Obscurity to Notoriety

Since 1983
September/October 1996

S. A. Advisory's Undervalued Hotline
1-900-990-0909 Ext. 192

Market Comment

Hot Internet Stock - Click Here

We don't see any real chance that the markets will tube further than they already have, unless, of course, Dole wins in November. The likelihood of that is as probable as the cow jumping over the moon.

The Demorats in the past have clearly produced stronger market gains than the other thieves, but what difference does it make, they still are taking more and more money from us. In our opinion, the Federal Reserve, not Clinton, really created the market boom by corralling inflation, thereby setting a positive tone for interest rates.

Clinton boasts of 11 million new jobs. Well, we have 10 of them. Most of you do not realize that when we are not trolling the world for stock bargains, we work part time at Burger King™, 7-11™, WalMart™, Planet Hollywood™, Ralph's Supermarket™ , BlockBusters™, Virgin Records™ , Barnes & Noble™, and act as a security guard 12 - 8.

We appreciate you, Mr. Clinton. It's just too bad that we have to deal with you for four more years.

We still believe that the Dow will make new highs by year-end. We called for a 6000 on the Dow during December, 1995 - maybe.

Tax selling season should start soon. Have cash available for extra special bargains that will start to pop up, i.e., semiconductor related issues. NASDAQ and NASDAQ BB stocks have had the swiftest Bear Market ever - see no real upside until 1997. Time to start looking at beaten down favorites.

When things look the scariest, opportunity is most abundant. Many stock investors are shell shocked. Wake up and smell the bargains!

Yours truly, Wm. Velmer

Super Fast Phone Service & 900#

  1. On or about July 20, 1996, we informed our 900# investors to buy shares in Hot_Internet_Stock @ $2.00/share. This is our core internet play. See Brief.
  2. On September 4 we informed our Super Fast Phone Service Investors to buy two obscure fundamentally cheap opportunities, namely CVDE Equipment (CVDE - NASDAQ BB) and HIA, Inc. (HIAI - NASDAQ BB). See complete stories.
  3. On September 5, 1996, we informed our 900# investors via our Hotline to purchase CVDE and HIAI.

Brief on Hot Internet Stock

On July 20 our 900# investors were notified via our Hotline to purchase shares in Hot_Internet_Stock at $2.00. Hot_Internet_Company serves the internet and intranet markets through its software, services and technologies. During April, 1996, the company introduced HConnect™, a powerful and versatile software tool with specific applications for data harvesting and data mining in internet and intranet environments. This was followed by the announcement of HConnect Messinger™, an e-mail adjunct to HConnect. Recently Hot_Internet_Company introduced HStockVue™, an internet software application designed to appeal to a broad range of investors. H StockVue is part of the HConnect family of products designed for automated retrieval, conversion, and delivery of Web, intranet, legacy and LAN data.

Purchase Hot_Internet_Stock stock recommendation for only $9.95

The company recently called warrants that brought in around $10 million clams. A new company was formed literally. At present Hot_Internet_Company is ramping up for its new direction and is currently disposing of the rest of the junk! Management has always had problems making money at what ever they did. They now have another chance at it! We still expect further losses during the next few quarters as they morph. The balance sheet is now pristine - only 10.7 million shares outstanding with a market cap of around 23 million - book value around $1.60 -- bottom line, the Hot_Internet_Company is hot stuff. The question is, can they make money before the other guy produces something better. An interesting speculation that deserves a serious consideration. At around the 2 buck level, downside is limited and may fluctuate between $1.50 and $2.50 during tax selling season. Remember, this stock recently zoomed to $6.00 as the internet frenzy turned HOTTT. We would own it by mid-November.

Purchase Hot_Internet_Stock stock recommendation for only $9.95

Note : Product names have been altered to keep the company name confidential.


CVD Equipment Corp.
(CVDE - NASDAQ BB - $1.50)

Our Phone Service investors were informed to purchase CVDE @ $1.50 on September 4. 900# investors were urged to buy on September 5.

Specialized Semiconductor company with record sales, earnings and backlog. No long-term debt and management has been buyers of their stock during the last quarter. An obscure company that deserves higher valuations. If the second half of fiscal 96 equals the first half, CVDE could and should appreciate dramatically. See our analysis.

CVD Equipment was incorporated in New York in 1982 and made an initial public offering during September 1985.

CVD Equipment is a manufacturer of specialty equipment for the semiconductor industry. It is one of a small group of companies that provide custom turn-key deposition systems to universities, laboratories and major semiconductor manufacturers for research and production. The company also offers specialty furnaces, gas flow control systems and fabricated quartzware.

