Wednesday 13 March 2024

CLRO $0.50 Dividend Should Lead It To A MEDS-Like Run

Last Wednesday we announced a trade alert on TRxADE HEALTH, Inc. (MEDS) when it was trading at $11.50 after it announced an $8 dividend. The stock has risen to over $33 as it nears the dividend payout date. We expect the same thing to happen on ClearOne, Inc. (CLRO) which announced a $0.50 dividend yesterday. The dividend is payable to record holders on April 2, so we expect the stock price to steadily rise for the next 2-3 weeks heading into that date just like it has done for MEDS. 

At the time we sent out the trade alert on MEDS, it was trading below its book value and net cash. Now at over $33, it is trading at over a $40 million market cap, significantly above its book value. At yesterday's $2.06 closing price, CLRO is currently trading at a $49 million market cap. This is slightly above its book value of $42 million while its working capital sits at $35 million. However, the difference between MEDS and CLRO is that while MEDS is near shell status, CLRO's operations continue onwards. The CEO stated in the press release that the company has an achievable plan to return to revenue growth and profitability. As the company has a net loss of about $1 million per quarter for the first nine months of last year, we think that this statement is achievable. 

Last May CLRO announced a $1.00 special dividend. The stock rose to a little over $2.50 on that run before it obviously tanked after the dividend was paid. However, that announcement occurred when the market was a lot more shaky. Based on how MEDS has traded in the past week and how it went from trading at a discount to its net cash to nearly a 100% premium, we think that CLRO can have a similar run to $5.00.

If you like our picks you can follow this blog by clicking the follow button on the top of the left hand panel. We have 1016 followers on here as well as 122 followers on our Canadian blog. You can also follow us on Twitter @StockTradePicks which has over 5,000 followers.

Wednesday 6 March 2024

MEDS: $8 Per Share Cash Dividend Leads To Strong Upside With Minimal Downside

This is a trade alert on TRxADE HEALTH, Inc. (MEDS). It's up 38% today to around $11.50 in mid-morning trading on the announcement of a special cash dividend of $8 per share. This huge news means that the floor is $8.00 but the upside is much more than that. This distribution was made possible because the company sold its web-based market platform for $22.5 million. This deal comes with a clause that could see an additional $7.5 million payment, for up to $30 million. MEDS has $5.2 million in notes payable. Net of this amount, the market cap should be at least $17.3 million or about $14.30 per share with only 1.2 million shares outstanding. If the $7.5 million payment comes to fruition, that net cash value increases to $20.50. With a float of only 452,000, this is one of those rare opportunities where a retail trader can trade a low float stock with a guaranteed floor and no chance of a rug-pull financing.

At around $11.50, there is only $3.50 of downside possible but the upside is technically unlimited in a squeeze situation with that kind of float. Post-distribution, it's unlikely that the stock will drop and stay at $3.50 as it will still be trading well below net cash value and have some operations remaining. This looks like a trading opportunity with strong risk-to-reward imbalance to the upside. A rarity in a stock with such a small float.

If you like our picks you can follow this blog by clicking the follow button on the top of the left hand panel. We have 1017 followers on here as well as 122 followers on our Canadian blog. You can also follow us on Twitter @StockTradePicks which has over 5,000 followers.

Sunday 30 July 2023

Sintana Energy: Small Cap Namibian Offshore Oil Play With Massive Speculative Upside

Last month we posted on our Canadian blog about Sintana Energy Inc. (SEI.V) (SEUSF). After a few weeks of trading on the TSX Venture in the $0.25-$0.30 range, it has finally broken out to new 52-week highs this past week, closing at $0.33 CAD on Friday. We think this breakout is just the beginning as Sintana represents a unique ground floor opportunity to get into a pureplay on the Orange Basin in Namibia at less than $100 million market cap. What's more is that there is a cheap leveraged opportunity on in-the-money warrants which could move up 10 times if the stock price triples. If you like our picks you can follow this blog by clicking the follow button on the top of the left hand panel. We have 1018 followers on here as well as 119 followers on our Canadian blog. You can also follow us on Twitter @StockTradePicks which has over 5,000 followers.

