July 31, 2009

Why is HQ Sustainable Maritime in the ERRI fund?

Posted in economic indicator, economic recovery, ERRI, Obama administration, U.S. Economy tagged , , , , , , , at 7:58 pm by realitytax

HQ Sustainable Maritime Industries, Inc. (HQS), is an integrated “aquatic product” producer, processor and farmer of toxin-free tilapia with operations in China, other aquatic products and marine bio and health-care products sold principally to customers in North America, Europe and Asia. HQS facilities are certified according to the Hazard Analysis Critical Control Points (HACCP) standards and assigned a European Union (EU) code required for exporting aquatic products to the EU. HQS is also certified in accordance with the Aquaculture Certification Counsel, Inc. (ACC) standards. The Company owns a “nutraceuticals” and health products company, producing and selling products subject to certification(s) by the China Ministry of Health.

HQS shares plummeted from about $16/share in late July of 2008 to just over $3 by the end of October 2008 as the effects of the lack of accountability and transparency on Wall Street precipitated the spread of the well-documented credit and liquidity crisis outside the mortgage and banking sectors, and share prices dipped again a bit in March when much of the market struggled. Investor sentiment is typically positive when the 50-day moving average is rising, especially if it’s also above the 200-day moving average. HQS 200-day numbers trended down since August 2008 until late may, shortly after the more volatile 50-day average had “crossed above.” The 50-day, now showing signs of life, had dipped below the 200-day in early September of 2008. Other technical indicators complete a “mixed” outlook (arguably neutral or slightly better) but small ventures such as HQS face immense challenges to growth and success as the echoes of the credit crisis have spread to the world markets.

With just over $100 million in market capitalization (a Small-Cap stock) HQS valuation tumbled during the latter months of 2008, tracking the broader markets. HQS is used within the ERRI fund to benchmark non-cyclic consumer activity, particularly food, and comprised 10.11% of the valuation at fund inception. The market recovery can’t be measured solely by tracking large companies engaged in retail clothing, the financial sector, and/or utilities; small companies face a very competitive landscape as they seek resources to expand. HQS has scheduled the release of its 2009 second quarter results for after the close of the market on August 10, 2009.

It is interesting to note that institutions own a significant portion of the outstanding shares in HQS, approaching double the average for the fish/livestock industry. Tilapia consumption in America has reportedly been growing at over 35% a year for the past 8 years.

In addition to headquarters in Seattle, HQS has operational offices in Wenchang on the island of Hainan, in China’s South Sea. (Hainan is the largest Special Economic Zone laid out by Chinese leader Deng Xiaoping in the late 1980s.) The nutraceuticals produced are used to enrich feed used by HQS’ cooperative aquaculture operations. The successful negotiations with the Chinese government underscore the value HQS sees in Asian markets in general, and China in particular. With the increasing pressure from the Chinese on American fiscal and monetary policy it seemed prudent to include both HQS and Research in Motion in the ERRI fund, making nearly 15% of the fund total “responsive” to business with the People’s Republic.

Disclaimer: Readers are advised that the ideas, materials, and opinions contained herein should be used solely for informational purposes. The author does not purport to tell or suggest investment securities that should be bought or sold. Investors should always conduct their own research and due diligence and obtain professional advice before making any investment decision. Neither the author nor realitytax shall be be liable for any loss or damage caused by a reader’s reliance on information obtained in any posts, newsletters, special reports, email correspondence, or comments on the web site. The author is not a registered investment advisor or broker/dealer. The information contained herein does not constitute a representation by the publisher or a solicitation for the purchase (or sale) of securities. Opinions and analyses are based on sources believed to be reliable and are written in good faith, but no representation or warranty is made as to their accuracy or completeness, and we are not liable for errors or omissions. All such information should be independently verified with the companies mentioned. The author(s) receives no compensation of any kind from any companies that may be mentioned on this web site. Any opinions expressed are subject to change without notice. Owners, employees and writers may hold positions in the securities that are discussed; the intent is neither to suggest investment choices/strategies nor to influence market conditions, but rather to divulge methodology for inclusion of equities and sectors in the Economic Recovery Reality Index [ERRI]


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