As  we’ve mentioned before, we welcome any and all questions from our readers about anything…. the market in general, individual stocks, rules and regulations, and whatever else is on your mind. So, don’t be shy - send ‘em in when you’ve got them. On that note, when we get a question that would be worth sharing with all our readers, we take your name and e-mail address out and post the Q&A publicly. Here’s the latest round of your questions and our responses.

First up……

How does pumping billions into the economy cause inflation?

Thanks for the question, which was in response to something we mentioned in the April 10th newsletter. Without getting too far into the philosophy, the government can print more money and put it into circulation within the U.S. economy. However, they can’t control how much those dollars are worth.

Think of it as making change….if you trade in a $10 bill for two $5 bills, you’ve still only got $10. Well, that’s not too far off from what happens when the Fed puts more dollars into the economy by buying Treasury bonds.

The Fed’s goal in doing so is to increase liquidity by supplying a few extra bucks that will eventually end up in everyone’s pockets (to various degrees). It sort of works, but the side effect counters most of the positive effect. What side effect is that? Prices of everything go up, as there’s no such thing as wealth creation…. at least not like that. For instance, the dollar that was worth $1.00 before the cash injection is now worth $0.50 after the cash injection. So, it then takes two “$0.50″ dollars to buy a loaf of bread that used to be bought with one true “$1.00″ dollar.

There’s still an upside to the Fed’s practice, but it’s not one without the negative consequence of inflation. Ideally, the lesser of two evils prevails.

Here’s a more technical explanation: http://www.economicshelp.org/macroeconomics/inflation/persistent_inflation.html
We also got this question about restricted shares…..

I purchased some shares 30 months ago from 2 U S Companies. They were restricted, I think under 144 or some such thing. I understood after 24 months restrictions have to be lifted, but this has not happened, What gives?

Great question. In a nutshell, you have to ask for the restrictive legend to be removed, as nobody will volunteer to do it…. at least not in my experience. The SEC site says you should contact your transfer agent, but I’d first try to contact the brokerage firm where you’re holding the stock and ask them to make it happen. It could take anywhere from a couple of weeks to a couple of months. (Note that the company you bought shares in also has to sign off on removing the restriction.)

Here’s the SEC page that explains more of the details: http://www.sec.gov/investor/pubs/rule144.htm

And finally….

At one time we could have a portfolio on the small cap network site and view the progress of the stocks every day. Are you going to initiate that option to your readers?

You may have noticed a change in the Small Cap Network’s scope and flavor lately. However, you ain’t seen nuthin’ yet. Within several weeks the Small Cap Network is going to be a true community.

Will that mean we bring back the original position table? We can’t say yet, but we can say you’re going to like what you see when it’s all ready to roll. I suspect what you’re looking for will be available, though it may not look a little different… for the better.

That’s it for now, but again, you’re always invited to contact us with your questions.

Well, as we suggested was likely to happen back on April 2nd, Applied DNA Sciences (APDN) jumped again following a mild pullback. This time the trip carried this penny stock from the March 23rd low of $0.043 to Tuesday’s high of $0.095, which closely mirrors the February rally. And, like we did in February, we now suggest taking whatever short-term profits you’ve got before we repeat the pullback we saw in early March. For some of you, this could translate into more  than a 100% gain (though it would be slightly less for the majority of you).

Does this mean we have no real faith in the company’s future? Not at all. Quite the opposite actually - we’ve been following the company since 2007, and they’ve done everything they said they would do, or are making progress to that end.

No, the profit-taking recommendation is rather an indication of our lack of faith in the market and its flighty investors, who have a tendency to over-react both bullishly and bearishly. In APDN’s case, the intaglio ink news was very compelling, but we’re not so sure it’s of a strong enough caliber to keep Applied DNA shares trading at 9 cents for very long. It doesn’t exactly put revenue in the company’s pocket right out of the gate - they’ve got to sell some first.

As we described a few days ago, APDN is still a trader’s stock more than an investor’s stock. That will change eventually, but until we stop seeing this volatile up-and-down pattern play out, we’re probably going to continue recommending you “sell the rips and buy the dips”.