Sintana has oil interests in Colombia, but by far the most prospective opportunity is its multiple onshore and offshore holdings in and around the Orange Basin in Namibia. Two multi-billion barrel discoveries were made last year in the basin, but it was the third discovery announced in March by state-owned NAMCOR and its partners Shell and QatarEnergy that appeared to be the catalyst for Sintana's recent rise in stock price as its potentially the biggest discovery to date.


















Reviewing the company's corporate presentation, you get a good sense of where its interests lie relative to these three discoveries. Jonker-1X sits between Graff-1X and Venus-1X, even closer to PEL-83 and PEL-90:


Both are carried by larger players with drilling expected in 2023. However, given how Sintana reacted since the announcement of the Jonker-1X find, it doesn't even need news on its own interests to continue its run. Another discovery made in the region will almost certainly lift the stock price. This may be why the company is Tweeting out news about TotalEnergies SE (TTE) being days away from carrying out the first production test on Venus amid hints that the thickness of hydrocarbon pay zones may be bigger than revealed originally. This anticipation is what is causing Sintana's continued breakout. TTE has a $145 billion market cap. A major discovery well beyond initial expectations is only going to move the stock a few percentages points. A 10% move is $15 billion addition to the market cap. Sintana on the other hand could add $100 million in market cap as a neighboring interest and more than double its stock price. 

This is where the warrants come in. They have a strike price of $0.25 and expire next March. As the stock closed at $0.33 on Friday, they are worth $0.08 but last traded at $0.075, so there is no time value attached to them. This makes them extremely cheap upside leverage for anyone who is willing to tolerate a risk of a complete loss if the stock is $0.25 or less by March. This chart summarizes the opportunity:







If the stock drops to $0.25 or less by next March, the warrants are worthless. But if an owner of the warrants decides to sell their warrants before expiry, they are likely to recover something from them even if the stock price drops below $0.25. At $0.30, or a 9% loss on the stock, the warrants are worth $0.05, or a 33% loss. However, the stock only needs to rise 6% to $0.35 to have the warrants increase 33% in intrinsic value to $0.10. At $0.40, the value of the warrants doubles to $0.15. The leveraged upside becomes apparent until the stock triples to $1.00, where the warrants would be worth $0.75. A 900% increase or 10 times your money from $0.075. We think that these warrants are an absolute steal with no time value as news and hype around the Orange Basin isn't going to stop any time soon.  

Edit August 1: Galp Energia, SGPS, S.A. (GLPEY) has identified large and high quality prospects on PEL 83. Sintana owns a 4.9% stake through its 49% ownership in Custos Energy. Once official news is released on this discovery, we expect Sintana to skyrocket. 

Disclosure: We are long SEI.WT. 



Wednesday 12 April 2023

SCLX: One Step Closer to that Major Short Squeeze

Edit 4/13: This morning the stock price fell to less than $11.00 in pre-market activity. SCLX has since returned to the $14's within the first 10 minutes of regular hour trading, indicating desperation tactics by shorts that are failing. In our opinion, we are on the brink of that squeeze.

On Friday, we published a bullish report on Scilex Holding Company (SCLX) called "SCLX Might be the Short Squeeze Meme Traders Have Been Waiting For". Since then the stock has continued to steadily rise, closing at $14.80 today. This is despite an S-1 filing for the release of 3.3 million shares for an $8.00 convertible debenture. We think this activity is getting the stock one step closer to the short squeeze that meme traders and other supporters of the stock are looking for as we close in on the April 17th Annual Meeting of Stockholders. If you like our picks you can follow this blog by clicking the follow button on the top of the left hand panel. We have 1019 followers on here as well as 120 followers on our Canadian blog. You can also follow us on Twitter @StockTradePicks which has over 5,000 followers.

