOS TECHNOLOGIES (IMOS) $0.19    15.95M    538,883        0.18 – 4.39
Jones Soda Co. (JSDA)                  $0.38    10.02M    154,182        0.31 – 8.20
Jupitermedia Corporation (JUPM)     $0.44    15.83M    112,874        0.20 – 4.03
SourceForge, Inc. (LNUX)                $0.96    61.58M    345,160        0.32 – 2.59
Level 3 Communications (LVLT)       $0.70    1.13B    25,960,200      0.60 – 4.48
MRV Communications (MRVC)        $0.80    125.74M    522,931      0.21 – 2.57
Openwave Systems Inc (OPWV)      $0.64    52.99M    400,640        0.45 – 2.89
Pacific Ethanol, Inc. (PEIX)              $0.72    41.59M    591,114        0.50 – 9.88
Powerwave Technologies (PWAV)    $0.48    64.25M    2,752,260     0.35 – 5.30
RF Micro Devices, Inc. (RFMD)        $0.94    247.34M    5,364,060    0.70 – 6.00
Sanmina-SCI Corporation (SANM)    $0.52    279.31M    5,529,640    0.27 – 2.66
Sirius XM Radio Inc. (SIRI)               $0.14    491.88M    55,366,100  0.08 – 3.89
Spansion Inc. (SPSN)                      $0.22    35.81M    1,428,130     0.20 – 4.29
NextWave Wireless Inc (WAVE)       $0.10    9.90M       577,515       0.07 – 7.59
Xinhua Finance Media (XFML)           $0.61    43.60M    333,146        0.31 – 6.71

If you think about this, there is also a financial incentive.  Ifhundreds of stocks magically get sent to the minor leagues of theOTC-BB or the Pink Sheets, then NASDAQ would lose a substantial amountof revenue.  It would also lose a significant amount of daily exchangevolume.

Jon C. Ogg
December 19, 2008