Three reasons NOT to invest in Abattis Bioceuticals Corp. stock (ATTBF)

What does Abattis Bioceuticals Corp. (ATTBF) do?

Abattis Bioceuticals Corp. originally sought to be a vertically-integrated company serving the medical marijuana and natural health products industries. They’ve slowly evolved away from that model to reduce overhead. The company’s now focused on generating revenue from its natural tonics, elixirs and blends, many of which contain its proprietary botanical blend ingredient PhytoNOS. The company’s also seeking a Controlled Substance License (CSL) with Health Canada via subsidiary Northern Vine Labs so it can possess and produce cannabis.

Three reasons NOT to invest in Abattis Bioceuticals Corp. stock (ATTBF)

1) Red ink. ATTBF lost $1.5 million (CAD) during the nine months ended June 30, 2016. That’s better than the prior year’s same nine months when the company lost $2.4 million (CAD). Unfortunately, the biggest reason for the smaller loss was cost-cutting (not revenue growth).

The one bright spot? Sales grew from $7,720 (CAD) in 2014 to $91,940 (CAD). That’s a gain of more than 1,000 percent. Yes, it’s fairly easy to grow when you’re only doing $7,000 (CAD) in sales per year, but their numbers are at least moving in the right direction. 2016 could be a defining year for Abattis. “As at June 30, 2016, the Company had a cash balance of $338 (September 30, 2015 – $157,758) and a working capital deficiency of $674,518 (September 30, 2015 – $787,857).” Money is tight, and the need for revenue has never been greater. All told, Abattis has lost $15,105,400 since inception. That’s a lot of cheese.

2) Stock dilution. Between April and June of 2016 (the latest time period available), Abattis issued nearly 13 million shares of ATTBF. That adds up to nearly $600,000 (CAD) worth of stock. If all those shares ended up for sale in short order, ATTBF’s stock could tumble – especially since average daily volume is a tiny fraction (229,000) of the number of shares the company issued.

Look for even more shares to be issued in the coming months. “In order to fund the Company’s ongoing operational needs, the Company will need additional funding through equity or debt financing, joint venture arrangements or a combination thereof,” Abattis writes. “The Company’s operations to date have been financed by the issuance of its common shares and debt instruments. The Company continues to seek capital through various means including the issuance of equity and debt. While the Company has been successful in raising funds in the past, there is no assurance that it will continue to do so in the future or that it will be available on a timely basis or on terms acceptable to the Company.”

3) Not enough focus? Abattis has its hands in a lot of pots (so to speak). Altogether, the company lists ten subsidiaries:

  • Abattis Bioceuticals International Inc.
  • Animo Wellness Corporation
  • BioCell Labs Inc.
  • Biocube Green Grow Systems Corp.
  • iJuana Cannabis Inc.
  • Instant Payment Systems LLC
  • National Access Pharmacy Corp.
  • North American BioExtracts Inc.
  • Northern Vine Canada Inc.
  • Phytalytics LLC

To raise capital, Abattis has started selling off some core technologies from its subsidiaries. “On August 21, 2015, Abattis sold the tangible asset, the flash freeze extractor prototype (FFE) and the intangible asset, the poultry avian flu patent, for $100,000 and 2.1 million free-trading shares of Abattis stock,” the company wrote in a recent MD&A. Those sales booked a loss of $393k (CAD).

Additionally, Abattis suspended operations at Phytalytics, a marijuana testing company in Washington state, in October of 2015. Despite capturing some 9 percent of the state’s testing marketshare, the business proved unprofitable.

One promising subsidiary is Northern Vine Labs. The Canadian company is seeking a Controlled Substance License (CSL) with Health Canada. The process is slow and costly, though. “Northern Vine’s first inspection in support of obtaining this License was completed on January 29, 2016,” the company wrote in a recent MD&A. If Northern Vine Labs acquires a license, it’s unclear how long it might take for it to start generating revenue from the venture. A license in hand might be enough to raise some capital from investors, though.

The bottom line on Abattis Bioceuticals Corp. stock (ATTBF)?

Should the three reasons listed above scare you off Abattis Bioceuticals stock? Probably. The company grew its sales last year by some 1,000 percent, but it still only generated $91,940 (CAD) in sales. It spent more than that in advertising alone (C$129,758). It also burnt through $420,309 (CAD) in legal fees and $1.1 million (CAD) in management and consulting fees.

Abattis does seem serious about cutting costs and generating revenue. Last month, they announced a partnership with China’s Jaingsu to export Abattis’ line of Phtnos Superfruit tonics and VitaGum to mainland China. It’s hard to say whether that’s too little too late. As I mentioned above, a cannabis license is pending for Northern Vine Labs. A positive result might buy the company more time, but they need to show they can generate some cash, and they need to do it soon. I’d stay away from the stock until they can prove that.

Nano-cap stocks are stocks with a market capitalization of $50 million or less. Check out more of my write-ups on nano-cap stocks here and marijuana stocks here. Full disclosure: I do not own a position in ATTBF, and I do not plan to initiate one in the next 72 hours.