Before getting into our update, first we will repeat the short squeeze theory. SCLX was a spinout of Sorrento Therapeutics, Inc. (SRNEQ), a polarizing and heavily-shorted company that has had many ups and downs through its trading history. Sorrento somewhat voluntarily went through the bankruptcy process post-spinout, presumably in an attempt to get a court-order account of the shares in SCLX. It might be working. This article provides a brief history of the situation between SRNEQ and SCLX, as well as the theory behind the short squeeze. While SCLX's float on Yahoo Finance is reported to be 85 million, that actually isn't true. The vast majority of these shares are locked up until May 11, with the actual float being in the two million range. There is another six million or so warrants (SCLXW) with a strike price of $11.50, but over a million of those have been purchased by Sorrento on the open market. 

At the time of the spinout, there were around 60 million shares short of SRNE. This translated to 8.5 million SCLX shares short, all of which have the same lockup restrictions as the long shares, except that cost to borrow and margin requirements still apply. There aren't enough shares and warrants currently in the market to allow shorts to hedge. If brokers force the closure and margin calls of these positions before the May 11th hold period expires, the owners of the tradeable stock and warrants hold all the cards. They can set the price at which they want to sell. This of course only applies to reported shorts. It doesn't account for naked shorts, which if you believe the meme stock narrative, would be multiples higher of reported short interest.

Sorrento and Scilex are working hard to account for and stimulate the need to close off the short positions. As part of the bankruptcy proceedings, the companies got a court order for the top 25 brokers in the United States to provide a full ownership report of SCLX shares to Sorrento. Out of the 76 million shares issues, so far 44 million have not been reported. SCLX delayed its AGM from April 6th to 17th in order to give time for the brokers to account for the discrepancy. 

One blogger speculates that this has been an intricate plan by Sorrento to force the covering of shorts. Sorrento having purchased some SCLXW warrants on the open market in addition to the massive SCLX holding it has could be a sign that the company is trying to profit from a short squeeze as well as exacerbate the situation for the shorts by reducing the availability of SCLX securities on the open market. 

The preliminary S-1 filed after hours on April 10th involves the release of 3.3 million shares upon conversion of a $25 million debenture at $8.00. This would alleviate, but not completely eliminate, the problem for the unreported naked shorts. This is an opportunity for the debenture holder like it is for anyone who holds free trading stock. They are not required to convert the debentures into stock immediately and the longer they wait, the more interest they collect (which can also be converted into more stock). Bears on the stock were immediately shouting from the rooftops about this filing and coming dilution, and the stock did drop 8% from $14.15 to $13.00 the next day. But that drop was short lived as it was followed up with a 14% rise to $14.80 today. No doubt that this is continued covering or hedging by shorts, as well as opening of long positions by people who believe in this massive short squeeze opportunity. 

The $14.80 price seen today is the highest the stock has closed. Not only is that a bullish sign in terms of technical trading, it also means the mark-to-market price that helps to determine margin requirements on short positions is higher than it has ever been. No matter what happens on May 11th when the lock comes off the distributed shares, or with the debentures, or the long term success of the company, the only thing that is relevant from a broker's risk management and credit department is the value of the short position today. Not what it might be 28 days from now. Those 8.5 million shares short are now marked at a combined $125 million. When the stock was trading at $12.90 last week, those short positions were marked at $109 million. Keep in mind this short position was created out of a 60 million SRNE short position which at $1.83 on November 11 was worth $110 million. Now the spinout shares are getting marked at a higher value all by themselves, exclusive of the market value of the SRNEQ short position. It's not hard to calculate what the combined mark-to-market value of these short positions would be at $20 or $50 or $100 stock price. 

Meme traders should be able to smell the blood in this situation. The short position is getting more expensive to handle, and there is a larger short position than available float. Another clue to look at is the price of the warrants, SCLXW, relative to the stock. The warrants have a strike price of $11.50. Therefore they should trade at $11.50 less than the stock price, plus some time premium just like all options do. The warrants have generally traded with at least a $1.00 time premium. For instance, when the stock closed at $13.00 yesterday, the warrants closed at $3.10. $13.00 less $11.50 would lead to a $1.50 intrinsic value with the remaining $1.60 being attributed to time value. Today the warrants closed at $3.51 with the stock closing at $14.80, or $3.30 above the $11.50 strike price. That time premium has been almost completely eroded to $0.21. What does this mean? Shorts are losing control of the stock price. 