The company's products are generally sold to the semiconductor and aerospace industries and are manufactured to the particular specifications of each of its customers.

Chemical Vapor Deposition Equipment. The company offers advanced Metal Organic Chemical Vapor Deposition Systems for sale to the electronics industry. Chemical vapor deposition is a process which passes a gaseous compound over a target material surface that is heated to such a degree that the compound decomposes and deposits a desired layer onto substrate material.

The company also offers Annealing Furnaces which are used to heat materials to temperature ranging from 300 degrees to 1500 degrees C in a gaseous environment. The Annealing Furnace is equipped with an automatic process controller permitting automatic process sequencing and monitoring with safety alarm provisions.

Gas Flow Control Systems. The company offers standard and custom-designed gas cylinder storage cabinets and gas control systems to provide safe storage and handling of pressurized gases. System design allows for automatic or manual control from both a local and remote location where the handling of explosive, flammable, corrosive and toxic gases used in the manufacture of semiconductor wafers can be hazardous.

Quartzware. The company offers standard and custom fabricated quartzware. The quartzware is used by CVD Equipment Corporation and is also sold as a separate item to the semiconductor industry.

Current backlog remains strong at $3.3 million.

Brief Fundamental Analysis

Fundamentally speaking CVDE is a very cheap stock. Upon review of the Select Financial Data located in Box A, it is easy to conclude that CVDE's growth in revenues and earnings has exploded to the upside.

For the six months ending June 30, 1996, sales ballooned to 2.27 million, while earnings skyrocketed to .17/share. For the period ending June, 1995, sales only reached 1.05 million and losses equalled (.03)/share. Revenues growth expanded by 116% and earnings expanded by a mind-blowing 1900%.

Total sales and earnings for calendar year 1996 are anticipated to be just as impressive. According to a management discussion, sales should approach $4.5 million and net income/share should equal an impressive 30¢. By the end of 1996 CVDE's book value should approach 95¢, the company's cash flow is healthy and expanding, long term debt is $1,200.00 and management has been purchasing shares in the open market. Even though this company is small in nature, the fundamental picture at current levels look extremely attractive.

Upon review of Box B, which is a simple comparison of related companies with respect to PE estimates for 1996, it is easy to conclude that the whole group trades at fire-sales levels. In our opinion, all three issues look attractive; i.e., AMAT @ 24 1/4 - PE of 6.8, NVLS @ 37 3/4 - PE of 6.2 and, of course, our recommendation of CVDE @ 1.50 - PE of 5.

Upon review of Box C, we have made some conservative calculations using PE, PSR and book value and all of our results indicate that this stock should trade dramatically higher.

When we used earnings of 30¢ for 1996 and assigned a conservative PE ratios of 10, a $3.00 stock price results - roughly 100% above current levels. CVDE anticipates growth of around 75% during 1996. If we assign a PE of 25 to take in account this rapid growth, then a share valuation of $7.50 is formulated. If we examine book value and assume that CVDE should sell at 3x book, again we develop and share valuation almost 100% higher than current levels. Finally, if we assign a relatively low PSR to CVDE of 1.5x, a resulting share price of $2.35 is calculated.

When one considers the anticipated growth in sales and earnings, pristine balance sheet, management stock purchases, no LTD, fundamental comparisons to peer companies, conservative assignment of PE, PSR and book values, all indications are for a stock price of at least double its current level near term.

We find CVDE very compelling at current levels for short and long-term appreciation. We like it, own it and plan to profit from it!

Broker Contact: Mike Chesler at 1-800-331-1355; Corporate #516-981-7081.

We intend to monitor 5,000 shares of CVDE in our 100K Model Portfolio and 900# Portfolio for percentage gain performance.

(HIAI - NASDAQ BB - $7/16)

Tapping the growth of the Western states - revenues and earnings accelerating - solid book value, cash flow and no long-term debt - very attractively priced @ $7/16 with attractive upside potential during the next 18 months.

On September 4, 1996 our Super Fast Phone service subscribers were notified and urged to purchase shares in HIA, Inc. @ $7/16/share. On September 5, 1996, our 900# investors were informed of this new recommendation by calling our 1-900-990-0909 Ext. 192 hotline.

HIA, Inc. was incorporated in 1974. The company is a holding company with all of its business conducted through its wholly-owned subsidiary, CPS Distributors, Inc. Through CPS the company distributes turf irrigation equipment and commercial, industrial and residential well pumps and equipment on a wholesale basis.

