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Top Stock Pick for 2017:
Optex Systems – a military play

Optex Systems (OPXS) is one of Bill Velmer’s, S.A.Advisory newsletter, Stock Picks of the year for 2017. This military play has the potential to increase in value by 300-400%, according to Velmer.

Optex Systems was last featured within our October 8th 2016 Email alert. Our opinion has not changed except that this stock is even cheaper than our initial recommendation because of tax selling and the endless selling of shares by institutions that bought IPO shares during the August 2016 offering brought by “Gunner” when the firm raised $4.5 million. The Brokerage firm did a horrible job in placing the issue and even did a worse job supporting the issue. The results have been somewhat of a slaughter. We initially recommended OPXS @ $2.00/sh. The stock was trading @ around $2.50 a few days prior to the “setting” of the IPO pricing. The institutions that decided to “play” the deal most likely shorted the deal to the $1.20 level that was decided upon so that the raise could happen quickly. (The unit consisted of 1 common share and 1 five year purchase warrant exercise price @ $1.50 and non-callable.)

Once the deal was closed the Institutions wanted out and “killed” the bid for months and months and of course we entered tax selling season and we got it from both ends.

OPXS designs and manufactures periscope configurations, surveillance sights, optical sighting systems and assemblies and night vision optical assemblies. The Abrams & Bradley fighting vehicles, the Stryker family of 10 vehicles and the “new” AMPV all use OPXS’s product lines.

During fiscal 2016 revenue ballooned to $17 million from $13 million and losses narrowed dramatically to only $200k. The company retired and converted all outstanding Preferred into common and will save over .07/sh. At present there are 9.8 million shares outstanding and fully diluted. There are around 4 million purchase warrants outstanding and trading under the symbol OPXXW. As the company enters fiscal 2017 the balance sheet is strong with cash on hand and almost NO debt. The current book value over is $1.00. At present we are trading @ a 30% discount to book and only 25% of estimated 2017 sales. If we consider that anticipated revenue could top $25 million during 2017,which equals almost a 50% increase over 2016 revenues assigning a PE of 15X is very conservative. We believe that OPXS could easily earn .20 during 2017 and assigning a PE est. of 15 yields a share price of at least $3.00. This is a far cry from the distressed share price of .70!

Recently in the news the Saudi Government has decide to buy 1 Billion dollars worth of Abrams Tanks which equals around 110 vehicles and they all need OPXS’s optics. The optics that OPXS supplies to new equipment is around $35-$40k/unit. This eventual contract is worth around $4 million. The Kuwait Government also ordered $1.8 Billion in new fighting machines and upgrades which equal around 210 units and each unit is worth around $25k or some $5 million worth of products for OPXS. We assume that as it filters down thru GD within a few months or so OPXS will secure the contracts. At present OPXS has a $12 million backlog that will be completed during 2017 and is only half of their anticipated business not including the 2 above mentioned foreign orders. OPXS has the potential to expand rapidly to $50 million in revenue with no additional CAPEX.

Finally tax selling season and institutional selling is over and behind us. The balance sheet and cash position for OPXS is strong and with a “new” hawkish administration entering the WH it is our belief that the scenario of leading from behind and having a weak military are in the past. Our world has become much more dangerous during the past 8 years and now the US Military is going to get it’s MOJO back.

Our Military neglect and degradation of our equipment is over and we believe as soon as Trump gets in office on Jan 20th 2017 that all levels of military spending will increase dramatically. Most of our fighting vehicles are old and new replacement or serious upgrades are needed and OPXS is well positioned during the next few years to help the US Military and USA get back to Greatness Again.

If you purchase shares at higher prices it is time to average down and buy this severely undervalued military play for exception upside potential. The warrants offer amazing leverage and even better upside potential. The warrants have a 5 year life and are not callable so one could buy a huge position in the warrants and get dramatic exposure for only 20% of the cost of buying the common. We actually own both and are looking for a huge win from both positions. www.optxsys.com.”

Editor’s Note: Bill Velmer is editor of S. A. Advisory, 4700 S. Holladay Blvd., Salt Lake City, UT 84117. 1 year, 8-12 issues, $250. 1 year with telephone service, $3,000. This exceptional service recommends low priced Nasdaq and Nasdaq Bulletin Board opportunities that are fundamentally undervalued and underfollowed, midcap higher priced stocks that are out of favor and turn-around situations, and international investment opportunities. Add your Email address to receive FREE Buy and Sell recommendations from www.saadvisory.com.


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