KEVIN KENNEDY
PUBLISHER
COOLCAT REPORT.COM

COMPANY: U.S. Global Investors
TICKER: GROW (Nasdaq)
PRICE: $12.65 (as of 4 p.m. yesterday)
52-WEEK RANGE: $4.39-$20
MARKET CAPITALIZATION: $94.7 million

Kevin Kennedy is the publisher of the Coolcat Explosive Small Cap Growth Stock Repot. U.S Global Investors is a mutual fund management and investment advisory firm. Mr. Kennedy spoke to David Dalley of The New York Sun about why he thinks GROW is a strong investment.

What does GROW do?

They’re an asset management company. They have 13 mutual funds that they run, and they do private client accounts, too. They have some strength in small-cap and emerging markets, and that’s one reason that they’ve done well.

Why do you like the stock?

GROW made the screens in the Coolcat Explosive Small Cap Growth Stock Report in early December. The stock was pretty sleepy until November and hadn’t averaged 100,000 in daily volume in any week since December 2004 until the week of November 7-11. It hasn’t had a week since where it averaged less than 100,000 in daily volume.

For the Small Cap report, we look for stocks making new highs, stocks which show volume growth, which are priced below $15, which have a low trading float, etc. – small companies with low market caps. A low float means little supply, and in a context of growing demand that equals a rising price.

This stock to me seems to be a likely acquisition target for a bigger fish. What people are interested in is that these guys have live customers. Someone else can leverage off that. It wouldn’t surprise me, for example, to see mergers between asset managers and discount brokers at some point. Even a company like Dow Jones, which is just a content provider basically, would certainly be interested in GROW’s customer base.

What are the fundamentals like?

GROW has a $96 million market cap. It got our attention at about $12.The 50-day moving average is $15.70, so it’s trading now at about $3 below that. Last May it was trading at $4, and it went as high as $20 on February 6. We tried to buy it for the last couple months, but it shot ahead. We’ve been adding to it recently on the way back down.

Revenues and earnings are growing rapidly, and the stock has nice double-digit margins. Earnings in the second quarter reported February 14 jumped 220% and revenues were up 89% over the same quarter a year earlier.

Is it a good buy at current prices?

On basic terms, it’s a pretty cheap company – $96 million is not a lot to pay for a company that has about $3.8 billion in assets under management. Somebody looking to sink their teeth into those assets wouldn’t blink at paying that price. That in itself will push valuations higher.

You also have strength in the markets that these guys are focused in. The funds they have invested in emerging markets, and they have some small-cap funds, too. Both those areas are doing very well.

What are the risks?

At this point, the uncertainty is that you don’t know where, precisely, the pullback will bottom out. Also, their fortunes are tied fairly tightly to the stock market, and specifically to the sectors they’re focused on, and if we have a big bear market, then that could hurt them. But I don’t see that happening.