That said, Tuesday’s culmination of the rally that was started in mid-March was fueled by good news. Applied DNA reported they had successfully infused their patented SigNature DNA into intaglio ink. What’s intaglio ink? When it dries, it’s shiny. It’s the kind of ink you might see used on important documents, stock certificates, official letterhead, prints, etc…. the kind of stuff worth making sure isn’t counterfeited.

Obviously this is a huge victory for Applied DNA, but they haven’t exactly sold the stuff yet. We’re confident they will in the near future, though we still suggest taking profits if you’ve got them today. You can buy APDN again after a dip.

To the stock’s bullish credit, Tuesday’s rally was the biggest volume day we’ve seen in years. That doesn’t change our short-term assessment, but it does show a major increase in interest. That’s how long-term trends start out…. as short-term efforts.

Do you want to know exactly when we think it’s time t re-buy or sell Applied DNA Sciences Inc. (APDN) again? Sign up for the free newsletter today, and we’ll let you know.

I don’t know if the economy is reliving the glory days we experienced in the late 90’s or between 2003 and 2007. However, what I’ve seen from the tech sector recently - semiconductor integrated circuit makers in particular - continues to make me think the worst is behind us. Is the whole industry doing well? Nope, not at all - that’s the point. Some of these companies are doing fine, such as RF Micro Devices Inc. (RFMD). Others are not doing well, like Amkor Technology Inc. (AMKR).

That divergence suggests to me that the recession did its job, which was weeding out the leaders from the laggards. As things get back to normal, the leaders’ stocks will be let out from under a crushing pressure that holds even the best of equities down. For example….

In the first calendar quarter of 2009, or RF Micro Devices fourth fiscal quarter, the company reported revenue had dropped off by the expected amount (semis are seasonal). That’s not ‘good’ in the sense that investors would love to see consecutive increases in every single quarter. However, for demand to not get butchered is relative victory.

RF Micro Devices did something even better though…. the company retried about $22 million in convertible notes, and improved its cash position by about 10% by adding $28 million to its coffers; the total is now $266 million.

Oh, the company also mentioned that demand started to pick up as the quarter progressed, and they actually ended the quarter with a significant inventory reduction (which was a planned response to the 2008 contraction).

All in all it was a healthy quarter.

Now, contrast that with that success with Amkor’s decision to raise funds by selling $250 million in convertible debt. The purpose of the capital? To pay off debt, to repurchase other notes, and for ‘general operating capital’. The terms of the newly-issued convertibles may be better than the older debt, but it’s still essentially borrowing (or potential dilution) to deal with current and future liabilities.

Just a few days before the debt deal was completed, Amkor had already warned it was looking for Q1 revenue to fall by about 1/3 compared to Q4’s total, which would mean sales would fall in the $362-$384 million range. The company didn’t update its prior Q1 earnings guidance of a loss between 34 and 49 cents per share.

Even so, gross margins for the prior quarter are now expected to fall in somewhere between 8% and 12%, versus the previous expectation of only 5% or less.

Now I’m under no illusion that two stocks make up a sector or industry. There are dozens of integrates circuit manufacturer stocks I can name just off the top of my head. However, in the aggregate, it’s pretty much the same story… some are doing considerably better than others, some are doing very well, and some are doing poorly. In other words, it’s a stock-pickers market again. Finally.

With all that being said, here’s a quick overview of how technology is stacking up against the overall market (the S&P 500), and how the major names in the semiconductor circuitry industry are stacking up against each other. Interestingly, it’s the smaller names that seem to be doing better than the rest of the group.

To create the analysis, we’re just comparing the percentage changes of each symbol going back to the March 9th low.

First up is the comparison of tech to semis, and to the broad market. Technology in general has been outpacing the semiconductor industry Note that we looked specifically at integrated circuits stocks, which is a subset of the semi industry, but the idea is still the same. And, both of those groupings have outpaced the S&P 500. The divergence seems modest, but keep in mind it’s only been about a month.

As far as the individual stocks go….

