MagneGas Corp (NASDAQ:MNGA) defied last month's short attack and finished 2015 on a strong note. While shares are off the 52 week high of $2.50 hit in December, they are up dramatically off the 52 week low of 42 cents. Last month MNGA was subject to a great deal of controversy after an anonymous blogger posted a hit piece on Seeking Alpha. Shares sold off from $1.90 to about $1.22 when dip buyers emerged and took advantage of the selloff. MNGA looks be consolidating between $1.50 and $1.75 before it makes its next move higher.To understand MNGA, it's important to understand the company's background. MNGA's technology is based on the science of Dr. Ruggero Santilli. His son Ermanno is the CEO and the Santilli family remains the largest shareholders of MNGA. So the Santilli family not only has a vested interest in seeing MNGA succeed, but the family's reputation is at stake as well. This is their baby and they eat, sleep and breathe MNGA.
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Besides the Santilli's, a new fan emerged last month of MNGA. That is Dr. Kent Moors of Oil & Energy Investor. He his part of the Agora family in Baltimore that has a huge following. When they get behind a stock, big things happen. Dr. Moors has described MNGA as a "new gas molecule that burns hotter than the sun." He further stated that "there's never been a moneymaking situation quite like this in the entire history of energy!" Dr. Moors' excitement explains the two days when MNGA traded over 10 million shares.
The unique thing about Magnegas is that it can utilize motor oil, industrial fluids, paint thinner, human sewage, manure, poultry litter, or contaminated water to create this flame. The way it works is that the company has a patented process whereby the waste is zapped with electricity, the gases are captured and then turned into the fuel called Magnegas. So far the main focus for MNGA has been the welding and cutting market as a replacement for acetylene, but the real potential looks to be coal combustion.
Co-generation is the next big potential market for Magnegas. MNGA has tested it and the results were reductions in CO2 of 20-30-40% and even greater numbers in the reduction of pollutants. MNGA says:
“MagneGas is currently developing and verifying a Co-Combustion technology that results in unique combustion characteristics, namely burning MagneGas with less efficient fuels and wastes results in improved emissions, improved efficiency and a dramatic reduction in CO2. These combustion improvements are related to the extremely high flame temperature of the MagneGas fuel as independently verified by the City College of New York. Working with one of the largest US power company’s independent laboratories MagneGas Corp and it’s partners have been verifying these claims since early 2014 and is nearing conclusion.”
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The biggest risk I see with MNGA is that Santilli needs to deliver to live up to the hype. The company does have huge potential, but that has yet to translate into large revenues. In the first nine months of 2015, MNGA posted just $1.7 million in revenues compared to just $516k in the previous period of 2014. While this is an increase of over 200%, MNGA does have a current market cap of $66 million. MNGA needs to deliver on some of its contracts this year. If the company can do that, the shorts have lost their only real argument against the company. If that were to happen, look out as there are roughly 2.29 million shares short. We'll see a major short squeeze in MNGA that will send shares flying. Sign up below and get the latest on MNGA and all of our hot stock picks.
Disclosure: We one no shares of MNGA, but may enter a long position on any dips. We have not been compensated for this article.
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