Three reasons to invest in Abattis Bioceuticals Corp. stock (ATTBF)

What does Abattis Bioceuticals Corp. (ATTBF) do?

Abattis Bioceuticals Corp. originally sought to be a vertically-integrated company serving the medical marijuana and natural health products industries. They’ve slowly evolved away from that model to reduce overhead. The company’s now focused on generating revenue from its natural tonics, elixirs and blends, many of which contain its proprietary botanical blend ingredient PhytoNOS. The company’s also seeking a Controlled Substance License (CSL) with Health Canada via subsidiary Northern Vine Labs so it can possess and produce cannabis.

Three reasons to invest in Abattis Bioceuticals Corp. stock (ATTBF)

1) Rapid sales growth. ATTBF’s sales grew from $7,720 (CAD) in 2014 to $91,940 (CAD). That’s a gain of more than 1,000 percent. Yes, it’s fairly easy to grow when you’re only doing $7,000 (CAD) in sales per year, but their numbers are at least moving in the right direction. 2016 could be a defining year for the company.

2) China bound. Last month, Abattis announced a partnership with China’s Jaingsu to export Abattis’ line of Phtnos Superfruit tonics and VitaGum to mainland China. From their MD&A:

On August 10, 2016, Abattis announced that it has entered into an exclusive distribution agreement with the Jiangsu Regent Granary Trading Co., Ltd. (“Jaingsu”). Jaingsu is one of a select few that is exporting Canadian beef to China They also export canola, dried fruit and will also include Abattis’ line of Phtnos Superfruit tonics and VitaGum in mainland China. Jaingsu will utilize its network and sales experience to cultivate a market for Abattis offering. Jaingsu has certain sales revenue targets under the agreement; failure to achieve such targets will allow Abattis to terminate the Agreement.

The report continues:

“For the 2016 fiscal year, Abattis will continue with its focus as a bioceutical production and sales company, with projected launches of an extended Saskatoon Berry-based tonic range, an expanded Botanical Blends elixir line, as well as sales of the proprietary botanical blend ingredient PhytoNOS. The Company expects a pipeline of products to be deployed into retail and professional channels as well as the direct sales channel and wholesale distribution markets and to focus on further enhancing its international associations and trade.”

3) Diversification. Abattis has its hands in a lot of pots (so to speak). Altogether, the company lists ten subsidiaries:

  • Abattis Bioceuticals International Inc.
  • Animo Wellness Corporation
  • BioCell Labs Inc.
  • Biocube Green Grow Systems Corp.
  • iJuana Cannabis Inc.
  • Instant Payment Systems LLC
  • National Access Pharmacy Corp.
  • North American BioExtracts Inc.
  • Northern Vine Canada Inc.
  • Phytalytics LLC

There are pros and cons to this approach. Too many subsidiaries can be the sign of a company that doesn’t have one core strength. Most of Abattis’s acquisitions/subsidiaries stay true to the company’s core focuses, though: medical marijuana and natural health products.

Abattis seems to do a good job of cutting off businesses that don’t prove profitable. In 2014, one of their subsidiaries, Phytalytics, sought and received an analytics laboratory testing license in Washington state. Despite capturing some 9 percent of the state’s testing market share, the business proved unprofitable and operations were suspended in October of 2015.

Northern Vine Labs is seeking a Controlled Substance License (CSL) with Health Canada. “Northern Vine’s first inspection in support of obtaining this License was completed on January 29, 2016,” the company wrote in a recent MD&A. It sounds like they’re headed in the right direction.

The bottom line on Abattis Bioceuticals Corp. stock (ATTBF)?

Are the three reasons listed above good enough to invest in Abattis Bioceuticals stock? Sales growth is impressive, but you have to keep in mind ATTBF is still in the red. The company generated $91,940 (CAD) in sales last year, but it spent more than that in advertising alone (C$129,758). It also burnt through $420,309 (CAD) in legal fees and $1.1 million (CAD) in management and consulting fees. All told, the company lost nearly $6 million (CAD) in 2015. Without ongoing and significant cash infusions (or another spike in revenue), ATTBF could face a cash crunch. As of Sept. 20, 2015, the company had just $157,758 (CAD) on hand. I’d hold out until their revenue grows even more.

Nano-cap stocks are stocks with a market capitalization of $50 million or less. Check out more of my write-ups on nano-cap stocks here and marijuana stocks here. Full disclosure: I do not own a position in ATTBF, and I do not plan to initiate one in the next 72 hours.

Should I invest in American Cannabis Company, Inc. stock (AMMJ)?

Here are three reasons to invest in American Cannabis Company, Inc. stock (AMMJ) and three reasons to avoid it.

What does American Cannabis Company, Inc. (AMMJ) do?

Founded in 2013 in Denver, Colo., American Cannabis Company helps new companies in the marijuana industry get their footing. That means they work as advisers on everything from licensing to staffing to giving advice on growing and even assisting with branding and the purchasing of products. In addition, AMMJ also markets and sells its own industry-related goods.

