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Other Small cap news...
FuturaGene earns licence to use new crop technology
FuturaGene earns licence to use new crop technology
- Shares in FuturaGene jump 13% as it announces a new licence agreement with Bayer CropScience.
- The licence is for using Bayer’s drought tolerance technology for cotton crops. The technology protects the yield of plants when they are subjected to drought. Drought hampers the cultivation of crops on more than 40% of the earth’s land surface.
- Futuragene is one a number of small companies working to improve crop yields, for which there is a clear demand.
- This is a major trend. The world needs more food. As my colleague, Mike Tubbs explained in his excellent Research Investments letter recently:
“Here’s the challenge. We are facing a rising world population which expects better diets. And yet we have a decreasing land area available for food crops. Therefore, we need to markedly increase crop yields.”
Whenever I am considering a new share tip for Red Hot Penny Shares, I always have a special single letter in mind.
It may sound strange, but this simple letter is one of the best investment resources I know of. It can really help you to time your share purchases and can make a world of difference to your returns.
I’m talking about the letter ‘S’.
Let me describe this ‘S’. Think of it in italics, thus: ‘S’. Then extend the tail to the bottom left and the head to the top right and allow the body to slope upwards. You get the picture?
So what does this strange hieroglyph signify? The answer is that it represents the demand curve for any new product. This curve has three discrete stages. Only one of these stages represents a good time to invest.
Let’s start at the beginning, down there to the bottom left. Our line is running along close to the ground, barely rising. This is the development stage of a new product. Whatever the product is – from the first motor car, to the Post-It note – there is a period when it is being developed.
Plans are made. Earnest marketing types sit round and talk about ‘product positioning’. Boffins in the research area tweak the design. Production guys stroke their chins and work out ways of cutting the costs of manufacture.
This all takes time and money. This is money that is spent without anybody recording a profit; money that, in fact, may be wasted altogether if the product does not fly.
Eventually the moment of truth arrives. The product is launched. What will customers make of it?
There were many who doubted that the motor car would ever replace horse-drawn travel. The first mobile phone – which was the size of a brick – was viewed with scorn.
This is a crucial period. There are many questions that need to be answered with a yes if the product is going to fly: Will customers want to the product? Will they be prepared to pay the price? Can it be manufactured in sufficient quantity? Is there a profit in it?
Sometimes this is easy to predict. Take the case of a new cancer treatment. The need is so obvious that if the product works it will sell. The market will need little convincing.
At other times a latent demand materialises. Think of the cross-channel ferry. Before this arrived the idea of a weekend in Calais appealed to few. But make it possible to cross the water cheaply and easily and suddenly everybody wants to nip across to la belle France if only, to load up the car with Chateau Plonkeau.
Anyway, at this point of product launch the line on our ‘S’ curve starts to rise. It may rise suddenly and with great momentum or perhaps it may do so slowly and reluctantly.
The importance of the upward curve
Those companies that have developed the product – and there may be only one of them – start to make sales. Revenues flow and all those development costs are covered. The chief executive, with a glint in his eye, pushes up the product’s price. Profits are made in ever rising amounts.
This is a golden time. Sadly it cannot last. Nothing is more certain in the business world than that a profitable business will attract emulators like moths to a flame. New entrants muscle in, launching copycat products.
For a while nobody minds. The marketing efforts of these newcomers expand the market even further, the sales curve accelerates upwards. But eventually things will start to go wrong.
A newcomer with an inferior product will cut his price in a desperate attempt to take market share. Demand from customers will be satisfied – once we have all bought a PC, for example, how many more can be sold?
Here we come to the section of the 'S' curve when the line starts to flatten out and eventually droop. What does this represent? I saw plenty of evidence of what it represents when I took a walk through Oxford yesterday.
I passed Wine Rack, its windows announcing 'Closing Down Sale, 30% Off Everything'. I passed Borders bookshop, which advertised 'Last Few Days - Liquidation of All Stock.' And I passed Lloyds Bank which, as I told you on Tuesday, would also be putting up the shutters but for the beneficence of the taxpayer.
Revealed: The best time to invest for outstanding potential gains
What have these three in common? Simply, they are all selling 'me-too' products in market that offers little if any growth in demand. They have been locked in fierce competition - and lost. This is what the droop in the 'S' curve represents.
You don't want to invest in companies at this late stage, of the 'S' curve. You don't want to invest, either, in the early phase when money is being spent with no certainty of any return.
No. The time to invest is when demand is rising rapidly and the industry's pioneers are set to garner the rewards at the most profitable time of the product cycle.
Let me give you just one example of an industry that is at this point.
The field of Medical diagnostics is sophisticated enough that it can now offer instant tests. There is a huge demand for them. The share price of one company in this emerging sector, Immunodiagnostic Systems (ticker: IDH), has risen five-fold this year.
This is what can happen when you jump on the 'S' curve at the right moment. In this month's issue of Red Hot Penny Shares, I describe another company at this point of the 'S' curve - and I expect it to make big money.
Finally, a quick reminder about my colleague, Mike Tubbs''invisible dividends' strategy. I mentioned this on Tuesday, but this is in case you missed the buzz on it.
On Friday, I'm going to tell you about Mike's unique strategy for working out which are the best growth companies for you to invest in. A strategy like this can really set you apart from the average investor.
I'm an avid reader of Mike's Research Investments newsletter and have the greatest respect for the intelligent research he produces.
So when I tell you that Mike has excelled himself with this one, you know it must be something special. And I'm not the only one. I talked to my publisher about this recently and he called it “the single best investment idea of the decade”.
So now you know. I'll tell you all about it on Friday. Just keep an eye on your inbox.
Good investing,
Tom Bulford
For The Penny Sleuth
P.P.S. If you want to follow the insights of a small company investor, and uncover the hidden gems of the stock market, find out more about The Penny Sleuth by clicking here.
