Rhody Trader

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My mentor told me about an interesting stock that he’s in. It’s LPHI, Life Partners Holdings, a company that basically buys life insurance policies from individuals, providing them current cash (at a discount, of course).  It’s a company that was making $0.10-$0.22 for a few years (2003-2006), and trading  in the $2-$8 range during that time, but it exploded in FY07. The company only made $0.29, but traded as high as $42 back in the second half of 2007. A sharp sell-off has ensued, knocking the stock down to as low as $12 a few weeks back. It’s been rallying back since, as the chart shows.

From a purely technical perspective, recent developments in the chart are fantastic for the bulls. As the market bottomed out the volume totally disappeared, Then, on the rally from the lows, it really picked back up. As you can see, the Bollinger Bands got narrow, and they began widening on the move up - a good uptrend indication.

Here’s the fundamental argument. The company just finished FY08 in February with $1.59/sh earnings. The expectations for FY09 just started are between $2.50 and $3.00. My mentor, who is very well informed, thinks that if they really screw things up they’ll still do $2.

Want to hear the really fun part? There are about 1.3 million shares short on about a 3 million share float and the company is tossing around ideas for ways to burn them. In other words, this stock could go very, very quickly. A PE of 20 on FY09 earnings puts LPHI in the $50 to $60 price range.

Check it out. Keep in mind that it’s a small cap stock, though.

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