Think of every single SPAC that went absolutely haywire. Whether a very popular and liquid one like DWAC or a more obscure recent example like LUNR. When they raced to close to $100, the warrants were actually worth a lot less than their intrinsic value. DWACW was something like $50 or $60 while LUNRW topped out in the $2's. Even call options on these types of SPAC runners would trade with very little time value. People would try to take advantage of the "arbitrage" by going long warrants and writing call options and they would get assigned from the calls right away, forcing an open short position that they would have to cover or pay high CTB rate. Here's an article from 2020 explaining the scenario on NKLA back when it was a recent de-SPAC. Reading the comment section you will get the point of the weakness of this "arbitrage" play and why it actually stimulates a further short squeeze at the expense of someone who tried to do some creative but short sighted financial engineering: 



Unlike those other SPACs at the time of their big moves, SCLXW is exercisable so it won't ever trade far below its intrinsic value like LUNRW did. But it might trade a few percent below it for two reasons. First, SCLXW is less liquid than SCLX*, so there could be a point in time where the stock shoots up $0.50 but the warrants don't immediately follow simply for the fact that no bids or asks exist at that price. The second reason gets more to the point of shorter desperation, similar to the SPAC shorts and assigned call options mentioned above, except in reverse because these warrants are exercisable. SCLXW would trade less than their intrinsic value to entice warrant holders to exercise them rather than sell them on the open market and trade them back and forth between other bullish warrant holders like ourselves. Exercising the warrants increases the float of SCLX, which is exactly what SCLX shorts want in order to alleviate a further squeeze.  If SCLX gets to the point where SCLXW is trading at a greater variance than $11.50, the shorts are losing control of the situation. Yes they can buy the warrants to try to hedge their shorts and cap their margin requirements to the $11.50 strike price (plus cost of warrants), but if margin requirements put so much stress on a short's account that their broker doesn't allow financial engineering, it's near the breaking point. The position would need to be covered or hedged directly with stock, not with warrants. 

*The point about SCLXW being less liquid than SCLX is kind of funny given that there are actually three times MORE warrants than stock out in the open float right now. Common sense should be that warrants in the $3's with three times more float would trade with tighter spreads and with more volume than the stock in the $14's, but they don't. If there was ever any evidence of naked shorts rampant in the market, we would think this would be a clear example of it. 

We have bought the SCLXW warrants. Why the warrants? Simple, a bullish bet with the maximum upside potential. If the stock goes to $20 - a 35% increase from $14.80 - the warrants are worth at least $8.50 - a 142% increase from $3.51. 

Disclosure: We are long SCLXW

Friday 7 April 2023

SCLX Might be the Short Squeeze Meme Traders Have Been Waiting For

Over the last few years, retail traders who refer to themselves as apes have been targeting various "meme" stocks with high short interest such as GameStop Corp. (GME), AMC Entertainment Holdings, Inc. (AMC) and Bed Bath & Beyond Inc. (BBBY) in an effort to create a short squeeze. They have had varying degrees of success, though these stocks have pulled back significantly from their 2021 highs. Attempts to change the system have largely failed, though meme stock traders did manage to collapse one multi-billion dollar hedge fund in Melvin Capital. Scilex Holding Company (SCLX) is the latest meme stock gaining some traction, and in our opinion this unique situation has the best chance of creating a massive short squeeze over the next month. If you like our picks you can follow this blog by clicking the follow button on the top of the left hand panel. We have 1014 followers on here as well as 120 followers on our Canadian blog. You can also follow us on Twitter @StockTradePicks which has over 5,000 followers.

SCLX was a spinout of Sorrento Therapeutics, Inc. (SRNEQ), a polarizing and heavily-shorted company that has had many ups and downs through its trading history. Sorrento somewhat voluntarily went through the bankruptcy process post-spinout, presumably in an attempt to get a court-order account of the shares in SCLX. It might be working. This article provides a brief history of the situation between SRNEQ and SCLX, as well as the theory behind the short squeeze. While SCLX's float on Yahoo Finance is reported to be 85 million, that actually isn't true. The vast majority of these shares are locked up until May 11, with the actual float being in the two million range. There is another six million or so warrants (SCLXW) with a strike price of $11.50, but over a million of those have been purchased by Sorrento on the open market. 

