Investing to Wealth

Today’s blog is about a small cap stock that is in an industry close to my heart: venture capital. Back in the day, I worked in venture capital for Bank of America Venture Capital.  It was a multi-billion $ VC firm with both direct and partnership investments.  What that means is they both invested directly in companies and also in large VC partnerships (like KKR, Menlo Ventures and all the “Sand Hill Guys”).  It was a heady time for me and one of my best work experiences.

Today’s blog is about one of those VC’s:  American Capital, Ltd. (ACAS).  ACAS is one of a number of public companies that engage in investing in mature companies in the forms of venture capital, mezzanine financing, LBO’s, structured financing, private equity, etc…  ACAS has taken a real hit lately and their penny stock price is reflecting that.  They are in default of a multi-billion $ debt facility and have posted substantial losses in recent quarters.  Their debt rating has also been downgraded.  Not much good news.  However, from an operating cash flow/EBITDA basis, ACAS is doing alright. They are also in the midst of raising capital to the tune of $2 B.  That will give them some much needed liquidity.  What is so damaging to their value is the plummeting value of the companies in their portfolio.

From my review of their financials, my knowledge of the venture business and information I have gleaned from the web, I believe that ACAS has the staying power to weather their current financial storms.  They do to!  Read their latest update.  However, I am not a long-term investor and won’t be around in two or three years when they have turned things around.  I am looking at a chart that is looking attractive for a bounce play.  Let’s look at the chart:

Like rats leaving a sinking ship, investors have been fleeing the penny  stock.  This was a stock that was almost $29 back in September of ‘08.  Look how far it has fallen.  The short interest ratio as of 8-11-09 was 16.4%.  Any good news or buying interest will squeeze the shorts and could unleash a buying frenzy.  There is nothing substantive right now that indicates that will happen, but this is a penny stock to keep on the radar.

The stock has good support in this range and could rally back to $3.70 reasonably easily.  Definitely a radar stock.  Do your due diligence and watch it daily.

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