We’ve labeled a few of the leaders and laggards, with RF Micro Devices and Amkor taking the #1 and #2 spots despite Amkor’s iffy-ness (proof that companies don’t have to perform well right now for their stocks to be profitable). While we’re clearly optimistic about RF Micro Devices near-term outlook, it may not be a bad idea to go ahead and lock in a gain on either stock.

Bringing up the rear is Power Integrations (POWI), with Samtech (SMTC) doing slightly better.

We’ve done little to no due diligence on those two bottom dwellers, but given that they’ve been lagging, they may actually be your best semiconductor bets though, particularly if their respective companies are doing as well as RF Micro Devices has been doing. See, even within an industry we can spot leadership rotation - what was hot last week may not be hot this week. Just be sure to stick to better-performing companies, since you now have that choice for the first time in a long time.

To get the most out of the semiconductor market - and to get the analysis you won’t get anywhere else - sign up for our free e-newsletter today. Two to three times per week we’ll deliver exclusive, money-making commentary straight to your inbox.

I know I’m supposed to be enamored with biotech right now. After all, old-school pharmaceutical companies are wildly desperate for new great products, and only biotech can supply them. That’s why Roche bought the rest of Genentech, and why Gilead (GILD) acquired CV Therapeutics (CVTX), right? Surely this must be the beginning of a wave of biotech acquisitions and mergers that are going to make current biotech owners a small fortune when their particular stock gets snatched up at a premium, right?

Funny thing though…. the biotech indices are still headed lower, even while the broad market is rising. What gives?

Here’s what gives…there’s more hype than hope here. After Merck (MRK) and Schering-Plough (SGP) teamed up, and after Pfizer (PFE) joined forces with Wyeth (WYE) - plus the Gilead/CV Therapeutics deal - not only have we NOT seen a firestorm of M&A, we’ve actually seen none at all… at least none that I can think of.

I know the entire pharma sector (biotech in particular) has been put on a pedestal of late, as some of these stocks were the only thing that did reasonably well in a very nasty 2008. In fact, as of early March, on a proportional basis, there were more ‘buy’ ratings on pharma stocks than for any other industry. And brother, the market is singing pharma’s praises right now, potential or real. Most of this stemmed from M&A hopes, it seems.

Call me contrarian, but doesn’t it feel kind of uncomfortable that everyone else seems to have so much confidence in the group right now? I can’t shake off an old Wall Street adage I’ve personally known to be true way too often…. “When everyone else wants it, sell it. When nobody else wants it, buy it.”

Here’s the even-bigger irony - investors who have placed bets on strong performance from biotech stocks have not only lost ground, they’ve underperformed the overall market. Year-to-date, the average biotech stock is down 16%, while the market is only down about 8%. This week, the average biotech stock is down 8%, while the market is up about 2%.

Correct me if I’m wrong, but aren’t “sure things” (like biotech is right now) supposed to, you know… go up?

No, I think we’ve all been duped following 2008’s plethora of pharma M&A, and then this March’s flurry of it from some of the biggest names in the biz. The buzz in March was that the Merck, Pfizer, Gilead, Roche, Genentech, Wyeth, and Schering-Plough deals were the sign of the beginning of M&A madness. However, I think it actually may have been the culmination and finalization of a trend rather than a beginning. Check this out…

Prominent mergers and acquisitions attorney Adam Berger recently said 2008 was the biggest biopharma M&A year in the last ten. And, that’s true…. in calendar 2008 there were 150 biotech deals done, worth a combined $97 billion. Despite a few huge mergers in March, 2009’s biotech M&A rate is nowhere close to that pace.

In other words, 2008’s mergers are not evidence of a trend, but rather, 2009’s mega-deals could be a hint of a blowoff top and exhaustion of potential mergers.

Even if we do see a few more deals flow through in 2009, a recent story by IBD columnist Peter Benesh illustrates more risk than reward if you’re fishing for an acquisition.

In the column, Benesh states Peter Becker (former CEO of VioQuest and Cytogen) believes more than 100 biotech companies could be out of money by the middle of the year. One of the cash-rich mega-companies could wipe those woes away, but I seriously doubt the majority of them will be salvaged by big pharma; big pharma’s got enough to take care of already. Hopefully you’re not speculating on one of those 100+ stocks that won’t be bought out.