At the time of the spinout, there were around 60 million shares short of SRNE. This translated to 8.5 million SCLX shares short, all of which have the same lockup restrictions as the long shares, except that cost to borrow and margin requirements still apply. There aren't enough shares and warrants currently in the market to allow shorts to hedge. If brokers force the closure and margin calls of these positions before the May 11 hold period, the owners of the tradeable stock and warrants hold all the cards. They can set the price at which they want to sell. This of course only applies to reported shorts. It doesn't account for naked shorts, which if you believe the meme stock narrative, would be multiples higher of reported short interest.

Sorrento and Scilex are working hard to account for and stimulate the need to close off the short positions. As part of the bankruptcy proceedings, the companies got a court order for the top 25 brokers in the United States to provide a full ownership report of SCLX shares to Sorrento. Out of the 76 million shares issues, so far 44 million have not been reported. SCLX delayed its AGM from April 6th to 17th in order to give time for the brokers to account for the discrepancy. 

One blogger speculates that this has been an intricate plan by Sorrento to force the covering of shorts. Sorrento having purchased some SCLXW warrants on the open market in addition to the massive SCLX holding it has could be a sign that the company is trying to profit from a short squeeze as well as exacerbate the situation for the shorts by reducing the availability of SCLX securities on the open market. 

The trading this past week has indicated that this is starting to work. SCLX usually trades a little over 100,000 shares in a day. But on Wednesday it traded nearly 12 million shares and shot up 57% from $7.92 to $12.40 while hitting a high of $16.90. That was followed up by a 4% increase on Thursday to $12.90 on 3.4 million shares. The stock opened at $10.20 but rose throughout the afternoon. That looked like typical naked short selling tactics to hit stop losses then cover throughout the day. No doubt that some shares have been purchased to hedge any restricted short position, while others are being flipped multiple times a day. But as we have already discussed, the free floating securities are less than the actual short position and potentially way less than any unreported naked short position. There may be unlimited demand from shorts needing to hedge their position. Especially if the price keeps going up and brokers increase margin requirements or force margin calls. 

This is sort of like the Meta Materials Inc. (MMAT) and MMTLP situation, except brokers can't merely settle any outstanding SCLX short position at closing value like they did with MMTLP. These shares are going in the opposite direction of MMTLP, from restricted or private hands into the public market. There is also a court order demanding reporting of any shareholder ownership, of which any excess beyond the 76 million would be implied to be borrowed or synthetically made in order to short. No matter how hard retail traders tried to make other stocks pop off, they never managed to get a court order demanding the accounting of all shares quite like this. This is unchartered territory for the short squeeze thesis. 

We have bought the SCLXW warrants. Why the warrants? Simple, a bullish bet with the maximum upside potential. If the stock goes to $20 - a 55% increase from Thursday's close - the warrants are worth at least $8.50 - a 232% increase from Thursday's close. 

Disclosure: We are long SCLXW

Wednesday 22 February 2023

UUU: Profitable Microcap Stock With 4x Upside and Short Squeeze Potential



Most stocks with floats of less than 5 million get there because of a reverse split. They might have ultra-small floats at the moment, but that won't last long as dilution is expected to come soon. That's what makes Universal Security Instruments, Inc. (UUU) a particularly rare gem. UUU has had 2.3 million shares outstanding for over a decade. The company doesn't dilute, but up until now it didn't make much money either. So it mostly stayed in the $2 to $10 range over the last 10 years, seldom trading most days with occasional volume spikes. However, after UUU's Q3 results last week, this stock has changed from range-bound small cap to undervalued gem with excellent potential for a short squeeze. If you like our picks you can follow this blog by clicking the follow button on the top of the left hand panel. We have 1014 followers on here as well as 119 followers on our Canadian blog. You can also follow us on Twitter @StockTradePicks which has over 5,000 followers.

