On Wednesday we wrote about Pernix Therapeutics Holdings, Inc. (PTX) and how it was an ideal candidate for a bounce after getting hammered since announcing Chapter 11 bankruptcy. The result was a positive one as on Thursday it rose 34% to $0.39 and looks poised to continue that run. Aceto Corporation (ACET) is another stock that has been hammered down thanks to a Chapter 11 filing. It has dropped from $1.03 to $0.32 in two days, but recovered quite strongly in afternoon trading from its low of $0.24. ACET was a top short pick from last year in our article "Short Aceto As It Heads Into Bankruptcy" and has dropped nearly 90% since. Now that bankruptcy has officially gotten started, we believe it is a good time to cover any short and go long in order to play the bankruptcy bounce.
Why buy a stock that is going through bankruptcy? Because the recent trend has shown that companies that tank heavily after announcing bankruptcy recover soon thereafter. PG&E Corporation (PCG) tanked from over $40 to $7 over the past four months but has recovered to trade above $19 since filing for bankruptcy, filling a gap in its chart created on January 14. On the opposite end of the market cap spectrum, EnSync, Inc. (ESNC) shot up 47% to $0.13 on Wednesday and got close to filling the gap created by its threat of bankruptcy announcement on February 12. ACET has the potential to do what these two stocks and PTX have done over the next few days, especially since the Chapter 11 bankruptcy does not mean that the company is done. We are up to 807 followers despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can follow our blog by clicking the follow button on the top of the left hand panel. You can also follow us on Twitter @StockTradePicks. We have over 3,600 followers on Twitter as well.
ACET dropped after announcing the following:
Just like PTX, ACET has accumulated a lot of deferred tax assets from years of operating losses. ACET has accumulated $82 million in deferred tax assets which currently all but $5 million is offset by a valuation allowance. If ACET was to sell all of its operating assets and exist as a shell, that shell's tax assets have value in the instance of a reverse takeover that is done in a way to not invalidate them. This article gives a good overview of this process.
PTX dropped after announcing the following:
The bid for substantially all of the company's assets was $75.6 million, which is well short of the $150 million of intangible assets and goodwill on the balance sheet, and short of $447 million of total liabilities. But this "stalking horse bid" is by definition, like a minimum bid you see on an eBay auction. This bidding process will last for at least three months. PTX's total market cap is only $6 million. This is a very low valuation to bet that the bids will increase substantially from there. We think market participants will feel the same way that this bankruptcy news was an overreaction and the stock price will have a substantial dead cat bounce like PCG or ESNC.
As part of the press release, the company released a presentation that included a financial summary:
We see that EBITDA including the Nalproprion minority interest is expected to be $15 million in 2019. The Nalproprion minority interest alone is expected to be $8 million annually in EBITDA going forward. A 10x multiple leads to an $80 million valuation just for this piece, already more than the first offer for the entire portfolio.
PTX management forecasts a $40 million gross margin annually for the rest of the business. But then forecasts over $40 million for G&A, sales and marketing expenses so EBITDA is shown to be a loss in outer years. There is absolutely no way that this portfolio needs that much in sales and marketing if they are going to allow it to flatline like that. That $40 million in expense could easily be cut in half and all of a sudden this alleged money-losing enterprise will make $15 to $20 million per year. This portfolio is worth in excess of $100 million. How much it goes beyond that will be dependant on a bidding war. But already we can see the bid for all the assets surpass $200 million before this process is over.
Thanks to years of operating losses, PTX has accumulated $66 million in deferred tax assets which currently is fully offset by a valuation allowance. If PTX was to sell all of its operating assets and exist as a shell, that shell's tax assets have value in the instance of a reverse takeover that is done in a way to not invalidate them. This article gives a good overview of this process.
We think that PTX offers a good near-term bullish trading opportunity on oversold technicals, a larger market that has been consistently giving large bounces to companies that tank after announcing bankruptcy and an ongoing news flow that should occur as multiple bids come in as this first one is obviously too low.
2019 got off to a reasonable start in January for microcap stocks as the market in general was bullish for the month. There were a lot of stocks that spiked 100-500% in a matter of one or a few days. As we look towards the rest of 2019, we have to figure out what's next for microcap stocks? TradeMiner identifies seasonal trends and market cycles, the Penny Stock Prophet and Microcap Millionaires finds the next big small cap plays in various industries while Addicted to Profits makes trades from a Canadian perspective.
