Investing in Honey, MEDIHONEY

My last stock purchase of this year and first of next year will be 110% speculative and based on a hunch and nothing more. I had the same feeling last year with Calpine (see below for details).

Why is it speculative?
1. Because it trades under $10 per share (it actually trades under $2 per share).
2. Because it trades over the counter (DSCI.ob)

I said I was done investing in stocks in 2007 but I read an interesting story in the NY Daily News while riding the train home from Manhattan on Thursday night (I took my wife to see Mama Mia on Broadway). Excellent show by the way!

The article highlighted Derma Sciences Inc. (DSCI.ob), a Princeton, NJ company that engages in the manufacture, marketing, and sale of dermatological related products in the areas of wound care, wound closure and specialty securement devices, and skin care in the United States and internationally.

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The general description didn’t catch my attention but the fact that the FDA green-lighted it’s product Medihoney on Nov. 7 is what got me thinking (this could be bad – lol).

MEDIHONEY™ is the first honey-based product cleared for use by Health Canada and also the first cleared for use by the FDA. These unique dressings contain Active Leptospermum Honey, indigenous to New Zealand (Manuka) and Australia (Jellybush). The dressings can be used in all phases of wound healing and could be considered a key dressing in any wound bed preparation protocol. These qualities can help to take much of the guesswork out of wound management.

As the Daily News states, honey is most likely to catch on among Americans inclined toward alternative health treatments – especially those concerned about overexposure to antibiotics as drug-resistant staph becomes more common.

Honey has been used since ancient Egyptian times to heal wounds and prevent them from becoming infected. It has natural anti-inflammatory and antimicrobial properties that are especially potent in a strain known as manuka cultivated in Australia and New Zealand.

Israeli doctors reported in the journal Medical Oncology that 64% of cancer patients who ate the honey didn’t develop anemia, and 40% didn’t suffer a low white-blood-cell count.

Some predict that honey will become a part of big business among alternative treatments and I firmly believe this could be true. Therefore, I will be putting my money where my mouth is by buying shares as the market opens tomorrow. It will be a small position but one that I will add to if the stock does what I expect it to do.

Interesting Technical Developments:

  • It was up more than 48% on huge volume over the past week and that CATCHES my attention.
  • It gained 27.66% Friday on volume 4.5 times the 3-month average. I was slow (on vacation) and didn’t buy Friday (could have enjoyed a large portion of that 27% gain)
  • Volume was more than 5 times the weekly average this week and more than 10 times the weekly average three weeks ago. (Started to make its move from $0.65 to $1.20)

This is not a typical buy that I place into my portfolio but I did something very similar last year with Calpine and it worked very well (VERY WELL)!

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What about the Fundamentals? (in thousands)

  • Net Income has gone from ($2,339) in 2004 to ($909) in 2005 and $669 in 2006
  • Revenue has gone from $19,887 in 2004 to $23,545 in 2005 and $27,887 in 2006
  • Gross Profit has gone from $5,264 in 2004 to $7,789 in 2005 and $9,652 in 2006
  • 2007: I am speculating on a surge in business based on the new product line!

I want to grab a few shares prior to 2008 so I will be in the market tomorrow making this buy and watching over the next few weeks to see if this thing continues to move on huge volume.

Calpine Analysis (CPNLQ)

Comments

  1. Steven Mac says:

    Chris,

    According to your post, you mentioned that you would make a buy for DSCI on morning open 1/2/08. What type of risk/stop loss % did you go with on this one? I see it is currently down -10.16% on the trade – does this in anyway get you close to making a sell?

    Thanks,

  2. Steven,
    I just had my limit order filled at $1.05 (about 3 minutes ago). I guess you can say that is bad as you never want a lowe ball order filled.

    No, I am not selling. This is a 110% spec play (as said in the post) with very little overall risk to my portfolio. I am only buying a few thousand shares (a very small loss – even if I lost it all).

    Bad way to look at it but I make a spec play 1-2 times per year for very little risk exposure. It would be smaller than some losses at 10% (2% risk) if I took a 50% loss in this case. My cost basis is now much lower with the new shares.

    I don’t advise anyone doing what I am doing in this position unless they are risking very little relative to their overall account.

  3. Chris, how long are you {roughly} going to hold on to this stock for?

  4. Kyle,
    I gave it three months in my notebook. This is not a typical trade as it is 110% spec play. A typical trade would be cut immediately when violating sell rules (1% or 2% loss). This whole position is only 2% of equity. A 50% price drop would only be a 1% equity loss.

  5. Chris, still think medihoney worth buying? I’m a nurse and it was just introduced to my facility and it is healing wounds like crazy!

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