From last week's press release:

OWINGS MILLS, Md.Feb. 16, 2023 /PRNewswire/ -- Universal Security Instruments, Inc. (NYSE AMEX: UUU) today announced results for its fiscal third quarter and nine months ended December 31, 2022.

For the three months ended December 31, 2022, sales increased approximately 8.3% to $5,758,661 compared to sales of $5,319,014 for the same period last year.   The Company reported net income of $341,312, or $0.15 per basic and diluted share, compared to net income of $35,351 or $0.02 per basic and diluted share for the same period last year.

For the nine months ended December 31, 2022, sales increased approximately 6.5% to $16,251,106 versus $15,259,235 for the same period last year.  The Company reported net income of $435,776, or $0.19 per basic and diluted share, compared to net income of $157,688 or $0.07, per basic and diluted share for the corresponding 2021 period.

"The primary reasons for the sales increases during the three and nine-month periods ended December 31, 2022, were improvements in deliveries from China and less port congestion in Long Beach, California. The primary reasons for the increases in net income during the three and nine-month periods were lower selling, freight, advertising and professional expenses, partially offset by the higher cost of electrical components due to continuing supply chain issues." said Harvey Grossblatt - President and CEO.

UUU earned $0.15 per share in Q3. While the rest of the world experiences inflation, UUU has gotten costs under control while still showing a benefit on the revenue side, with solid 8% revenue growth on the quarter. That resulted in a near ten-fold improvement in net income from $35,000 in the previous year's Q3 to $340,000. The $0.15 EPS for Q3 would lead to an annualized result of $0.60.  A P/E of 20 would justify a $12 stock price while the stock is trading at less than 5 P/E right now. While it's difficult to stretch out one quarter's result over a full year, it's clear from the steadily improving financials that the company is trending in the right direction. It could just as easily surpass a $0.60 EPS for the next four quarters as it could come short of the mark. 

The strong net income performance has also resulted in positive operating cash flow, allowing the company to pay off substantial debts and liabilities throughout the year. This will only increase profitability as interest expense will start to decline. 

We would like to being attention to the stock's trading since the Q3 results were released on Thursday afternoon. The stock hit a high of $3.64 on Friday, but was pushed down heavily in the afternoon to close at $2.48, up a mere 13% even with these outstanding results. Checking the Naked Short Report, there was 2.3 million in short marked volume on Friday. This is greater than the float. Combine that with total trading of 17 million on the day - 10x the float - it's clear that there was a lot of high frequency bot trading that day, as well as naked short selling. The algorithm was set up to short the stock, because traditionally the stock tanks after a run. This scares away retail traders until the next pump. 

The problem with this strategy is that this time around, the company's spike upward was justified on very strong financial results. With good earnings and a strong balance sheet, the company has the ability to pay a dividend or buy back shares. Both of these would cause large problems for the shorts and entice longs to buy in. With such a small float and low valuation, this stock can easily spike large on a squeeze. 

We have already seen the beginnings of a permanent turnaround in the price. After a weak open on Tuesday, it closed up 7% on the day. It then followed that up with an 11% increase on Wednesday. It busted through its 50-day MA and is set to challenge its 200-day MA once again after the pullback from its highs on Friday. If it breaks through it again, we think it can go on a major run on a short squeeze as it heads towards a stock price reflecting its fundamental value. 



Disclosure: We are long UUU

Thursday 22 December 2022

Two Stocks to Rebound Heavily in the New Year

The market has been an absolute disaster, especially for small caps over the last several months. Despite that, we have been on an incredible hot streak in the Canadian markets. Five for our last five, with three of those going up more than 100%:

1. In July we called GobiMin Inc. (GMNFF) (GMN.V) when it was $0.81. It recently had a take-private transaction at $1.84 and is now trading at $1.70 for a 110% gain.

2. In October we called Surge Battery Metals Inc. (NILI.V) (NILIF) when it was $0.10. Material findings of lithium on its property with expectations of more to come has resulted in a $0.285 stock price, a 185% gain

3. In November we called Fission 3.0 Corp. (FUU.V) (FISOF) when it was $0.12. A massive uranium find has caused the stock to move up to $0.295, a 146% gain. Before we get into our U.S. listed picks, we will provide an update on this one. 

