It’s late summer in California and things are dry. As it turns out, the state is in the midst of a record setting drought. Records kept since 1895 indicate that currently the state is in the worst drought since records started being kept. Where can an investor turn in such times?
The tail end of summer is the most dangerous time in the western part of the U.S. for forest fires. Extreme heat throughout the summer compounded with the complete depletion from water run-off from the prior winter’s snow pack leads to a lot of dry brush. Fire mixed with dry brush is a combination for a big disaster.
Currently, two fires are burning in California. One is in southern California near Azusa and the other is in the foothills in the Sierra Nevada mountain range near the town of Oakhurst.
While no one knows exactly how the remainder of the fire season in California plays out, it’s a safe bet that additional fires will spring up throughout the state before the latter part of fall sets in.
So what investment idea is worth entertaining given the state of the state of California and the rest of the south western U.S.?
A small cap player in the fire fighting world is GelTech (GLTC.OB). Around 201o the company’s product, Fire Ice, made it on the list of approved products for fire fighting with the U.S. Forrest Service.
The company’s stock price is around the range of its 52-week low and has bounced around that range since May. The stock is thinly traded, which could mean large downward or upward swings in price.
If you bet on the idea of a heavy season of California wildfires, it’s quite possible that sales for Fire Ice from GelTech will jump significantly. In such an instance, the ramifications for the stock price could be quite dramatic. Thinly traded stocks that see a sudden surge of interest will experience dramatic price swings.
To see an example of how dramatic the stock price movements can be, look back at GelTech’s stock price around March and April of 2011 (above). The stock price jumped dramatically because of news coverage of the Fire Ice product. As you will see, after the hype subsided the stock’s price quickly came down to Earth, as is expected. This would be a short term trade position.