There are also some good books available on microcap stocks and day trading such as:
Mastering Microcaps: Strategies, Trends, and Stock Selection (Bloomberg Professional Library)
The Little Black Book of Microcap Investing: Beat the Market with NASDAQ/AMEX Microcap Stocks, OTCBB Penny Stocks, and Pink Sheet Stocks
Microcap Magic: Why The Biggest Returns Are In Stocks You've Never Heard Of
How to Day Trade for a Living: A Beginner’s Guide to Trading Tools and Tactics, Money Management, Discipline and Trading Psychology
How to Day Trade: A Detailed Guide to Day Trading Strategies, Risk Management, and Trader Psychology
A Beginner's Guide to Day Trading Online (2nd edition)
Stock Investing for Beginners: Marijuana Stocks
Here are some other good stock market resources. This includes technical analysis and day trading, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies:
The dividend stock report from dividendstocksonline.com
Why buy a stock that is going through bankruptcy? Because the recent trend has shown that companies that tank heavily after announcing bankruptcy recover soon thereafter. PG&E Corporation (PCG) tanked from over $40 to $7 over the past four months but has recovered to trade above $19 since filing for bankruptcy, filling a gap in its chart created on January 14. On the opposite end of the market cap spectrum, EnSync, Inc. (ESNC) shot up 47% to $0.13 on Wednesday and got close to filling the gap created by its threat of bankruptcy announcement on February 12. ACET has the potential to do what these two stocks and PTX have done over the next few days, especially since the Chapter 11 bankruptcy does not mean that the company is done. We are up to 807 followers despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can follow our blog by clicking the follow button on the top of the left hand panel. You can also follow us on Twitter @StockTradePicks. We have over 3,600 followers on Twitter as well.
ACET dropped after announcing the following:
PORT WASHINGTON, N.Y., Feb. 19, 2019 (GLOBE NEWSWIRE) -- ACETO Corporation (ACET), an international company engaged in the development, marketing, sale and distribution of Human Health products, Pharmaceutical Ingredients and Performance Chemicals, announced today that it has entered into a “stalking-horse” asset purchase agreement with an affiliate of New Mountain Capital, a leading growth-oriented investment firm with over $20 billion in assets under management, to sell its chemicals business assets for gross proceeds of $338 million in cash, plus the assumption of certain liabilities and subject to certain adjustments, on a cash-free and debt-free basis.
The sale will be conducted under Section 363 of the U.S. Bankruptcy Code. To facilitate the sale and satisfy its debt obligations, Aceto and its U.S. subsidiaries have filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of New Jersey (Newark). Aceto’s foreign chemicals business subsidiaries are not included in the filing but will be included in the sale. In addition, Aceto intends to enter into a stalking horse agreement for its subsidiary, Rising Pharmaceuticals. Aceto expects to complete the dispositions of its chemicals and Rising businesses before its fiscal year end on June 30, 2019.
The sale will be conducted under Section 363 of the U.S. Bankruptcy Code. To facilitate the sale and satisfy its debt obligations, Aceto and its U.S. subsidiaries have filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of New Jersey (Newark). Aceto’s foreign chemicals business subsidiaries are not included in the filing but will be included in the sale. In addition, Aceto intends to enter into a stalking horse agreement for its subsidiary, Rising Pharmaceuticals. Aceto expects to complete the dispositions of its chemicals and Rising businesses before its fiscal year end on June 30, 2019.
“For the past several months, the Board has been conducting a comprehensive evaluation of strategic alternatives to address the Company’s debt burden in consultation with its financial and legal advisors while continuing to work cooperatively with its lenders. After assessing its options, the Board has determined that Court-supervised sales of Aceto’s chemicals business assets and its subsidiary Rising Pharmaceuticals are in the best interest of the Company and its stakeholders,” said William C. Kennally III, Chief Executive Officer of Aceto. “This decision provides stability and deep capital resources to the Company and, importantly, ensures the continuity of customer, partner and supplier relationships critical to the Company’s businesses operations and success.”
