THE STEWART REPORT HOTLINE SUMMARY

Thursday, July 8, 2004

Next HotLine Recording Scheduled for Saturday, July 31, 2004
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Overview: Regarding the overall market, I’m currently clueless. I also have very little feel for what’s going on closer to home – i.e., with respect to the NASDAQ or the Russell indices. Some of that may be due to my diligence in avoiding television. But I really don’t think so. Even when I pick up the newspapers, looking for clues, I still feel lost. Whether it’s the political, social or economic battlefields, I know I’m a soldier on the front line – I’m just not sure which side of that line I’m on most of the time.

And, looking back, it’s been this way for about 18 months.

Quite frankly, give me 10 minutes to prepare and – Bull market or Bear market – I could argue either way convincingly enough to win any debate. However, it’s always been my experience that winning an argument about the market’s next direction and being right as to its actual direction are two very different things.

That experience aside, I see the potential for the current market as being evenly divided – in fact, almost precisely 50/50. Indeed, I’d rate the present outlook so 50/50 that there could never be a true Wall Street “casino,” simply because the house “edge” would be so imperceptible as to eliminate any meaningful margin of profit.

So, what do we do until the usually opinionated Stewart Report finally does pick one side of the fence – or the other? Quite simply, we continue to do that which has profited us so handsomely during this same 18-month period. To wit:

· We focus on a handful of stocks;

· Whose management we know, and have known for years;

· Whose technologies and services we understand;

· Whose industries we can quantify; and,

· Whose values we believe in.

After all, as my Father taught me, “if it works, don’t fix it” – especially if “what works” is still undervalued.

Let’s be honest – this is not rocket science. Statistically, we’re distinctly small time. I mean, we’re only watching four stocks at this point. However, we are watching these four stocks very, very closely.

Ironically, this gives us a huge leg up over most advisory services. Imagine the others who are trying to follow 50, 75 or 100 stocks using 20, 30 or 40 analysts. And they’re competing with 500 other firms, not to mention 5,000 or 6,000 mutual funds. Just try to find somebody – anybody – in that vast sea of humanity who knows all there is to know about even half the stocks they’re covering. You can’t – which helps explain why less than 15 percent of managed portfolios have outperformed the leading market indices the past three years.

But we know our four companies. In terms of internal progress, each is meeting my expectations. And, as long as each continues to do so, I figure it’s only a matter of time until their stocks appease my price expectations as well. Indeed, some already have, like the featured stock in our 10th Anniversary issue…

International Card Establishment, Inc. (NASDAQ/BB: ICRD) – Last Trade: $1.44.

This thing is doing so well that, for some of you, tax considerations have come into the equation. But, despite a solid rise on frequently historic volume, the fact of the matter is, the stock is currently trading for much less than current performance warrants.

I believe the original Stewart Report did a good job of articulating the performance to be expected from ICRD – but I can’t really take a lot of credit for the gains reaped on the latest up move. This was just one of those silky, luxurious moments where something was in a stupid, temporary decline – and I got lucky. I bought within a penny or two of the bottom. The next day, I realized the stock was still there – so I put out a Special HotLine advising others to do the same. Now, just 30 days later, the stock has almost exactly doubled.

But who cares! I promise you, certainly not me! No B.S.

The timing was sheer luck, pure and simple. Nobody picks the bottom, except by extremely rare coincidence. And nobody picks the top, either. If they do, it’s an equally rare twist of fate. So, you just call it luck. After all, hunting winning stocks isn’t like hunting trophy animals. You don’t need to bag the entire beast, from the tuft of the tail to the tip of the nose, in order to be successful. It’s sufficient to hit the heart of the meat – the big fat part of a price move. That’s enough to show your aim was good (or the target was too big to miss).

Of course, I’m not really a hunter in the traditional sense. No stomach for it. But I do remember the parable about the young wolf who saw the lamb and said, “Father, let’s go down and take it.” The father responded, “We could … but instead let’s wait a bit and take the whole herd.”

Now I don’t know if the hunting analogy made a bunch of sense to you – but it did, and still does, make sense to me. Especially relative to ICRD – because, really, who does care! Perhaps you bought at 75 cents … or $1.00 … or $1.25 … or even $1.50. I’ve been there at every price (though I don’t think any of you have been in at $1.50; at least, not yet) – and every price in between. And I don’t care.

No, sir! I’m instead looking for the logical economic conclusion to an equally logical business plan. If you’ve read my Report, then you know I’ll be feeling cheated at any price less than $2.67 – and won’t be surprised by a lot more. In other words, if you are new to ICRD, the stock is still a good BUY at $1.44.

On the other hand, if you’ve been tracking the progress for a while, you might want to give the price watching a rest. That was my accountant’s advice. Thinking quickly back – and forward – he’s right. ICRD will likely gyrate some more – and you might get lucky the next time it does. As I said, I did during its last gyration. Got very lucky. Pure and simple!

Indeed, my account’s advice was perfect … lots of alacrity:

1. You know the stock is undervalued.

2. You know it’s going to fluctuate.

3. So look at the “given” – and also pay attention to the IRS.

That given is that the security is likely to bounce around – somewhat like a Super Ball on a cobblestone path. Nobody can accurately predict the bounce – only the probable direction. But, our targets are staying put – between $3.50 and $4.00, conservatively. So, why play guessing games? Play for the long term.

That’s not much different from what we said in our original Report. Bet on the Company; bet on the people; bet on the industry – AND take advantage of the fact that long-term capital gains are taxed at 15 percent, compared to the potential 35 percent levy on short-term gains.

Bottom Line: Expect more volatility; play with more money (within reason), buying on dips; reap a big payday – or, hold for the long term; pay less taxes; reap an even bigger payday. – J.D.S.

Having devoted this much attention to my present market philosophy and specifics regarding ICRD – and with nothing else really new to report – I’ll limit my comments on our other three companies to recent price quotes, as follows:

Amarillo Biosciences (NASDAQ/BB: AMAR) – Last Trade: $0. 23.

USA Biomass Corp. (NASDAQ/BB: USBCQ) – Last Trade: $0.10.

Emergency Filtration Products, Inc. (NASDAQ/BB: EMFP) – Last Trade: $0.32.

As always, thank you for listening – and thank you for subscribing!

J. David Stewart

Analyst and Publisher, The Stewart Report