Cereplast (CERP.OB)

Dear Bottarelli Research Member,

We’ve once again witnessed some major swings in the market, sparked by concerns over bad home loans. How deep will these concerns go? We’ll watch it all unfold over the next few weeks, but if we’re smart, we could turn this lending “crisis” into an opportunity. For example, some loan companies that I’ve been tracking are not even in the sub-prime business, but nevertheless they’re still falling alongside the entire sector group. This could set up an “oversold” opportunity like never before.

You see, some of these companies were trading for $50 just a few months ago — but now they’re dipping into the mid-teens! Being heavily involved in the homebuilding business for many years, I know these companies extremely well, and although they’re getting hammered right now, I can tell you that the bottom is almost in sight.

Corrections (or shake-outs) like this are actually good for the market. Bryan and I have been talking extensively about this situation, and we firmly believe any major dips should be treated as buying opportunities in certain segments. In fact, Bryan just issued a special report to Bottarelli Research Options members recommending a remarkable way to play a U.S. homebuilder turnaround into 2010 for literally no risk. I just finished reading this report myself, and I highly recommend that you review it. You won’t see many opportunities like this in your lifetime, and Bryan (like always) is right there to help you fully capitalize on this situation. You’ll find more information on this opportunity in Bryan’s special section at the conclusion of this alert, but for now let’s dive into this week’s small-cap updates:

Parker Drilling (PKD – NYSE) reported great results on August 1^st. Their Q2 income shot up 32% as drilling barge day rates in the Gulf of Mexico rose to a record $51,600 per day. What’s more, these strong numbers did not even include PKD’s Quail Tool segment (due to some delays), so when these additional revenues are included next quarter, the results could be even stronger. PKD won’t be a Wall Street secret for much longer. Folks, I’m still bullish, and I’m buying this dip.

Nevtah (NTAH.PK) is a stock that I cannot wait until we hear just how well the new closed-loop system works out. If it does what everyone expects, I have a hunch one of the Big Oil’ companies will come knocking on their door with either a buyout or joint venture offer. I would nibble on some shares before any news comes out.

Lighting Science Group (LSGP.OB) just announced a new venture with one of the largest parking facility managers in North America — one that operates 1,800 facilities comprising approximately 500,000 lights. This is great news, and I expect to see a lot more arrangements like this in the future. “Green Lighting” is just now catching on and we’re positioned well ahead of the curve.

Polymet Mining (PLM – AMEX) is a stock that I’ve taken a hard look at. They’ve expanded their drill zones and if all things go as expected, they should soon be producing from one of the largest known base metal projects on the planet. I remain bullish as ever.

Now let’s move on to this week’s new pick, which is a follow-up pick to our Basin Water (BWTR – NASDAQ) alert from July 16^th. If you remember that alert, you’ll recall the story of me trudging through my local landfill and discovering the shocking effects of our nation’s plastic bottle problem. And right after I wrote about this problem, the plastic bottle crisis began to gather momentum with the national media — but I think this is just the tip of the iceberg. In fact, Aquifina bottled water just admitted that their water is nothing more than tap water — further supporting the investing thesis on water purification companies like BWTR.

When you really study the devastating effects caused by plastic bottle pollution, and combine that with the horrendous health effects caused by plastic bottles that are just now coming to the surface, I’m convinced that this is a situation that needs to be solved — and fast. So for this week’s pick, I scanned specifically for companies that make biodegradable bottles. And let me tell you, there are not many of them out there. That’s why this week’s pick is so incredibly exciting.

The stock you’re about to learn about only trades for $0.85 per share, and they’re a manufacturer of proprietary, bio-based renewable plastics.

And I’m not only talking biodegradable plastic bottles, but I’m also talking biodegradable plastics like cups, forks, silverware — even toys for kids! As you’ll see, their line of “Green Toys” is set to debut in retail stores this fall, and this could be the catalyst that blasts this stock into the national spotlight.

Just think what would happen if Al Gore or Oprah comes out and tells parents to buy these toys for their children. The market reaction could be a windfall for early investors like you and me!

Not only that, but this company just announced their very first market presence in Hong Kong, which means that this unique little gem could gain worldwide exposure right before our eyes. The company is called Cereplast (CERP.OB), and I’d like to use our 3% rule and buy shares anywhere under $1.00.

