Some of the biggest short term gains on the AIM market may surprise you – not for the faint hearted or without risk but here’s three that could deliver 100-500%!
If you follow me on twitter or have read my research notes and blogs you may find the subject of this blog odd! It goes against my usual investment mentality but I thought it worth writing to present a contrarian approach that can make money.
Now when I say ‘dog’ I mean a stock that may have a combination of poor share price performance, poor delivery/management so far in its journey, may have done numerous heavily discounted fund raises and sentiment may be on the floor!
There are different breeds of dog and finding the ones that won’t bite could offer some significant short term gains but you need to weigh up the risk vs reward proposition and accept the downside.
Dogs to avoid completely are ones where the Management are just funding their lifestyle with complete disregard for shareholders – A junior AIM nickel company springs to mind where the CEO pays himself a blue-chip salary not commensurate with the appalling delivery and the fact he has diluted shareholders consistently via death spiral CLN’s!
There are a number of reasons why so called ‘dog’ stocks can return gains you would never imagine and most annoyingly, why you are sitting in what you think is a great investment that has been flat-lining for a 6-12 months !
Let’s try and understand why…
If I hadn’t seen it a hundred times, I wouldn’t be writing this blog!
Oversold – simply the stock has become oversold to the point where there are no further sellers or overhang (overhang is typically a large seller most commonly post placing) or the stock has become ‘technically’ oversold. In this situation the stock can reverse trend and as momentum ensues run back up at a significant pace.
The inevitable pump – whether you like it or not there are co-ordinated pumps on AIM and in the markets, often said crews will pick on an oversold or low liquidity stock that may have been a retail favourite and give it a good pump! Again if momentum is chased, gains again can be huge but you’ll normally see a horrible spike – that said if you are in and experience a 100% spike and get out happy days!
Value proposition – the dog for its proposition was previously valued much higher and now doesn’t look as bad trading 80% below its high – especially if some other market fundamental changes that significantly increases the RvR from lows.
Game changer news – The company actually deliver what everyone was hoping! It may have taken longer than planned (normally does) and with more dilution (shares in issue) than expected, but the company is now well set to achieve its goals and will re-rate. This can be the biggest mover.
It just does! – Probably bit of a combination of the above but essentially everyone has moved on, its oversold and there is no interest in the stock…until there is ! And it becomes a momentum play on volume, technicals and FOMO!
So lets briefly discuss three stocks that I’m punting on that could do 100-500%…
TLOU Energy (TLOU)
TLOU are developing their gas to power project in energy starved Botswana, they recently raised at 3.5p and have an estimated c.£3m in cash. Market Cap is £14m (2.2p) down from a high of around 16p in 2018.
The company have been awaiting a PPA (Power Purchase Agreement) award hoping to attain a 10MW contract rising to 100MW. the company would make roughly £1m per MW in annual revenue so you can see the long-term upside. What makes that long-term upside more interesting is they have huge reserves with 3TCF of 3C resource and significant proven and probable reserves.
The process hasn’t run smoothly to date – my take due to Botswana Government changes and incompetence however the market sort of missed this – TLOU now have a 1MW PPA and most importantly permission to connect to the grid and are in fact building the power line to the substation from the project location.
So when they are into the grid they have power nearly ready to feed and can scale that power up with financing Capex. This is potentially a huge prize for investors at c.£11m EV but the company need to deliver on promises. As I said getting into the grid is a major milestone and seems to be happening.
So if they get the 10MW contract following the 1MW award and considering the resource a significant re-rate should ensue on the basis they’ll eventually scale up to 100MW.
Bidstack are an Ad-Tech company with the promise of delivering in-game advertising in a frictionless fashion and given the size of the global gaming market, just a small fraction of that market advertising revenue would be huge.
The company have just raised c.£10m with Directors notably subscribing for £1.1m of the raise. The raise was at a significant discount which wasn’t pleasing for existing shareholders but the raise does see them through to end 2022 and covers the development of their enhanced platform for delivering ads along with working cap etc. Market Cap is just £18m (2p) down from a whopping 36p a share in 2019.
That high was very much a result of speculation of how Bidstack would capture the market along with a CEO that many would say over-promised and under-delivered. It’s true to say at least in my opinion that the company have not to date delivered anywhere near expectation but they have secured revenue generating contracts and some interesting partnerships.
My take is the company tried to run before they could walk. I see a turnaround on the Horizon given recent EA ~Director appointment and two new client partnerships announced in July one of which is said to have a 250m worldwide audience for its Top Eleven game
Given the company share price is truly bombed out, the company are now well funded through until end 2022 which covers Working Cap and development and the company are landing new deals with top names like Nordeus and Codemasters one would ask what really is the downside once the placing churn is worked through (10% volume already churned)
Petro Matad (MATD)
Petro Matad is a company I’ve dabbled in before too and prior to their previous drill campaign saw some fantastic gains from the 3p area (think I made c.2-300% gain) on anticipation of the drills (notably at a lower Oil price too I may add!)
The company have just raised at c.$10m at 3.5p with the CEO subscribing for a further $100k in stock and one of the largest shareholders Petrovis taking $2m. Again this was a significantly discounted placing but unsurprising when tapping up the market this time of the year. The company has traded at c.30p and more recently in May traded over 8p. Current Cap is £30m (3.4p)
Petro Matad will use the proceeds of the placing to fund the commissioning of the H1 Heron well and drill two further wells H2 and H3 on success of H1 which should be brought into production mid 2022.
For me this is a simple buy, tuck-away and come back in 6 months time, however knowing there will be a build back in share price up to activity and given a high level of institutional investment and Petrovis taking a big chunk of the placing the share price could move up more rapidly then people think!
So there you have it, three ‘dogs’ you may just find don’t bite! Personally, I’m not really calling these dogs, that’s unfair and the companies don’t deserve that title. There are hurdles for all junior companies, some just execute better than others particularly in understanding when they should raise funds to protect shareholder dilution.
The point is, just because someone else is calling it a dog, appraise yourself. Do your own research and due-diligence and see if you agree because one thing I will tell you in my investing career is that if you find one that is misunderstood, delivers whilst quiet, bombed out and before the ‘herd’ you can be in for the elusive multi bagger returns, in stark contrast you can lose the lot!
These three are all well funded at historic lows in a weak market and wont need cash this year -that aint a bad starting point !
Research materials prepared based upon my own analysis and research. Accuracy cannot be guaranteed and research notes should not be taken as investment advice. Please always do your own research.