Aceto will operate its business in the ordinary course while it completes the sales of its chemicals business assets and its subsidiary Rising Pharmaceuticals. To that end, Aceto has received a commitment for debtor-in-possession (DIP) financing of $60 million from a syndicate of lenders led by Wells Fargo Bank, N.A. The DIP financing will finance Aceto’s working capital needs through the completion of the sales transactions and support payments to vendors and suppliers for post-petition purchases in the ordinary course.
The proposed sales will be conducted through Court-supervised processes under Section 363 of the Bankruptcy Code, subject to Court-approved bidding procedures, potential receipt of higher and better offers at auction and approval by the Court. PJT Partners LP is acting as Aceto’s financial advisor and investment banker to lead the sales processes under the bid procedures and Lowenstein Sandler LLP is serving as legal advisor. AP Services, an affiliate of AlixPartners LLP, is also serving as Chief Financial Officer and advisor to the Company.
The bid for the chemicals business is $338 million, while no bid has been announced on its Rising Pharmaceuticals subsidiary yet. This "stalking horse bid", just like PTX's, is a minimum bid like what you see on an eBay auction. This bidding process will last for at least four months so there is lots of time to hear more bids. ACET's total liabilities are $702 million so it is not unfathomable to think that the total combined bids for both divisions could exceed that amount if things go well. ACET's total market cap is only $10 million. This is a very low valuation to bet that the bids will increase substantially from here. We think market participants will feel the same way and the stock price will have a substantial dead cat bounce like PTX, PCG or ESNC. Any stock has risk to it, especially one that is in bankruptcy proceedings so investors should trade accordingly.Aceto will operate its business in the ordinary course while it completes the sales of its chemicals business assets and its subsidiary Rising Pharmaceuticals. To that end, Aceto has received a commitment for debtor-in-possession (DIP) financing of $60 million from a syndicate of lenders led by Wells Fargo Bank, N.A. The DIP financing will finance Aceto’s working capital needs through the completion of the sales transactions and support payments to vendors and suppliers for post-petition purchases in the ordinary course.
The proposed sales will be conducted through Court-supervised processes under Section 363 of the Bankruptcy Code, subject to Court-approved bidding procedures, potential receipt of higher and better offers at auction and approval by the Court. PJT Partners LP is acting as Aceto’s financial advisor and investment banker to lead the sales processes under the bid procedures and Lowenstein Sandler LLP is serving as legal advisor. AP Services, an affiliate of AlixPartners LLP, is also serving as Chief Financial Officer and advisor to the Company.
Just like PTX, ACET has accumulated a lot of deferred tax assets from years of operating losses. ACET has accumulated $82 million in deferred tax assets which currently all but $5 million is offset by a valuation allowance. If ACET was to sell all of its operating assets and exist as a shell, that shell's tax assets have value in the instance of a reverse takeover that is done in a way to not invalidate them. This article gives a good overview of this process.
PTX dropped after announcing the following:
MORRISTOWN, N.J., February 19, 2019 (GLOBE NEWSWIRE) – Pernix Therapeutics Holdings, Inc. (NASDAQ: PTX) (“Pernix” or the “Company”), a holding company that owns several subsidiaries, including specialty pharmaceutical companies, today announced that it has entered into an Asset Purchase Agreement with certain funds managed by Highbridge Capital Management, LLC (collectively “Highbridge”). The Agreement serves as an initial “stalking-horse bid” to acquire substantially all of the assets of the Company and its subsidiaries, including the rights to all branded and generic products (the “Products”), for approximately $75.6 million in the form of cash and credit bid consideration. The Agreement is subject to court approval and a competitive auction process.
Pernix has also initiated voluntary proceedings under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Delaware to undertake its restructuring and sale process. The Company and its subsidiaries fully intend to continue operations while the Company works to complete its sale and restructuring process. Pernix has obtained a commitment from Highbridge for debtor-in-possession ("DIP") financing of approximately $29.1 million, with an additional accordion facility of $5 million. Proceeds from the DIP financing, in addition to cash flow from operations, will be used to ensure that the Products remain available to patients and will otherwise fortify the Company’s balance sheet.
"We believe that pursuing this restructuring and sale process is in the best interest of the Company and our stakeholders,” said John Sedor, Chief Executive Officer of Pernix. “It allows us to ensure that patients continue to have uninterrupted access to our life-changing medications and patient support services while also allowing Pernix to address its financial position.”
