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I am a charter subscriber to Complete Growth Investor (, which was founded almost two years ago by ex-Fools Tom Jacobs and Jeff Fischer.

Of late I have commented on Agora Publishing's CXS Alert/Penny Stock Fortunes' newsletter for CGI. I subscribed to CXS Alert/Penny Stock Fortune a year ago because the marketing literature said their modus operandi was based on the methods of Ben Graham.

Let me tell you, CXS Alert/Penny Stock Fortune is no Ben Graham.

And I am not just referring to the newsletter's poor results. As you will read below, the marketing literature is misleading. They tell you about their winners but omit the losers. Shameful, really. But you read and decide for yourself.

Speaking on Ben Graham, if you want to read his partnership letters, Chuong Investment Management has them here: Thank you to Chuong for making these letters accessible.

Tom and Jeff are doing a terrific job at CGI, by the way, so you should check them out.

And now, CXS Alert/Penny Stock Fortunes…

Posted July 13, 2005

"If you tell me to buy a cheap stock, then tell me why it is cheap. If you don't, then you lose my trust."

This is what I am thinking right now after spending a few minutes of research on CXS Alert's August pick of DHB Industries (DHB). CSX is subscription newsletter of Agora Publishing, of Frederick, MD.

Now I realize it is bad form to publicize a fee-based newsletter's most recent pick. On the other hand, analyst Sala Kannan goes on at length about the stock's upside without once pointing out that, oh, by the way, the body armor maker posted 5 straight quarters of negative operating cash flow.

When a company is profitable on a GAAP basis but has OCF losses, the culprit is usually a big increase in receivables and/or inventory. As a result, the business may not be as intrinsically profitable as the income statement suggests.

The funny thing is, analyst Kannan tells us that at $8.47, down from an all-time high of $20 earlier this year, DHB is at a "fabulously cheap entry point." She obviously knows something is wrong; she just can't tell us why.

Permit me the honor.

Receivables are up $7 million year-over-year for the quarter ending 3/05, and inventory is up $40 million. Meanwhile, working capital liabilities climbed by $3 million. Thus, investment in working capital is $44 million. Since the YOY gain in net income is just $1.3 million, the business looks awfully capital-intensive.

DHB "...could bring you "49% profits," the CXS headline states. Well, it may. But before buying this company I want to know how management plans to slim down its working capital assets. Investing $44 million to make $1.3 million is not a viable strategy for sustainable growth.

I sent a note to analyst Kannan raising these points. If she responds, I will post her comments here.

Oh, did I tell you that CXS Alert also recommended Boston Communications Group (BCGI) even though the company was the defendant in a lawsuit which, if they lost, would more than wipe out corporate net worth. BCGI lost the lawsuit, and the stock got hammered

Posted Aug. 13, 2005

Do you remember my note from July 13 about the "Buy" report on armor-maker DHB issued by the CXS newsletter?

Well, now they want us to sell.

Here is the e-mail that I just received:

"i'm on the road typing this on my palm treo, so forgive the lack of punctuation…

"clearly we have to jettison dhb. three questions, have been nagging me all night. why did we only find out yesterday – one week after the fact - that dhb had to discontinue use of zylon in its bullet proof vests on august 24th ?

"does yesterdays announcement which resulted in that hugh sell-off, explain the sell-off that began friday and continued into monday? in other words, was someone selling before the news was announced to us?

"and (as the gripper) can defense industries international (dfns.ob), a tiny israel based manufacturer of body armor, bomb disposal units and bulletproof vests which is set to launch a new improved bullet proof vest imminently, capitalize?

My view?

CXS told readers to buy DHB at $9 and now it is $5 and change, so the realized loss is -44%. While we all make mistakes, CXS's due diligence was shoddy. As noted in my initial post, you just needed to look at DHB's statement of cash flow for 30 seconds to see it had working capital problems. A legitimate newsletter would have told you, "Hey, this selection has some risks, and they are...."

But CXS never told us about these problems; instead, it was page after page of reasons why this company will prosper.

