High Risk, High Return Seen for NutraCea

JONATHAN MORELAND
DIRECTOR OF RESEARCH
INSIDERINSIGHTS.COM

COMPANY: NutraCea
TICKER: NTRZ.OB (OTCBB)
PRICE: $1.06 (as of 4 p.m. yesterday)
52-WEEK RANGE: $0.39-$1.81
MARKET CAPITALIZATION: $72.45 million

Jonathan Moreland is a stock analyst and the founder ofInsiderInsights.com. NutraCea is a health science company engaged in the development and manufacture of stabilized rice bran. Mr. Moreland spoke to David Dalley of The New York Sun about why he believes that this high-risk, high-return stock could double over the next 12 months.

What does NutraCea do?

They have a system for stabilizing rice bran. It sounds like a pretty strange specialty to have for a very small company but it's an interesting story.

Rice is one of the most common foodstuffs in the world. When brown rice is milled into white rice, the bran byproduct actually spoils very quickly, within a matter of hours of milling. That bran is considered to have a large store of nutrition within it, and yet around the world it is generally used as animal feed, if at all.

NutraCea has created a process for stabilizing the bran so that it can be used for human consumption. You'd think some of the larger players like Monsanto would be all over this. We're talking tons of material being treated as waste that could be feeding people if it were stabilized. The question I had is how can a tiny company like this one have the technology to be able to do this? That almost kept me from researching it. But when I looked into it, I became less concerned that it was a house of cards, or that the hype wasn't up to the reality.

Why do you like it?

This company had gone through extreme turmoil in its past life. They got a new CEO midway through last year. He cleaned it up significantly and raised some money from some savvy investors, including Pequot Capital and the Pinnacle Fund, among others. He helped to recapitalize the company last year via a PIPE [private investment in public equity] offering. Much to my surprise, when the stock rose to over $1 a lot of these guys, who had got in at 50 cents, ended up holding onto their shares even after they had doubled their money. At the same time, insiders bought shares over the last six months for prices ranging from 65 cents all the way up to $1.17 per share. And one of the heavier buyers was the new CEO, Bradley Edson. So basically we have a bunch of savvy people betting on the long-term success of this company.

What about the fundamentals?

I think the company is on track to increase sales by at least 50% in 2006 and that it will show a profit for this year. But whether or not it shows a profit depends on how much they decide to spend to in crease their capacity, because right now they cannot meet demand.

They need financing to build out more of their stabilization plants. The new CEO doesn't want to dilute the stock by issuing new equity, but the company is still relatively small and can't really demand favorable loan terms from banks, either. So the strategy right now is to post solid financials so that they can get better terms and finance new plants. That would increase revenues, increase financial returns, and thereby increase gains to shareholders. It's a slow but steady approach.

What do you think the stock is worth?

It's certainly a high-risk, high-return subject. But it's one of the rare stocks where I could state that it has the potential to more than double over the next 12 months.