Without any embellishment, this could be one of those special “Wish I” stocks that makes you look like a genius investor years down the road. I would even suggest owning this one in your IRA or your children’s trust. It could be that powerful.

I’ll turn things over to Bryan for the full details. Have a great week everyone.

Sincerely,

The Words “Environmentally-Friendly” and “Plastic” Have Never Gone Together…Until Now

Wal-Mart, the nation’s largest retailer, recently announced that it will start replacing some of its conventional plastic packaging with bio-plastic, biodegradable packaging. If CERP gets any part of this deal, the stock price could soar.

Headquartered in Hawthorne, California, Cereplast (CERP.OB) engages in the development and commercialization of bio-based resins in the United States, Europe, and Asia. These so-called “bio-resins” are made primarily of renewable resources like corn, wheat, and potato starches — which makes them viable substitutes for conventional petroleum-based plastics. That’s why their company name, Cereplast, is derived from the combination of the words “cereal” and “plastic.”

CERP uses their proprietary bio-resins to manufacture environmentally-friendly utensils, plates, cups, bottles and straws. While I admit these items are probably an afterthought for most investors, this market is quite substantial. According to Business Insights, the “Food and Drink Packaging” market is estimated to be a $71.9 billion market in the United States alone.

When you consider major customers like fast food restaurants, food management companies, the U.S. Government, universities, colleges, and retail operations, the list of customers quickly adds up. And right now, we’re seeing a major shift in how these customers make their buying decisions.

Remember how conventional plastic completely replaced steel (and other metals) over the past few decades? Well, bio-plastics are now set to replace petroleum based plastics — setting the stage for sustainable, long-term growth in the bio-plastic market.

A decade ago, for example, 40% of an automobile was made from plastic components. But today, 80% of an automobile is made from plastic. Since manufacturing plastic uses petroleum, crude oil prices pushing $77 per barrel are making bio-plastics an increasingly attractive and economical choice for many industries on a global scale.

In fact, this major shift is imminent. The U.S. Department of Agriculture has already established guidelines that offer preferential treatment to bio-based products — which is why the Freedonia Research Group estimates that demand for biodegradable and compostable plastics should increase 20% to 30% per year through 2010.

And the good news for CERP is that the largest bio-based growth segment will be packaging — such as film, bottles, and foodservice products. With organizations like the Environmental Protection Agency, the San Francisco School District, National Geographic headquarters, and Whole Foods already using CERP’s plastic-based products, their growth story (and incredible investment opportunity) is still in the very beginning stages. In fact, get this:

Wal-Mart, the nation’s largest retailer, recently announced that it will start replacing some of its conventional plastic packaging with bio-plastic, biodegradable packaging. If CERP gets any part of this deal, the stock price could soar.

Even a small percentage of this $71.9 billion market represents a substantial opportunity for Cereplast. With a tiny $209 million market cap and revenues of $932,000, CERP is off the radar screen of most Wall Street investors. But with quarterly revenue growth of 172% and increasing numbers of major companies jumping on the bio-degradable bandwagon, CERP is perfectly positioned to experience tremendous growth over the next 12 to 24 months.

And here’s the interesting part of this opportunity: Although bio-plastic growth is just getting started here in the U.S., the bioplastics industry in Europe is already experiencing the first stages of a global boom cycle. According to a survey of the 66 members of an industry association called European Bioplastics, growth is coming in at 100% over 2005 levels, with the greatest increases coming in “biopackaging.” Its’ only a matter of time before this boom makes its way to America.

That’s why we want to get positioned ahead of the crowd. You see, even with increasing levels of consumer and environmental awareness, bioplastics still accounts for less than 1% of total plastic consumption in Europe. In the U.S., this number is probably even less. That’s why Harald Kaeb, chairperson of European Bioplastics, said that the bioplastic packaging sector is in “the very beginning of a boom.”

In fact, Cereplast’s resin was just selected by InnoWare, a manufacturer of upscale, disposable-plastic food containers, for a new line of “to-go” food containers. Just imagine if McDonalds, Burger King, or Subway starts using CERP products!

But the real upside catalyst comes in the form of environmentally-friendly toys from a company called Green Toys, which use plastics manufactured by Cereplast.