4. On December 1, we called Equity Metals Corporation (EQTY.V)(EQMEF) at $0.11. It's $0.185 now for a 68% gain

5. Finally, on December 6, we called Valeura Energy Inc. (VLE.TO) (PNWRF) after the company announced an extremely profitable offshore oil acquisition at $1.45. It' $1.90 now for a 31% gain

If you want winners, we have proven that we can find them. Now we are going to suggest two in the United States that we think will have massive runs after tax loss selling and window dressing season is over. Core Scientific, Inc. (CORZ) and Starry Group Holdings, Inc. (STRY). If you like our picks you can follow this blog by clicking the follow button on the top of the left hand panel. We have 1010 followers on here as well as 110 followers on our Canadian blog. You can also follow us on Twitter @StockTradePicks which has over 5,000 followers.

First we are going to talk briefly about FUU. It went up 9% today but we think the run was greatly muted after poor market conditions. It hit an absolutely massive uranium find, 15 meters at 6.97% of U3O8 which contained 5.5 meters of 18.6% U3O8 and one meter of 59.2% U3O8. More results from the 2022 drill program will come in early 2023, so we expect the stock to have a sustained run upwards on hype. We had actually sold the stock after a double, but we are buying back in on expectations of another double or close to it. FUU profits funded the NILI and VLE runs, so we have no issue in buying back in at a higher price. 








Now onto our U.S. picks. CORZ and STRY. CORZ has just announced bankruptcy proceedings and STRY is at high risk of it. So why would we pick such troubled stocks? Precisely because they are troubled, but also so oversold that they actually have strong upside potential relative to their troubles. These two former SPACs have dropped like a rock from $10 to pennies in months. They are due for a major bounce.

First, CORZ. The market has already recognized that this sell-off has been overdone as CORZ rose 73% on an incredible 542 million in volume today with more positive activity after hours up to $0.13. The company announced bankruptcy proceedings, but when you actually look at the details, it's not as bad as it seems. CORZ has cash flow positive operations before interest payments, but wants to restructure most of its approximately $900 million in debt by converting it into equity. However, it's very clearly stated that current equity holders will not get wiped out. They are entitled to a small piece of the equity plus warrants that would likely be substantially in the money should bitcoin recover in price. 

It's often said that a stock with an excessively low market cap is essentially trading like an option on a sector or its future performance. As a $33 million market cap, CORZ is trading below this level. Let's take a look at Marathon Digital Holdings, Inc. (MARA) and Riot Blockchain, Inc. (RIOT). MARA has a $429 million market cap at a $3.67 stock price and RIOT has a $632 million market cap at $3.78 stock price. A MARA $10 leap expiring in January 2025 is trading at $1.50. A RIOT $10 leap expiring in January 2025 is trading at $1.27.

Follow this logic. An investor has the choice to buy MARA at $3.67 with a $429 million valuation or a MARA leap at $1.50. That leap essentially has a valuation of (1.50/3.67) of $175 million if call options had valuations like stocks do. They don't, but we are just using this idea to paint a picture of how much a post-restructuring warrant on CORZ should be worth. RIOT's leaps would have a $212 million valuation attached to them using the same methodology. 

Any type of deal on CORZ would result in warrants that likely would have superior terms to these leaps in terms of length of time to expiry and strike price above market price. Let's say the post-restructuring CORZ is trading at $4.00 with a market cap of around $1 billion. $10 warrants expiring in 2027 would likely be trading around $1.50. Again, they wouldn't have a market cap like how a stock would, but the value inherent in them would be the substantial time value and the bet that the stock would recover greatly should bitcoin move back up. Using the method above, the warrants would have a "market cap" of about $375 million. The difference between choosing to buy stock at $4 with a $1 billion valuation attached to it or warrants at $1.50 with $375 million worth of time value attached to them. 

