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Judge David Ryan • Location: Natick, MA
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The HSX Report -- 5/25/07
May 24th, 2007 11:00PM

Today, penny stocks! But first... the IPOs.

The Girl from IPOnima

(1) South of the Border (SOTBR) -- H$20
Is it the dramatic tale of the last place in South Carolina to buy fireworks? No -- it's a Disney live-action film about a chihuahua who has to find his way home with the help of his friends. Haven't we seen this film about 20 times in the past... oh... year? Nothing to see here... move along.

(2) Hurricane Mary (HMARY) -- H$15
The blurb gives us very little in the way of plot detail -- it's about twins, and their parents, and disabilities. Beyond that, who knows? But the star power is impressive. I'd say go for it.

And this week's Saturday IPO...

(3) Justice League (JLEAG) -- H$50
Looks good, eh? The next Spider-man! Well... be careful. There are a LOT of comic book properties out there on the market. Not all of them are going to be huge hits. Remember Daredevil? Superhero stocks are among the hardest calls in the market right now. Some of these films are going to be the next Spider-man, shooting up to the H$200s and H$300s. But many of them will drop to ridiculously low levels as interest in actually making the film wanes. Here's how these films typically play: there will be a bump after the IPO, then things will hold steady for a while as we wait and see whether there's any real action taken with respect to the potential film (i.e. is someone writing a script, is a director in negotiations to join on, etc.). The less action, the lower the price goes. If someone big signs on, the price skyrockets. But you just don't know. Justice League is an even bigger puzzle. You're going to have to have Superman, Batman, Wonder Woman, and so on -- and many of those characters already have separate franchises going on. It seems like a big undertaking to get all this film's ducks in place. But if it all works out, the film could be huge. A tentative, cautious, and fairly uncertain buy -- but don't be surprised if you lose your shirt. It's a gamble.

And a rare Sunday IPO....

(4) Power and Glory (PWRGL) -- H$20
A non-DC, non-Marvel comic book (er, sorry -- graphic novel) gets the big screen treatment. Worked well for Hellboy... I don't know much about Howard Chaykin, but I'm encouraged by what little I've read about him. My only exposure to his work was the Marvel adaptation of Star Wars, which was early in his career. But this plot sounds intriguing, and H$20 isn't a bad price to pay. Strong buy!

On to today's feature....

The Wonderful (Speculative) World of Penny Stocks

So you're new to HSX, and you don't have a lot of money, but you want to make a lot of money. Except you can't afford to buy massive quantities of H$200 blockbusters. What's a person to do? Well, there are opportunities for mind-blowing gains out there, if you know where to look and if you're willing to spend some time with it. It's the land of "penny" stocks. I'm going to define a "penny stock" as a stock that trades for H$5 or less, but bargains are available even up to the H$15 range, and there are plenty of opportunities for under H$1. The only rule here is this: only go for penny stocks that are in the concept or development phase. You can take a flyer on production-phase pennies, but bear in mind that they could be that cheap because they're destined to head straight to video or cable. If it's a wrap or release phase penny stock, it's definitely that cheap for a reason. So your job, as the penny stock investor, is to comb the "C" and "D" phase stocks for value. How can you spot value? Well, if you read the description for the film and say, "You know, I think that's a film that people would want to see if it ever gets made", you could have value on your hand. As an illustration, let me tell you a little story.

Once upon a time there was a boy named Speed Racer. He had a cheaply-produced and crudely-drawn anime show in the 1970s that, all in all, wasn't that bad. One day, some buzz began in Hollywood that Speed's story was going to be brought to the big screen in a live action feature. A MovieStock (SPDRC) was duly issued, at H$10, as a concept stock. The buzz quieted down, and the stock's sunk into penny range. You could have had it for under H$2. Then, a pair of brothers named Laurence and Andrew, who liked the cartoon, thought that they might want to make this movie. So they signed on to produce and direct it. Oh, did I mention that Laurence and Andrew have done a couple of other films together? Like, for example, The Matrix?

When the Wachowskis picked up the project, Speed Racer's share price rocketed up faster than Racer X around a banked turn. SPDRC currently trades at H$79 or so; by the time of its release next summer, it will probably be double that. Had you played the penny game, you could have had it at H$2!!!! Your H$100,000 investment to max out your holdings could have netted you a profit of H$3.8M now, and possibly something like H$6.9M by next year. THAT is how you make big money in HSX. (As an aside, I think that SPDRC is a buy at H$79... this one's going to be big, I think.)

So what are some examples of potentially huge stocks that are currently languishing in the penny range? First, a bit of illustrative history. Once upon a time, the Powers That Be at HSX were extremely liberal in dishing out concept stocks for projects that didn't even rise to the level of "rumored". For example, there was a Monica Lewinski Story concept stock issued around the time of that whole mess in '98 or so -- there was no project, it was just guessed that somebody might at some point come up with a plan to film her story. Many of these concept stocks were just famous TV shows or movies that HSX thought were candidates for filmic treatment (or, in the latter case, remakes). A lot of them are still out there, too, sitting relatively unnoticed in pennyland.

Here are just a couple of blockbusters-waiting-to-happen, should someone decide to make them reality:
(Full disclosure: I am invested to the maximum in all of these stocks.)

(1) Hawaii Five-O (HW5O) -- H$0.68
This property -- which was tied up in Jack Lord's estate for a long time -- doesn't even have a studio. But SOMEBODY will make a Hawaii Five-O motion picture. What if it's Michael Mann? What if it's Quentin Tarantino? Even if it's B-list talent, the name alone will guarantee box office.

(2) Without Remorse (WOREM) -- H$6.34
Two weeks ago, this stock was trading at H$0.25. The Tom Clancy phenomenon has quieted down in the past couple of years, but he's too popular to ignore. WOREM -- a straightforward revenge tale that will have broader appeal than Clancy's usual technowar stories -- will be made sooner or later. Count on it. It's still worth buying at H$6... but if you had bought it two weeks ago, you'd be sitting pretty already. (I don't know why the stock has spiked so dramatically; I have to assume that there was a story concerning its development in one of the trades.)

(3) The Vega Brothers (VEGAB) -- H$0.37
Right now, VEGAB exists solely within Michael Madsen's ego. He's been telling everyone for a couple of years now that QT should develop the brothers Vega (Vincent from Pulp Fiction, Vic from Reservoir Dogs) into a spinoff. Nothing has come of it. However -- and here's the kicker -- Tarantino isn't averse to the idea. With the failure of Grindhouse and the increasing view that he's becoming less relevant as a director, QT might want to go back to the well and dig this sure-to-get-attention project out. (I'll go into why I knew Grindhouse would fail, and how I made a buttload of money shorting it, in a future blog. Stay tuned!)

(4) Red Rabbit (REDRB) -- H$0.86
See #2. Sadly, I bought in at H$30.21....

(5) Bullitt (BULIT) -- H$0.79
Wolfie Peterson wants to remake McQueen's biggest film. At some point, the studios will let him. It will probably be a disaster... but it will make money.

That's it for now. The Report will return Monday as we wait with bated breath for Pirates' weekend BO.... Excelsior!


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