Closing of the proposed transaction is subject to the receipt of applicable regulatory approvals, the satisfaction or waiver of other customary closing conditions and Court approval.
The Company is working to conclude the sale process by or before May 2019."
The bid for substantially all of the company's assets was $75.6 million, which is well short of the $150 million of intangible assets and goodwill on the balance sheet, and short of $447 million of total liabilities. But this "stalking horse bid" is by definition, like a minimum bid you see on an eBay auction. This bidding process will last for at least three months. PTX's total market cap is only $6 million. This is a very low valuation to bet that the bids will increase substantially from there. We think market participants will feel the same way that this bankruptcy news was an overreaction and the stock price will have a substantial dead cat bounce like PCG or ESNC.
As part of the press release, the company released a presentation that included a financial summary:
PTX management forecasts a $40 million gross margin annually for the rest of the business. But then forecasts over $40 million for G&A, sales and marketing expenses so EBITDA is shown to be a loss in outer years. There is absolutely no way that this portfolio needs that much in sales and marketing if they are going to allow it to flatline like that. That $40 million in expense could easily be cut in half and all of a sudden this alleged money-losing enterprise will make $15 to $20 million per year. This portfolio is worth in excess of $100 million. How much it goes beyond that will be dependant on a bidding war. But already we can see the bid for all the assets surpass $200 million before this process is over.
Thanks to years of operating losses, PTX has accumulated $66 million in deferred tax assets which currently is fully offset by a valuation allowance. If PTX was to sell all of its operating assets and exist as a shell, that shell's tax assets have value in the instance of a reverse takeover that is done in a way to not invalidate them. This article gives a good overview of this process.
We think that PTX offers a good near-term bullish trading opportunity on oversold technicals, a larger market that has been consistently giving large bounces to companies that tank after announcing bankruptcy and an ongoing news flow that should occur as multiple bids come in as this first one is obviously too low.
Disclosure: We are long PTX, ACET
2019 got off to a reasonable start in January for microcap stocks as the market in general was bullish for the month. There were a lot of stocks that spiked 100-500% in a matter of one or a few days. As we look towards the rest of 2019, we have to figure out what's next for microcap stocks? TradeMiner identifies seasonal trends and market cycles, the Penny Stock Prophet and Microcap Millionaires finds the next big small cap plays in various industries while Addicted to Profits makes trades from a Canadian perspective.
There are also some good books available on microcap stocks and day trading such as:
Mastering Microcaps: Strategies, Trends, and Stock Selection (Bloomberg Professional Library)
The Little Black Book of Microcap Investing: Beat the Market with NASDAQ/AMEX Microcap Stocks, OTCBB Penny Stocks, and Pink Sheet Stocks
Microcap Magic: Why The Biggest Returns Are In Stocks You've Never Heard Of
How to Day Trade for a Living: A Beginner’s Guide to Trading Tools and Tactics, Money Management, Discipline and Trading Psychology
How to Day Trade: A Detailed Guide to Day Trading Strategies, Risk Management, and Trader Psychology
A Beginner's Guide to Day Trading Online (2nd edition)
Stock Investing for Beginners: Marijuana Stocks
Here are some other good stock market resources. This includes technical analysis and day trading, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies:
The dividend stock report from dividendstocksonline.com
The dividend stock report from Dividend Stocks Rock
Goldmasterinvesting.com Ocean Of Gold Report for the top 15 gold mining companies
Trader Review
The Trader's Academy Club
The Wealth Builder's Club from beatthemarketanalyzer.com
MyBB: A Forum For Investors and Traders
Spartan Trader Forex Academy Live Daily Trading Room
And try the Z Code System if you're looking for other ways to make money systematically outside of the stock market.
Goldmasterinvesting.com Ocean Of Gold Report for the top 15 gold mining companies
Trader Review
The Trader's Academy Club
The Wealth Builder's Club from beatthemarketanalyzer.com
MyBB: A Forum For Investors and Traders
Spartan Trader Forex Academy Live Daily Trading Room
And try the Z Code System if you're looking for other ways to make money systematically outside of the stock market.
For those who are interested in trading bitcoin and other cryptocurrencies, here are some links to valuable reports and strategies:
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