I’ve been a fan of South American telecom stocks for a while now. It’s one of the fastest growing economies in the world, and telecom has been newly-budding there over the last half-decade or so. Sometimes five years of growth is all you get before that respective market is saturated. In this case though, there’s still a massive amount of unmet need - telecom growth in Latin America is still picking up speed.

For those of you who follow our site closely, you’ll already know of my affinity for the few Latin American telecom stocks. We picked Telemig Celular (TMB) a few weeks ago, not just because they offer wireless service in Brazil (the biggest South American market), but because they’re demonstrative of how strong the opportunity is in the market.

Ironically - though happily - TMB’s trading has been halted today after Vivo (another cell phone company in the region) made a tender offer. No word yet on the outcome, but the fact that acquisitions and mergers are starting to become common suggests things are really heating up there.

Take for instance another merger on the verge…the union between Brasil Telecom Participacoes S.A. (BRP) and Telemar Participacoes (TNE), which will by far make them the largest landline player in the country. The union is being encouraged by President President Luiz Inácio Lula da Silva as an effort to stave off the major role that foreign companies play in their telecom business.

And, there’s certainly plenty of it…in all arenas. Deutsche Telecom (DT) and Vodafone (VOD) are just two foreign companies with eyes on Brazil.

That said, it’s not just Brazil. For that matter, it’s not just land lines. Mexico-based wireless company America Movil (AMX) is the dominant name in mobile phone service for the entire continent, but other outfits are looking to take a bite out of their business.

There are three key reasons I see much more growth ahead for telecom in Latin America. (1) Like I said, the region is still under-served. (2) State governments are more willing to give up control, even if their motivation is money. [See, the government has more to gain from competition and fees than they do by retaining control themselves.] (3) A stronger economy is allowing more residents there to own landlines and cell phones.

Take America Movil as an example of #2 (that governments want more telecom service providers). Movil recently paid $480 million to the country of Ecuador for the right to do business there…and they’re not even the only wireless player in the market.

The point is, if telecom’s growth was winding down in the region, all these companies wouldn’t be jumping through hoops in an effort to get positioned for future growth. I think it’s just getting started.

I mentioned a few company names above, though they’re not the only ones worth a look. As for our Telemig pick, I think it’s good that a buyout offer is on the table…it’s likely to mean more gains for us. I don’t recommend waiting for the merger though (if it happens). If the acquisition is for real, I’m probably going to suggest locking in the gain following any price jump.

Of course, it hasn’t happened yet; Telemig shares aren’t even trading right now. They will be soon enough, so we can reassess the trade then. In the meantime, I’m still bullish on the industry in this region.

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A few days ago I discussed a concern I had with small cap stock Bio-Matrix Scientific Group’s (BMSN) breakout above 63 cents. That concern? That the stock wouldn’t be able to hold onto those gains. Well, I feel a little better now (and more so every day). We’re now into our fourth day of trading above 63 cents. Though the volume has tapered off a bit - along with the momentum - I don’t see anybody wanting to get out.

Ideally, I’d like to see a base established here at 63 cents. Actually, ‘ideally’ I’d like to see BMSN race to $5.00. Realistically, I’d accept seeing BMSN set up a base here by retesting 63 cents a few times, yet staying above it. Based on the March/April flat period, this bulletin board stock has proven to be in an ‘up-flat-up-flat’ pattern. It requires patience to be an owner, but it’s better than ‘two steps forward and one step back’ (and certainly better than ‘one step forward and two steps back’). 

I hope you saw yesterday’s news about this small cap company’s basic revenue plan. The numbers they were using were basically in line with our guesstimates, though it’s nice to see the company confirm them. We’ll be using those numbers in tomorrow’s (Saturday’s) edition of the newsletter to review - and possibly revise - our valuation of this company.

On that note, don’t expect to see us scale back on our expectation, or our recommendation to be in a trade now rather than later. We still don’t know when the tissue-bank licensing inspection will be, though we’re also still sure we won’t hear about it until it’s done. Once completed - and if it’s awarded - we can foresee BMSN being catapulted to new multi-year highs. Trying to get into this small cap pick after the fact may be tough to do at levels anywhere near where they are now.

We’ll take an in-depth look in Saturday’s edition.

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I don’t know if it was being featured on ‘The Price is Right’ that prompted yesterday’s big surge from our bulletin board stock pick SpongeTech Delivery Systems (SPNG), but it may have helped. Or, maybe it was CEO Michael Metter’s letter to shareholders. Frankly, it doesn’t entirely matter what the reason is, because I think SpongeTech’s sales and revenue results merit this small cap stock’s gain. It’s about time we saw this breakout.

The nearby chart tells the whole story. We saw a high-volume gain yesterday…though major accumulation isn’t entirely new here. The other thing we saw was new - a move above the 200 day moving average line, for the first time since there’s been enough data to actually calculate a 200 day moving average line.

There may be one more hurdle, though I don’t really think it will be a problem. February’s peak was 4.9 cents…a line that acted as a ceiling for several days before sending the stock back to multi-year lows. This time seems to be different, in that we have plenty of volume supporting the rally this time.

If we see SPNG hit 5 cents, it may be a good time to start accumulating even more.

By the way, my confidence level in the stock is largely driven by Michael Metter’s letter yesterday. He didn’t tell us anything we didn’t believe already, but it was a nice confirmation of our expectation.

Basically, Metter said the company was on track to ship $3.3 million worth of sponges in their fourth quarter (which ends on May 31st). Annualized, that’s $13.2 million in sales per year. Yet, the backlog is still bigger; it’s about $20 million at this point. I suspect we’ll see several quarters of significant growth.

As a reminder, they did $1.22 million in sales last quarter, and posted decisive profits. I expect to see higher sales translate into higher earnings this time around.

This is shaping up to be one solid bulletin board pick as the company enters its high-growth stage. Of course, that’s the whole point of trading small cap stocks.

Are you a subscriber to the Small Cap Network newsletter? If not, you’re missing out on some great trading ideas and exclusive market commentary. To sign up, just go to the top right corner of any page of our website. You’ll be joining thousands of other subscribers who have already benefited from our news and views.