Hudson Technologies (HDSN) – Taking Advantage of an EPA Phaseout

Hudson Technologies (HDSN) is a distributor and recycler of refrigerant gases. The company is poised to benefit from an EPA mandated phase out of virgin gas production of the leading refrigerant that will boost market pricing and volumes of reclaimed refrigerant where Hudson is the dominant player. Hudson stock remains depressed due to investor fatigue with the slow to develop shift in market dynamics and a general lack of Street recognition. The stock trades at 2-3X projected earnings when the market shifts, while the EPA is set to finalize substantially reduced virgin gas production quotas in the coming months. In the meantime, the company has expanded market share and is substantially profitable.

Top Image Systems (TISA) – A Cheap Microcap Software Company

Top Image Systems (TISA) is a NADSDAQ-listed Israeli enterprise software company. TISA makes automated data capture solutions to control the flow of document based data through an enterprise.

Global Education & Technology (GEDU) – A Chinese Merger Breakup Arbitrage

Global Education & Technology Group (GEDU) is a Chinese ADR that offers English language training in China. It has become embroiled in an insider trading scandal surrounding its pending acquisition by Pearson (PSO), the large British media and education company.

Mercer International (MERC) and Canfor Pulp Products (CFPUF) – NBSK Pulp Companies

Following up on the NBSK market overview, let’s take a look at some individual NBSK pulp companies. The two publicly traded NBSK pure plays are Mercer International (MERC) and Canfor Pulp Products (CFX on the TSE and CFPUF on the pink sheets). Fibrek (FBK on the TSE) has about half of its sales from NBSK, but it is now more of a special situation following the recent Abitibi buyout offer. While clearly the future price of NBSK (which I discussed in the market overview) is what matters most for these stocks, it is worth taking a look at the individual companies.

Talbots (TLB) – A Specialty Retail Special Situation

Talbots (TLB) is a struggling specialty retailer of women’s apparel that has become an interesting risk arbitrage situation.

The stock closed at $1.56 on Tuesday. After the close the company revealed that 9.9% holder Sycamore Partners had made an unsolicited bid of $3 a share in cash for the entire company. The stock has since traded between $2.39 and $2.80. As the stock has been trading well under $3 it appears the market thinks that either TLB won’t sell or Sycamore won’t be able to complete the deal.

NBSK Pulp – A Market Overview

Paper pulp stocks have tanked in the last few months. With the pricing of their commodity products falling some of the stocks are off more than 50%. Although they are probably not out of the woods yet (pardon the pun), it might be worthwhile to take a look at the industry. I hope to provide a brief market overview in this post and then take a look at two pure play pulp stocks- Mercer International (MERC) and Canfor Pulp Products (CFX on the TSE, and CFPUF on the pink sheets)- that make NBSK (northern bleached softwood kraft pulp).

Clearwater Paper (CLW)- A Play on Private Labels

Clearwater Paper (CLW) is a very intriguing paper and packaging stock that offers a way to capitalize on the still growing private label trend, as well as some company specific catalysts. Offsetting that attractiveness is exposure to commodity risk due to their fluctuating manufacturing input costs.

Pinnacle Airlines (PNCL) – Ready for Takeoff?

Pinnacle Airlines (PNCL) operates regional flights, mainly for Delta and United. The stock has gone from $8 to $2.30 over the past year as they have experienced a variety of expense increases that have decimated profits. While the stock has been left for dead, there are several catalysts in the form of contract rate resets on the horizon.

Regional airlines such as Pinnacle operate short haul flights under the banner of major carriers like Delta. The typical arrangement is a multi-year “capacity purchase agreement” in which the major carrier guarantees a fixed fee payment per hour flown as well as reimbursement for some variable costs, most notably fuel. This should provide the regional carrier with steady business that is not subject to the passenger load or fuel price risk that plagues the airline industry.

Pandora (P) – Looking Inside the Box

In the current craze for anything related to social media and the “cloud”, the internet radio company Pandora (P) had EBIT of $1.5 million last quarter and sports a market cap of $2.2 billion. Typically the insane valuation for these stocks is justified by touting their economies of scale. Their fixed costs are minimal and do not increase with the scaling of their user base. They are growing their user base at an incredible rate, and in five years they can monetize a massive user base over that small fixed cost base, and voila we can justify a stock trading at 500X earnings. But it doesn’t appear Pandora even has that argument going for it. So I thought it might be interesting to look at as a potential short.

Tronox (TROX) – Going Vertical

Tronox (TROX) shares present an opportunity to invest in the only fully integrated producer of titanium dioxide. TROX has flown under the radar due to the market overlooking a post-reorg equity still trading on the pink sheets and uneconomic selling by post-reorg equity holders after the company did not opt for a quick sell out upon emergence from bankruptcy. The recently announced acquisition of the Exxaro mineral sands assets will allow TROX to capture value across the Tio2 supply chain and give them the most competitive cost structure in the industry. Over the next year TROX should be boosted by a range of macro and company specific catalysts, and yet the company is trading at just 2.4X 2012E EBITDA and less than 5X 2012 estimated free cash flow.