Update #4: UTK / XMSR

Wow, what a week!
One thing is for sure: Acetrader is a great learning vehicle for investors. Let me remind you, the purpose of this blog:
"This site was designed to communicate with friends who share similar interest. The interest in the "free market". Stocks, over the long term, provide the best return on your money. More than cash, bonds and even real estate. Understand that investing is a learning process. We will learn from our mistakes and move on. This is a journey. Enjoy the ride!"

I am sure above quote is familiar to all of you. I am also sure that you're all enjoying the ride. I certainly am. Below, I will express my opinion on issues regarding UTK and XMSR. Both of them were picked by me when most of the other investors were not interested in them. Thus, I was able to buy them when the asking price was low. I still believe that my initial analysis were correct. Only time will tell. Bottom line: Do not sell UTK or XMSR until I say so.

First, let me re-print a view from my friend/fellow analyst, Siyu:
Siyu LI said...
I wasn't surprised that some of their partners has questionable background, or has a questionable business. I don't think that shall be the reason to sell the stock, here is why. By the nature of their business model, they mainly deal with micro-size company - Pick Sheet, Over the counter, or start-up. Very few investors buy those stocks in anticipation of 10% - 15% annual returns - it is either 100% loss, or huge gains. This indeed, makes UTK's model more attractive - it diversifies the portfolio by making deals with a lots of those companies. So, if you believe in their business model, the real question is do they have a competent management team with good judgement, execute deals in good faith, each and every time? Well, that's your call...

Siyu obviously understands the situation. UTK provides services to those companies that do not have the capability or the means to find the right technology themselves. The real big companies have the financial resources to have their own "new business aquisition" department. For smaller companies, UTK is a good source of ideas - and they are willing to pay for it.

Here's my take on current issue with UTK. To understand this clearly, allow me to use an analogy: 1. Suppose you were an attorney 2. A client comes in 3. You find out that this potential client has questionable past business dealings that's not related to your business at hand 4. Would you accept this client (he's going to pay you) or refuse services because of his/her past?

I don't know about you but most attorneys will work with above client (as long as they can pay). Remember that we are not in the business of judging people. Basically, I do not fault UTK for having done business with people who had failed businesses previously. Let's not forget that vast majority of businesses fail rather than succeed. ( By the way, expect to have many of your stock picks fail. One stock that succeed, will cover several failed stock picks. Those who are new to investing, simply take my word for it. In time, Acetrader portfolio will prove the above. With all these pot holes, Acetrader is still up more than 40% YTD).

The real issue is whether UTK is using fair method of accounting for stocks it owns in its portfolio. Remember that UTK owns over $60 million worth of stocks in its balance sheet. This is the real issue. For public company stocks, it is easy - the last traded price. However, for those non-public company stocks, it is somewhat iffy. The UTK management states that they use conservative, fair value methods when needed. I just have to believe in the management as well as its board members and auditing accounting firms.

Within a week from now, UTK will hold public conference call session to discuss its quarterly business results. Guess what. I expect them to release a fantastic quarter. I am also sure that they will talk about current issue as well. Let me put it to you this way: I would not want to be short UTK until next week. I expect that many short sellers will try to cover (buy back shares) their share soon. If this happends, price will go up. Let's see. Hold, hold, hold.

XMSR: Some of you were scared when the price went below $10 (it went as low as $9.91). Within 2 days, the price is back up to near $12. What does this tell you? Friday, XM traded over 27 million shares in one day! Hmmmm... Somebody obviously knows something that's not public yet. Could XM be taken over? I don't believe Opra's debuit did this either. It doesn't matter. What's important is that XM is worth a lot more than the current price. I am right - they are wrong. XMSR is much better value than SIRI. You wait and see : )
Bottom line: Buy it, just don't chase it.