Scheduled to be available in retail stores starting in the fall of 2007, Green Toys’ initial products include the Green Toys Tea Set, Green Toys Indoor Gardening Kit, Green Toys Cookware and Dinning Set (pictured below) and the Green Toys Sand Play Set. Since this entire lineup is made from Cereplast’s bio-based plastic resin, all of these toys are certified as bio-degradable in both the United States and Europe.

Not only that, but using renewable resources ensures manufacturers like Green Toys that their cost of production will remain constant while creating a material that is phthalate-free, latex-free, asbestos-free, and gluten-free. The result is a safe and environmentally-friendly plastic material with a wide variety of applications. In fact, this new toy series is a strong example of the wide range of applications for Cereplast’s resin.

Since CERP’s bio-resins are developed in a 45,000 square foot facility in Hawthorne, California, they can distribute 50 million pounds of capacity annually — extending their potential markets to Home Furnishing, Automotive, Computer, Consumer Products, Health/Beauty, and possibly even the Medical sectors. That’s why Cereplast Chairman and CEO Frederic Scheer said, “Green Toys is proving yet again that bio-based plastic is just beginning to realize its market potential.” And when you put all the upside catalysts together, you have a very strong investment platform:

CERP’S 3 UPSIDE CATALYSTS:

1. The Foodservice Packaging industry in the United States accounts for 115 billion pounds of plastic resin annually, representing a $71.9 billion market, yet bio-based resins currently represent less than 1% of the market, setting the stage for a rapidly growing industry. Wal-Mart alone can blast shares aggressively higher.
2. The price volatility of petroleum-based products has resulted in projected annual growth for bio-resins of 20% to 30% for the next 10 years.
3. Favorable State and Federal regulations (combined with CERP’s six patents) make them the premier bio-plastic solution to a wide variety of global companies ranging from fast food to toys.

But the cherry on the sundae comes in the form of the two newest additions to CERP’s management team.

Addition #1:

On July 23^rd, CERP announced that Dr. Shriram Bagrodia will be joining the company as their Director of Research and Development. Dr. Bagrodia has more than 30 years experience in polymer science. He holds a Ph.D. in Chemical Engineering from Virginia Polytechnic Institute and a Masters of Science in Chemical Engineering from Princeton University. Before joining CERP, he was principal research engineer at Eastman Chemical Company, where he received 53 U.S. Patents in barrier packaging, nanocomposites, and polymer blends. His job will be to further strengthen the growing R&D team at Cereplast by leading the development of new resin formulas.

Addition #2:

On July 30^th, CERP appointed Alec Pettigrew as Senior Vice President of International Sales. As a graduate of Oxford Brookes University in England, Mr. Pettigrew received Hong Kong’s Young Entrepreneur Award — and he comes to CERP with 20 years of international sales and marketing experience ranging from the United Kingdom, Hong Kong, Africa, Asia and the Middle East. Prior to joining Cereplast, Mr. Pettigrew worked with Fortune 500 companies like Coca Cola, Yum Brands, and Gillette — and his role will be to open new market opportunities in some of the fastest growing economies in the world. To facilitate his job, Cereplast just established its first-ever international sales office in Hong Kong and put Pettigrew in charge. This office will lay the groundwork for future global expansion, with intentions of opening a presence in Europe later this year.

Put it all together, and Cereplast (CERP.OB) looks like a very strong buy anywhere under $1.00 per share.

PLAY: Buy shares of Cereplast (CERP.OB) at or under $1.00, good for the week.

Sincerely,

P.S. As Mark alluded to above, I just posted a special report for all Bottarelli Research Options members titled, “Buying With Blood in the Streets: A Once-in-a-Decade Opportunity to Play a Housing Rebound by January 2010.”

The crux of this new report is positioned around the U.S. Housing market — and a tremendous opportunity that’s now available in the LEAP options string of a major U.S. homebuilder stock. You see, I uncovered an investment opportunity that could get you positioned for a real estate turnaround for literally no risk. You’re essentially paying $1.50 to own a position that could make 3x to 4x your money if the U.S. housing sector rebounds anytime between now and January of 2010. That’s over 3 years to witness a housing recovery! To my eye, this could be the investment opportunity of the decade — and the complete details are found in my newest special report that’s free to all Bottarelli Research Options members. So if you have yet to join the Options service, I recommend that you jump on board now!

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Sincerely,