In This Edition...

Looks like the television commercials SpongeTech Delivery Systems started running back in February have produced good enough results to merit more of them. How many more? Their frequency is increasing by 30% as of this week.

We'll look at the details of the news below; for now let's just say SpongeTech is striking while the iron's hot. 

Also, don't worry - I didn't forget about the quiz I posted in this past weekend's edition...the one about guessing which indices were represented on the performance chart. I just ran out of room in the following edition, and had to postpone my revisit until today. 
 

	SpongeTech Getting More Air Time Than Michael Jordan

Back on February 16th SpongeTech Delivery Systems (OTCBB: SPNG) announced a company first - they were launching a television commercial campaign that would be seen on six national networks and their 150 million subscribers. There were some major names in there too, including NBA TV, Fox College Sports, CBS College Sports, and ESPN University. 

Based on Tuesday's press release, I'm going to guess the commercials have generated even more traction than originally expected. Why? The number of spots is slated to increase by 30% this week. By the end of the month, the spot will be playing in 44 states. 

Let me ask you a not-entirely-rhetorical question....why do you think SpongeTech would be willing to incur the expense of doing so? My answer is the simple one - because it's worth it.

For anybody who's been around the site for at least a month, then you already know the kind of explosive top line growth the company is seeing. They did about $64K in sales for the quarter ending on August 31st, but as of our last look they had about a $19 million sales backlog for the next 12 to 18 months...and that was before the commercials started to air. 

Factoring in the potential math behind the TV spots makes the fiscal outlook even nicer. 

As I stated in February, I don't really know what kind of sales a TV commercial can prompt. In a case like that, I tend to think conservatively. Even so, a conservative guess is still huge for SpongeTech's situation. 

A very modest response rate of 0.5% for those 150 million consumers - about 700K buyers - could still be a windfall. At an average online price of about $10 per multiple-use sponge (3 for $20), that translates into revenues of somewhere around $7 million. 

Maybe the guesstimate is way off, or maybe not. I just get a good feeling about the whole thing knowing the company chose to hit the proverbial throttle. The full press release is below. 

Oh by the way, the market cap now is a ridiculously-low $2.8 million.Did I also mention profits are a distinct possibility soon? Seems like an uncanny value to me. 
 

	Answer to Your Burning Questions

So, did we all figure out what was what on the unlabeled chart in Saturday's newsletter?

The same chart is back today, only this time I've labeled everything and zoomed out to a full year. The four indices were [begin drum roll]from best to worst ... energy, basic materials, the S&P 500, and financials.

I'd say that shocked about 0% of you, even if you didn't know the answers until just now. Of course, my goal wasn't to be a shock jock. No, my goal was to make a point about something I've taken issue with for a long time...even back to my days as a stockbroker.

If you've ever worked with a conventional advisor or broker for any length of time, odds are you've been offered a 'portfolio allocation' plan, complete with some really impressive pie charts intended to represent every major market sector. For the most part, there's nothing wrong with them, though they aren't flawless. 

My beef with the concept started to rematerialize about a year ago. If you had a beautifully-allocated portfolio with an average (or even above average) stock in each section of the pie, then guess what....you still probably lost money over the last twelve months - like the S&P 500 did. 

There's the rub. I think too often the 'ideal' allocation is expected to be an impenetrable shield. The reality is, fancy allocations don't always solve all the problems you need solved. 

We're not advisors in any capacity, and we certainly don't know any individual's personal situation. That's not only a disclaimer, but a fact. And in general, we still think balance and diversity is a good thing. So, we absolutely don't advocate putting all your eggs into what you think may be the leading basket for the next twelve months, but... 

Focusing a little more on the two strongest sectors would have given you a much better shot at positive results over the last year. Even if you had just avoided the financials you would have likely at least broken-even. 

That's neither permission nor encouragement to go roll the dice on only a couple of sectors for the next year. It is a reason, however, to start thinking about the difference between being diversified, or being watered down into a glorified index fund. 

Warren Buffett focuses on only a few companies at a time, and when he doesn't see anything he likes, he doesn't force himself to buy a stock (or an entire company). That's not to say his goals and tolerance are like everybody else's, but I think there's a lot to be said for his willingness to not own any stocks in an underperforming industry or sector.

Just something to consider. To the extent that I can, going forward I'll try to blog sector and industry trends as they become apparent. Maybe we can all bump up our alpha a little more. 
 

	In The Pipeline...

By the way, we're working on a couple of small cap trading ideas for you.

I know I've mentioned some potential trades lately, but haven't actually pulled the trigger on them. In those cases, we simply pulled a Warren Buffett and opted to not own anything rather than own the wrong stock at the wrong time. These two stocks, however, look promising as well as timely. 

One's a biotech idea ...a company with near-term revenue potential, as opposed to some company at the beginning of a multi-year drug development process. There's nothing wrong with those long-term R&D ideas, but in this market environment I think we could all stand to think a little more 'here and now'.

The other possibility is just a simple-but-novel concept. The operation is very young, but the sales projections scream 'growth!' . In that light we might just publicly put it on our watchlist for a while before actually pounding the table. I don't want to say too much, but I think it could be pretty exciting too.

We may send out both ideas next week (not simultaneously), though we might push one back to the following week. Either way, I think you're going to like them when you see them. More to come. 
 

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TGR Group, LLC has been paid a fee of $30,000 cash and 750,000 shares of newly issued restricted stock by Spongetech Delivery Systems Inc. for coverage of the Company. Additionally, one of the managing Members of TGR Group, LLC has purchased 150,000 shares of Spongetech Delivery Systems, Inc. in the open market with an average cost basis of $.035 cents per share. 

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