On that note, I want to stress something else that suggests to me that major drug-makers aren’t nearly as interested in small biotechs as we want to think they are….

Big pharma doesn’t need to finance the acquisition of anything - they can pay cash for most of the second tier companies in the biotech group, meaning if an acquisition was going to happen at all, it would have happened by now. I suspect that’s why we saw so much M&A in 2008 (much of which was off the radar)…. because stocks were so cheap. Now, in the shadow of what looks to be a real shot at economic recovery, stock prices are rising again. That cheap acquisition window is closing.

I’m going to close with that thought, as the message has been delivered adequately. However, I urge you to come back to the blog and the newsletter next week, as I have at least two more columns I’ll need to write - about specific companies and market caps - that further support my minority thesis about biotech stocks’ foreseeable futures.

Stop following the crowd, and start leading it. Stop listening to TV’s talking heads regurgitate press releases, and start getting some real, money-making perspective like this. Sign up for the Small Cap Network newsletter, and we’ll tell you when it’s the right time or wrong time to buy biotech.

If you were reading the SmallCapNetwork newsletter a year ago or more, then you’re already familiar with SpongeTech Delivery Systems (SPNG) and Applied DNA (APDN) – two names we’ve been watching for a while now, biding our time in anticipation of a point where their respective stocks start to reflect the company’s potential. Well, Applied DNA shares are up 70% year-to-date, and SpongeTech shares are up 225% for the week. It’s about time; you can say you “knew them when.”

Actually, it may be a tad premature to pop the champagne bottles just yet. These are great moves (and fully deserved in most regards), but you don’t want to take off your trader’s hat just yet.

If you got into SpongeTech at any point in March, we suggest you go ahead and take short-term profits – you’ve definitely got them. The stock’s been hot lately … perhaps a little too hot for this rally to be permanently sustained.

If you’re in SPNG at a higher price (pre-March), you may be in the hole or about even. Be forewarned this thing may go lower again before it goes higher again, so don’t blindly expect sunshine and roses from here on out.

That said, if March’s sales results are an indication of what to expect going forward (and I think it is), then this is now a profitable $100 million company. And it’s not a fluke either – SpongeTech has been growing the top and bottom line (as they said they would) for six quarters now. Dilution or not, shares are worth more now than they were then.

And there’s the rub, this concept of worth. It has been for more than a year. Just because a stock “should be” worth a certain price doesn’t mean it will be. That’s why I suggested leaving your trader’s hat on a while longer – there’s been a long disconnect between SPNG’s value and SPNG’s actual price. Maybe the recent jolt solved the problem. We’ll see.

With that understood, we think based on current sales and projected revenue, SpongeTech’s stock is actually worth about 20 cents per share. Will it get there? That’s a great question. We’ll just say the last three days have jump-started the best attempt we’ve seen so far.

As for Applied DNA, this stock trades more on future potential than current results. That’s fine, though it completely changes your approach. This particular issue requires a bit of a chess match – what will the market be thinking about Applied DNA and its news in the near future? Since the chart can often clue you in as to what’s coming, we’ve been watching APDN’s chart as much as we’ve been reading its news.

That’s what got our attention in February…. a rally out of nowhere, and on strong volume. Of course APDN pulled back a bit, but it was low-volume selling. Since then the stock has made a partial recovery.

APDN is still a trader’s stock more than an investor’s stock, but it’s at least proving to be trade-worthy. Perhaps this is an omen of good news on the horizon. In the meantime, the bears aren’t putting up a fight.

Anyway, we just wanted to remind all of our veteran fans about these two tickers, and present them to any newcomers. We’ve been following both companies for a while, and it looks like the effort could finally start to pay off.

You need this kind of ongoing analysis and follow-through to get the most out of the micro-cap market, and you’re not going to get it anywhere else but through our free e-newsletter. Sign up today, and we’ll let you know when to get in and out of SpongeTech Delivery Solutions (OTC: SPNG), Applied DNA (OTC: APDN) and all our other micro cap picks.