(I sent an e-mail to CXS asking why they didn't mention the working capital problems, but I did not receive a response.)

To protect yourself from these kinds of situations, make sure you know the bear case for each stock you buy. (You will note that Tom and Jeff tell you the risks of each of their selections. I applaud this, as every investment has risks.)

Also, learn how to read a financial statement. You do not need an MBA or an accounting degree to know that if receivables and/or inventory are growing faster than revenue, then something may be amiss. Right now I am re-reading Creative Cash Flow Reporting, by Charles Mulford and Eugene Comiskey. (Full disclosure: Chuck Mulford endorsed my book It's Earnings That Count.) I have picked up a lot of good ideas that I missed the first time.

Hope you had a good summer.

Posted Oct. 20, 2005

Do we need a Sarbanes-Oxley for investing newsletters?

Not for CGI, of course. Tom and Jeff are transparent and accountable for every recommendation.

But maybe Agora Financial needs adult supervision. To wit, consider this pitch for their Penny Stock Fortunes newsletter, which I received this morning:

Dear Valued Penny Stock Fortunes Reader,

Thanks for your continued loyalty to Carl Waynberg's Penny Stock Fortunes. Since you are a valued reader, I'd like to offer you our finest deal ever.

[HH: Carl Waynberg replaced Sala Kannan as editor. His bona fides? According to marketing literature (, "little more than a decade ago, Carl Waynberg was hobnobbing with Celebrities. Then one day he realized he could really make a name for himself by researching Wall Street's downtrodden stocks. Since making the switch, he's racked up success after success, with stocks that rose 682%… 757%… even 861%." You can read more here:]

Between now and Oct. 31, you can renew your subscription to PSF for the one-year price of $59 and get TWO FULL YEARS of service! That's two years for the price of one -- a 50% savings.

But even a 50% savings is nothing compared to the gains you've had a chance to rake in thanks to Penny Stock Fortunes. I'm talking about gains like these:

*** 41.24% on shares of Companhia Paranaense de Energia (ELP:NYSE)
*** 123% on shares of Videsh Sanchar Nigam (VSL:NYSE)
*** 61.34% on shares of EZCORP, Inc. (EZPW:NASDAQ)
*** 25.44% on shares of Bluegreen Corp. (BXG:NYSE)
*** 103.1% on shares of Forward Industries, Inc. (FORD:NASDAQ)

Impressive gains. And I want to make sure you never miss the next 123% winner. To do that, all you need to do is accept my finest deal ever...

You can sign up now for two years of Carl's Penny Stock Fortunes recommendations, alerts, reports and advice for the one-year price of just $59. That's a full 50% discount.

This is the finest deal we've ever offered. Here's how it will work...

As soon as you accept this offer, we'll charge your credit card $59. And that will instantly give you two years of uninterrupted service.

Pretty nice! And of course, our guarantee still holds up. If you want to cancel your PSF subscription, simply give us a call within the first year and we'll immediately refund you on 100% of your unsent issues for an entire year.

Renew today.

Best regards,

James Boric
Publisher, Penny Stock Fortunes
October 19, 2005

So how does the breathless marketing prose square with real-world results?

Between when I subscribed in Oct. 2004 and Aug. 2005, Penny Stock issued Buy recommendations on 16 companies. Four of these picks trade higher than their recommendation price, and 12 sell below their recommendation price.

Boric is right; EZCorp and and Bluegreen Corp have done great.

On the other hand…

*** RAE Systems (RAE) is down –64%
*** Boston Communications Group (BCGI) is down – 86%
*** Mad Catz Interactive (MCZ) is down –59%
*** DHB Industries is down – 60%

If I put equal amounts in each of the Penny picks since subscribing a year ago, I would have a –16% loss. The S&P 500, meanwhile, is up about 6% for this same period. I am excluding Penny's picks from the last two months because it was hard to tell which stocks they were recommending.

Bottom-line: Not only is the Penny performance bad, but Boric-the-publisher is not even telling me the truth.

I am hitting the delete button on this solicitation.

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