This is an illustration rather than a recommendation of a value on pre-restructuring CORZ. But the stock is currently trading at a market cap of $33 million. There is a LOT of room for upside in this analysis. We are attaching a $0.50 fair value stock price to CORZ, which implies a valuation of $188 million. Even if the restructuring results in a total wipeout of CORZ equity, the value of the warrants alone - based on how the leaps on MARA and RIOT trade - can reasonably be expected to be at least in the $150 to $200 million range. And we don't think equity will be completely wiped out. CORZ existing shareholders will likely get 1-5% of the equity in the new company, plus the warrants. 

So what's going on with the stock right now? Plenty of people see value in this like we do. But the stock swung wildly today, hitting a high of $0.19 before selling off to $0.09 by the end of the day. We think there are three factors inducing investors to sell:

1. The final few days of tax loss season. Anyone who purchased shares above $1.00 are likely selling to lock in the loss and offset any gains they had on the year.

2. Window dressing. Institutions that hold this stock likely want it off their books so they don't have to report this failed investment as a holding to their investors when they send out reports, marketing materials and prospectuses.

3. Because of its status of going through bankruptcy, there is a risk that it will be de-listed and kicked to the OTC. It's not guaranteed due to the nature of this restructuring. This deal may involve issuing a boatload of CORZ shares to debt holders so that they own 90%+ of the shares outstanding, rather than coming up with a whole new listing. 

We view #1 and #2 as temporary selling pressure that will end in the coming days and #3 as a non-issue if it happens. We actually like stocks that go to OTC because the liquidity dries up and that increases the possibility of massive runs and short squeezes. 

Speaking of short squeeze, there are 27 million shares short right now. Given that most shorts are probably up 90% or more, we think covering of the bulk of outstanding shorts is a likely scenario. Why stick around for an extra 5-10% for who knows how long that will take when you can cover your short, take the 90-95% win and go use that margin on some other more lucrative short play? CORZ stock is clearly not going to be wiped out to zero, as implied by the absolute minimum of existing shareholders getting warrants in the restructured company. There's really no point in being a stubborn short now. There won't be a "short squeeze" because shorts are taking massive profits. But we can imagine these shorts who want out of their position, a position started at $5.00 or higher, wouldn't care too much whether they covered at $0.10 or $0.20 or $0.30. They just want the liquidity to exit. Going on the OTC would actually hurt the liquidity so it's better to cover sooner than later. 

STRY has been a speeding bullet of investor losses, dumping down to $0.02 in record fashion. The stock is at risk of bankruptcy. However, it's trading like bankruptcy is already here. It has a $3 million market cap when stocks on their literal death bed have higher valuations than that. The company recently announced yet another amendment to its loan agreement that saw $11 million loaned with access to an additional $30 million. With a focus on reducing costs, that should provide the company with at least another quarter of runway. 

For some reason, STRY keeps on getting more money from lenders. Even if they are on ugly terms, a company that would be in imminent threat of bankruptcy with little hopes of getting value for creditors would not get any loans at all outside of debtor-in-possession financing. So things must be in better shape than they seem. 

In the worst case scenario, STRY should be trading at least for the next several months. That leaves a lot of time for the stock to have a spike or short squeeze. Since it has been kicked to the OTC, STRY's liquidity has evaporated along with its stock price. It actually traded as low as $0.0002 on the day when hardly anyone could buy or sell shares. So a spike the other way to $0.10 is not out of the question. Especially once tax loss season is over. There are 3.3 million shares short, and just like on CORZ, those shorts are likely in the money at above 90%. It makes a lot more sense to cover now than to wait it out for the final two pennies. 

STRY is not only a lotto ticket on a reduced liquidity short squeeze, it's a lotto ticket on the strategic review resulting in some material benefit to shareholders. One major advantage of STRY compared to other stocks like CEI or COSM, is that when it got kicked to the OTC, it gave up the idea of a reverse split and heavy raise like what COSM has done recently or CEI has done throughout it's history. It's better to rip the bandage off immediately like STRY has done rather than a torturous constant drip of shareholder losses over many years of reverse splits and dilutions like CEI. The STRY story will come to an outcome shortly. But before then, we are betting on a spike from $0.02. 

Disclosure: We are long CORZ, STRY and FUU.V