Over the last couple of months we have started a series of reports called "Buy Low For The Bankruptcy Bounce" featuring stocks that have announced or are threatening to go through Chapter 11 bankruptcy. We have had great success playing these stocks for a bounce after they had tanked which you can see through our recent posting history on here or on Twitter. Achaogen, Inc. (AKAO) makes an excellent candidate for a major bounce on a short squeeze or gap fill of the chart, with some fundamentals to back it up. We are up to 851 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 3,800 followers on Twitter as well.
AKAO dropped 68% on Monday from $0.50 to $0.16 after announcing Chapter 11 bankruptcy, with the intent to sell the company's assets by mid-June. We first purchased the stock at $0.15 on Monday but didn't load up until we were sure that a turnaround was coming on Tuesday. What makes AKAO special compared to these other bankruptcy bounce plays is that it has strong potential for a short squeeze. Short interest at the end of March was 7.5 million shares, about 15% of the 50.65 million float. Most shorts are in well above $1.00; the stock was over $4.00 in October. So for them, covering at $0.15 versus $0.30 isn't a big percentage difference. They have made their money. But for someone buying in at $0.20, this could be a quick 50% on a squeeze.
The main risk of holding AKAO and stocks like it overnight is the threat of delisting with a "Q" symbol OTC listing instead. Most stocks still have good liquidity after this event, but it is a downside risk factor. There is no indication that delisting will be imminent, but we remind readers to be cognizant of this.
The fundamentals also look appealing for a bankruptcy bounce. AKAO's market cap is a mere $10 million. When we compare the balance sheet of $82 million in assets ($56 million of that in cash) against $89 million in liabilities, plus a $25 million financing commitment through the bankruptcy process, it's not impossible to think that there could be something left over for shareholders if the company can get a good price for its antibacterial drug ZEMDRI. One can take a look at the previous year's cash balance and see the significant burn. Selling the company may be the best course of action to securing shareholder value rather than diluting the stock into oblivion.
One major consideration in favor of AKAO is the involvement of activist billionaire Bob Duggan. You can read about him and his involvement with AKAO here. This eccentric man credits Scientology as the driver for his success. In the situation that AKAO finds itself in, this is a good thing. If Ron Hubbard comes to Duggan in a vision and tells him to buy AKAO, it will likely happen. As a billionaire it is well within his capability.
One can't just look at the balance sheet alone to determine value of the company and its listing. Another consideration is that thanks to years of operating losses, AKAO has accumulated $128 million in deferred tax assets that are currently offset by a valuation allowance:
If AKAO 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. To put it into perspective, the $128 million in tax assets is greater than the market cap plus all of the debt. That gives incentive for someone like Duggan to buy out the company as a whole as opposed to just the drug assets.
Disclosure: We are long AKAO
2019 got off to a reasonable start 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
AKAO dropped 68% on Monday from $0.50 to $0.16 after announcing Chapter 11 bankruptcy, with the intent to sell the company's assets by mid-June. We first purchased the stock at $0.15 on Monday but didn't load up until we were sure that a turnaround was coming on Tuesday. What makes AKAO special compared to these other bankruptcy bounce plays is that it has strong potential for a short squeeze. Short interest at the end of March was 7.5 million shares, about 15% of the 50.65 million float. Most shorts are in well above $1.00; the stock was over $4.00 in October. So for them, covering at $0.15 versus $0.30 isn't a big percentage difference. They have made their money. But for someone buying in at $0.20, this could be a quick 50% on a squeeze.
The main risk of holding AKAO and stocks like it overnight is the threat of delisting with a "Q" symbol OTC listing instead. Most stocks still have good liquidity after this event, but it is a downside risk factor. There is no indication that delisting will be imminent, but we remind readers to be cognizant of this.
The fundamentals also look appealing for a bankruptcy bounce. AKAO's market cap is a mere $10 million. When we compare the balance sheet of $82 million in assets ($56 million of that in cash) against $89 million in liabilities, plus a $25 million financing commitment through the bankruptcy process, it's not impossible to think that there could be something left over for shareholders if the company can get a good price for its antibacterial drug ZEMDRI. One can take a look at the previous year's cash balance and see the significant burn. Selling the company may be the best course of action to securing shareholder value rather than diluting the stock into oblivion.
One major consideration in favor of AKAO is the involvement of activist billionaire Bob Duggan. You can read about him and his involvement with AKAO here. This eccentric man credits Scientology as the driver for his success. In the situation that AKAO finds itself in, this is a good thing. If Ron Hubbard comes to Duggan in a vision and tells him to buy AKAO, it will likely happen. As a billionaire it is well within his capability.
One can't just look at the balance sheet alone to determine value of the company and its listing. Another consideration is that thanks to years of operating losses, AKAO has accumulated $128 million in deferred tax assets that are currently offset by a valuation allowance:
If AKAO 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. To put it into perspective, the $128 million in tax assets is greater than the market cap plus all of the debt. That gives incentive for someone like Duggan to buy out the company as a whole as opposed to just the drug assets.
Disclosure: We are long AKAO
2019 got off to a reasonable start 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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