Though I’m surprised at the path these stocks took over the last month, I’m not at all surprised about the worrisome news we heard from Apollo Group (APOL) regarding a slew of bad debt they’ve be dealing with in the foreseeable future. Though no specifics were cited, the for-profit school was worried enough to mention it, sending the stock lower by 15%.

I think this just the first wave of disappointment though; a lot more could follow…. and not just for Apollo. I suspect Devry (DV), ITT Technical (ESI), Coronthian Colleges (COCO), Career Education (CECO) and the rest of the gang are going to fall into the same line.

So, maybe it’s time to start stepping out of these names.

I know, I know…. not only does the opinion make me unpopular, it keeps me in the minority. After all, despite the concerning news, Apollo’s numbers were stellar. The school earned 77 cents per share last quarter (their Q2) versus the market’s estimate of 65 cents. And, enrollment was up a solid 23 percent last quarter in comparison to the same quarter a year earlier.

All of that’s good, right? So why’d the market give the school an F for the day (in the form of a 15% haircut)?

The superficial reason was the bad debt thing. Makes sense. However, I think there’s actually a more meaningful, unwritten - perhaps unrealized - reason. It was the same reason I gave back on February 24th when I first went bearish on these school stocks.

At that point, my message was simply that for-profit schools had probably hit their maximum performance threshold. A painfully high degree of unemployment had given plenty of people the time and reason to re-enroll in school in an effort to become a more qualified job applicant. However, there are really only one of two eventual outcomes for that situation.

The first possible outcome (and this is the camp I’m in) is simply that as the economy improves and employment improves accordingly, enrollments will start to dry up - students become workers again, so they won’t need the education service. And, though enrollment was up last quarter for Apollo Group, the pace of growth slumped for the first time in three quarters. Think of this premise as the “as good as it gets” theory.

The second possible outcome would be that if the economy gets worse, so will unemployment. This condition may have helped for-profit schools in the early stages of the recession, but eventually - if a recession festers long enough as this one has - even paying for school becomes an impossibility for most people (employed or not). This was not the camp I was in, but based on the news we heard from Apollo today it looks like it’s just as valid of on idea.

There’s yet another possible outcome that I’ll now acknowledge - maybe these schools will suffer a combination of possibility #1 and possibility #2.

No matter what though, I still think the party’s over for ITT Tech, Corinthian, and the rest.

Don’t get me wrong; I think they’re all reasonably well run, bad debt or not. But, after these stocks rallied 115% between March of last year and January of this year, was there really anywhere to go after that? Would these stocks really be likely to double in value again? Doubtful.

So, here’s my bottom line (or lines, in the case)…

At best, educational stocks have maximized their potential after last year’s 115% move from their low point. Even if the companies survive a few bad debt issues, they probably won’t be able to grow enough to satisfy the market’s craving for last year’s explosive returns. May as well go ahead and lock in the profit. This is the optimist’s view.

At worst, schools are going to see decreases in enrollment due to increases in employment, and/or they’re going to suffer from a combination of bad debt and fewer interested students (i.e. willing payers). This is the pessimist’s view.

Either way, I think it’s time to sell. The market has spoken today, pushing Apollo et al lower on what was actually pretty good news. When the market speaks this loudly though, it usually speaks this loudly for a while… sending those stocks lower the whole time.

If you’re not getting the free SmallCapNetwork e-newsletter, you’re missing out on detailed, alternative, and money making commentary. Read the news portals if you want information. Read our newsletter if you want perspective on what it means. Sign up today.

They never actually acknowledged it was a joke, but I’m, sure it is…. at least I hope it is. Hmmmm.
http://www.economist.com/world/britain/displayStory.cfm?story_id=13395767

As the equity market continues to solidify despite ever-worsening employment figures, more and more penny stocks are gaining momentum or making bullish breakouts. We’ve identified a handful of them for today.

Obviously further due diligence and trade management will be required from your end to best utilize these trading ideas, but we feel each at least deserves consideration.

Puda Coal New (PUDC) - The rally off of March’s low of 16 cents to the current price of 27 cents translates into a 68% gain for this penny stock, though PUDC had reached as high as 29 cents last week. The gain is solid, but more importantly, this recent rally is significantly different than previous rallies. How so? This one might actually have legs, as the buying volume has been strengthening - quite a bit - over the last month.