CPS serves customers in the Rocky Mountain region in five states consisting of Colorado, Wyoming, New Mexico, Kansas and Nebraska. CPS carries a variety of brand name products, including pumps and water systems, water conditioning equipment, pump and well accessories, pipe values and fittings and sprinkler system equipment. The industrial, commercial and residential pumps and turf irrigation equipment represented 20% and 79%, respectively, of net sales for 1995 and 21% and 79%, respectively, of net sales in 1994.

Quotation activity is especially intense in the winter and spring months (December to April) when contracts are reviewed and eventually awarded for spring or summer construction. Since over 80% of CPS' business relates to turf and irrigation products, its sales are concentrated from May to September and are therefore seasonal in nature.

CPS has six major competitors in its market area for turf and irrigation equipment and six major competitors in its market area for industrial, commercial and residential pumps and equipment. It is estimated by management that CPS has over 18% of the total market in Colorado for residential pumps and 30% of the total market in Colorado for turf and irrigation equipment.

Brief Fundamental Analysis

Nervous investors looking to participate in a volatile market should consider investment opportunities that are easily understood and that have strong fundamentals. Opportunities that have steady revenue and earnings, no long-term debt, good cash flow and management that continually buys back stock should allow most low priced stock investors a good night sleep, even in the most turbulent times. HIA, Inc. (HIAI - NASDAQ BB) is not a barn burner, but has been in business for over 22 years sporting steady growth in sales and earnings. During the past few years sales have been accelerating due to the massive influx of new business into the Western States, due to a higher quality of life; i.e., lower crime, clean water and air, lower land and housing costs, greater tax incentives at the state and federal level and an eager work force. All of the above bodes well for HIA, Inc. to continue to grow during the next few years with little downside risk from current levels.

From Box F investors should easily see that based upon very conservative fundamental variables for fiscal 96 and 97 that all calculations indicate higher stock valuations for HIA, Inc.

If we average a share price based upon fiscal 96 earnings of 7¢ (note: Management is very comfortable with us using this value in our calculations) and derive calculations from standards, i.e., S & P 500 PE of 16 ($1.12), PE of 10 based upon revenue growth (70¢), PSR of 1/2x estimated 96 sales (85¢) and 3x book (875¢) - the resulting share price equals 89¢ - a 93% appreciation from the current level of 44¢. If we average a share price based upon fiscal 97 earnings of 10¢ and use the same parameter, one derives $1.60, $1.30, 95¢ and $1.17. The resulting share price equals $1.25, a 173% appreciation from the current levels of 44¢.

At present HIA, Inc. has a $3 million line of credit available at its disposal. To date HIA, Inc. has borrowed $500K and anticipates payback by fiscal 96 year end. At that time the company has the option to pay dividends (we believe that during fiscal 97 one could be paid). We also believe that during the later part of fiscal 97 HIAI should qualify for NASDAQ listing (if share price is not $3 or above, the company could do a reverse split).

As mentioned earlier, HIA, Inc. is not a barn-burner, but might be considered a stock at fire-sale prices. This opportunity offers conservative speculators a solid growth opportunity based upon the demographic shift, which in our opinion should continue through the year 2000 and beyond. This opportunity has steady revenue and earnings growth (see Box E), no long-term debt, ample credit line, good cash flow, strong book value, stock buy back by management (currently owns 49% - 2000 shareholders own the balance), and trades 100 to 200% conservatively from fundamental analysis target prices during the next 18 months.

In our opinion, we believe that revenue and earnings estimates are on the low side. In speaking with management, they present themselves as very conservative in nature and we look for surprises on the upside (2 and 3 quarters are the strongest, while the first quarter is always a loss and the 4th quarter somewhat flat. Sprinkler system are not usually put in the ground when the snow blows, just in case you didn't know that.

We intend to monitor 10K shares of HIA, Inc. (HIAI) at 7/16 in our 100K Master Portfolio and our 900# Portfolio for percentage gain performance. Broker contact: Mike Chesler at 1-800-331-1355; Corporate # - Alan Bergold at 1-303-394-6040.

In order to stay in line with SEC guidelines, S.A. Advisory may buy, hold or sell positions in all securities recommended. The portfolios are all hypothetical in nature. It is likely that all recommendations were purchased prior to the recommendation. We may buy additional shares or may sell shares at any time. S.A. Advisory's portfolios are geared towards sophisticated investors aiming for long-term capital gains. Our trading habits may vary at our own discretion. Most recommendations are based upon strict fundamental analysis. Usually revenue and earnings EST for low priced common stock result from management discussions.

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