ETRM and Butt Kick December 4, 2013March 6, 2014 In February, I suggested ETRM at 90 cents as “a new speculation” . . . ETRM was $4 when its minimally invasive but surgically implanted weight-loss device was pending approval from the FDA. Presumably, people were hoping the data would be good, the device would be approved, and the stock would rise. Instead, the trial missed its primary end point and the stock crashed immediately to $1.30, drifted down to $1.12 in the ensuing week or two, and then dropped finally (or perhaps not finally, which is the risk) to close Friday at 90 cents. That might normally be the end of the story, but as I understand it — distilled from smart people who actually DO understand it — the company may submit their data anyway, and for a variety of reasons apparent to at least some FDA watchers, the FDA just might approve it. In other words, this could be a situation where the broad market sees failure but could be surprised by success, if the FDA decides that, in hindsight, the primary endpoints were set too high, and the attained results are actually “good enough.” If this were to happen — a huge IF — the stock probably goes back to $4 and perhaps a good bit higher. The company probably has the cash to see this through — the reason ETRM dropped that extra leg down late last week was announcement that cash had been raised at a price that, giving weight to the value of warrants that were attached to the deal, was in the 80-to-85-cent range. This is purely a gamble. Heads, the device is approved and we make several times our money. Tails, it’s not, and we lose it all. As I often repeat, this is for money you can truly afford to lose . . . perhaps as one of half a dozen little speculations that in the aggregate make up $30,000 of the $350,000 (say) you’ve chosen to expose to the stock market, with the rest invested via, for example, equally-weighted or fundamentally-weighted index funds. The advantage of this $30,000 carve-out being, first, that you get to control the taxes, which means you can come out ahead even if you just break even: selling your losers to lower your income tax; using your winners, once held for a year and a day, to fund your charitable giving via the Fidelity, Vanguard, or Schwab charitable gift funds. And the second advantage being that, who knows? We could get lucky and do better than break even (or unlucky, and do worse). So yesterday the stock jumped 63% to $2.24 — up 148% since February — on news of strong new test data. Writes Guru: “Anything could happen, but I don’t see how this doesn’t eventually get approved.” Not tomorrow, but sometime next year. He sees a solid case, if approved, for ETRM shares to hit $5 well before any actual profits roll in (if they ever do) as people get excited by the prospects. Or higher, if those prospects capture the market’s imagination, because . . . “The number of potential patients is enormous. At least 1.5 million Americans have a Body Mass Index of 50 (and another 8 million or so between 40 and 50). If this were worth what ARNA is, with its drug that produces just a 3% body weight loss that disappears after 12 months — yesterday ETRM said their weight loss remains at 10% after 18 months — you could get to $20 a share.” I am counting none of those chickens; but as a guy who tries to eat nothing but an avocado and a carrot each day (yet just downed a pint of Emack & Bolio’s coffee oreo low-fat yogurt), I would like to point out that a 10% weight loss is not nothing. The goal is not 100%, after all. Just going from 200 pounds to 180, while not the stuff of astonishing before-and-after pictures, is meaningful. If ETRM ever gets back up toward $4, it would not be crazy to sell enough to recoup one’s original bet and then, with the rest, just see where it goes from there. BKUTK Fred Campbell: “Thank you for talking about a stock today and not being on your political soapbox. It may be a stretch to ask you to spend two days in one week talking about personal finance but I ask that you provide an update on Bank of Utica. Mainly, what is the endgame we’re looking for? Generally, when you recommend a stock you’ll provide an endgame such as FDA approval, Wheeltug acceptance, or awaiting a court ruling. But I’ve heard nothing on BKUTK except that it’s a buy. Any info is appreciated.” BKUTK — or “Butt Kick,” as it is known affectionately by at least two of its shareholders — could hardly be more different from ETRM or many of the others I suggest. This one, as described by Chris Brown at the time, was all about stodgy undervaluation. Trading then at $330 and now at $425, with about 3% a year in dividends along the way, it’s done just fine. But there is no expected event-driven endgame we are looking for – just a chance to hold on, collecting dividends, as (we hope) it grows and/or approaches full value, which Chris thinks exceeds $600. I haven’t bought more at $425, but I’m not selling. A TASTE OF CHINA It was just one banquet after another. More to follow.