Puda is a Chinese coal processor, which leaves them off most American’s radars. They’re also profitable; the company earned a net of $17.0 million in 2008 versus $10.8 million in 2007. The announcement of last year’s numbers was the inspiration for much of the recent gain, but considering th market cap is only about $28 million, there’s more room for upside.

Genta Incorporated (GNTA) - If you like to take advantage of the volatile swings of true penny stocks, you’re going to love Genta Incorporated. The move from March’s low of 0.5 cents (yes, $0.005) to the current value of %0.016 is only a gain of about a penny, but it’s still more than a 200% reward. The prompt for the bounce was the market’s response to news that a class action suit against the company had been dismissed.

Normally we’d steer clear of a stock that had been trading at sub-penny levels, but GNTA may be exception worthy. Though it tumbled from the 3 cent range last October to less than half a cent by December, the stock is essentially ‘free’ in comparison to its price above $2.00 less than 2 years ago. But will this biotech stock actually manage to bounce? Great question. They’re pre-profit, and nothing in the R&D pipeline looks like it will be marketable in the foreseeable future. But, the stock can certainly move in a hurry for a trader can get the entry and exit right.

It’s strictly a trading idea; it may be a little premature to truly ‘invest’.

Points Intl. Ltd. (PTSEF) - Recession? What recession? Points International Limited achieved what many would have considered impossible during the fourth quarter of last year… they increased revenue by 50%. For the year, sales were up 149%. There’s no net profit yet, but the company is getting closer to being in the black. Points International only lost 3.6 million in fiscal 2008 ($1.3 million of which was for an impairment charge).  Compared to 2008’s revenues of $75 million, it’s not as if positive margins are out of reach.

The full-year numbers were announced on March 11th, though that’s not when the stock built up steam. The bottom wasn’t hit until PTSEF hit a low $0.245 on March 18th. Since then, the move to $0.40 means a 66% gain was made in less than three weeks for this penny stock.

The recent rebound is part of a bigger-picture effort to stop the stock’s bleeding, and jump-start a move higher. The latter is still in question, but the former is not - the stock was also trading around 40 cents in late October, and hasn’t been below 22 cents or above 55 cents since then. A range-bound pattern may not be exciting, but considering the stock sank from $2.00 in May of 2008 to a low of 22 cents in only a few months, the recent flat period is a welcome relief. More importantly though, it may be a precursor to a major recovery effort. And, with the stock trading at about 20% of its peak value from last year, the upside potential is significant.

Pacific Asia Petroleum (PFAP) - The recent move from a low of 45 cents to the current price of $1.00 is impressive, as any 100%+ move would be when it happens in less than three weeks. That’s not what got our attention though. Beginning on March 18th, the buying volume jumped up quite a bit, and was persistent for several days.

As with most bullish bursts of energy, we expect to see this one cool off, and then we expect to see the market regroup. However, the potential has been exposed - PFAP has made more and better progress over the last two weeks than it has in the last twelve months. A repeat performance may be in the cards in the near future.

Pacific Asia Petroleum is not profitable yet, which is a downside. However, considering the stock was trading at above $20.00 last April, there’s not a lot of risk left at a price of $1.00.

We suspect there’s ‘more to the story’ with Pacific Asia Petroleum, so a little due diligence may be merited (as is the case with all of the companies mentioned here).

That said, though they’re still speculative, each of these stocks has proven to be trade-worthy lately. Will they be equally trade-worthy in the future? Possibly; we’re simply trying to find a lot of trading ideas for you to look at, and we think these particular penny stock breakouts are a good place to start. Look for more penny stock ideas in the near future.

Are you looking for hot penny stock trading ideas without all the hype? You’ve found it. Sign up for the free Small Cap Network newsletter today, and we’ll start delivering trading ideas and market insight straight to your inbox 2 to 3 times per week. By the way, not everything we highlight appears in the blog or newsletter - some of out best stuff is only delivered in the newsletter. Subscriber today!