Three reasons NOT to invest in American Cannabis Company, Inc. stock (AMMJ)

1) Trending down. Revenue at AMMJ peaked in 2013 when the company generated more than $7 million. That makes sense as legalization in Colorado was approved in 2012 with a kickoff in 2014. Even after generating $7 million, though, the company lost more than $4 million. In 2015, AMMJ generated $2.8 million in revenue. Those numbers need to be going the other direction for bigger investors to move into the stock. Year-to-date AMMJ is down more than 30 percent.

2) Competition. There is no clear-cut advisory firm that’s got a lock-down on the marijuana industry. A quick Google search turned up Canna Advisors, a private Colorado company that – as of July – has helped 15 companies earn licenses in the space. There’s plenty of opportunity here, but companies like AMMJ are going to have to be aggressive to stay in the lead.

3) Thin trading. American Cannabis Company, Inc. is a penny stock that trades over-the-counter. That means it’s not held to the same stringent reporting requirements that NASDAQ stocks are. On top of that, it’s thinly traded. Average trading volume is 135,000 shares a day. Low trading volume means prices can swing violently on any industry or company news or even on the whims of one big investor.

Three reasons to invest in American Cannabis Company, Inc. stock (AMMJ)

1) Radical growth. American Cannabis Company claims 98 percent growth over the past two years. They’ve helped 13 clients earn cannabis licenses in seven states, and they’ve helped build more than 560,000 square feet of cannabis cultivation space.

2) Cash on hand. Unlike most of the companies I’ve written about in the space, American Cannabis Corporation actually has a fair amount of cash on hand ($228K) per the company’s latest 10-Q filing. They have total current assets of $505,381 against total liabilities of $398,208.

3) Unique products. AMMJ sells a range of cultivation, extraction and retail supplies for the marijuana industry, from pot washing stations to a patented child-resistant cannabis container dubbed The Satchel. The company also offers a “plug-and-play” cultivation unit called the Cultivation Cube that growers can begin using the moment their cultivation license is approved.

AMMJ is also a “pure play” for the pot industry. There aren’t a whole lot of stocks that give investors direct exposure to the medical and recreational marijuana industry. American Cannabis Company fits the bill, and it does it in a wide array of ways: from consulting to retail products to growing expertise.

Should I buy American Cannabis Company, Inc. stock (AMMJ)?

I’m on the fence here. Some of their products sound exciting. The Cultivation Cube for instance could be a big seller if a new state approves medical marijuana. That said, AMMJ’s revenue growth isn’t all that impressive. I look for stocks with consistent quarterly gains in growth. Of course, nano-cap stocks are far from predictable and steady. Landing a single client could be the difference between a great quarter and a lackluster one. All that said, I think AMMJ would definitely be a candidate for inclusion in a marijuana ETF. It’s not at the top of my list, but it ranks higher than most of the industry’s stocks.

Nano-cap stocks are stocks with a market capitalization of $50 million or less. Check out more of my write-ups on nano-cap stocks here and marijuana stocks here. Full disclosure: I do not own a position in AMMJ, and I do not plan to initiate one in the next 72 hours.

Should I invest in Agritek Holdings Inc. (AGTK) stock?

Here are three reasons to invest in Agritek Holdings Inc. stock (AGTK) and three reasons to avoid it.

What does Agritek Holdings Inc. (AGTK) do?

Agritek Holdings has its hand in a lot of pots. It markets vapes under the Mont Blunt label. It also operates two subsidiaries: Agritek Venture Holdings, Inc., which holds pot-related land acquisitions and leases and The American Hemp Trading, Inc., which aims to produce “hemp-based beverages and products.” In general, the company’s aiming to become “a leader in compassionate care technology for the medical marijuana industry.” According to investor relations literature, “the company presently owns 80 acres of agricultural land in Colorado as well as acreage in Florida and plans to be the first Company to truly provide managed agricultural facilities, infrastructure, and greenhouse technology to licensed and regulated growers within the sector in both states.”

Three reasons NOT to invest in Agritek Holdings Inc. stock (AGTK)

1) Dead websites. As of this writing, I get an “account suspended” warning when I try to visit Agritek’s website at www.agritekholdings.com. The website for Mont Blunt is dead as well. That means one of two things: 1) the company has suspended operations; 2) the company’s behind on its hosting payment (a fact that doesn’t bode particularly well for the company’s operations).

2) Going concern? As of March 31, 2016, AGTK had total assets of $97,855 against total liabilities of $1.4 million. Cash on hand (and equivalents) was a mere $5,700. Worse yet, the company’s total stockholders’ deficit is just shy of $14 million! Per Agritek’s latest 10Q filing: “The Company had an accumulated deficit at March 31, 2016, a net loss and net cash used in operating activities for the reporting period then ended. These conditions raise substantial doubt about its ability to continue as a going concern. The Company is attempting to produce sufficient revenue; however, the Company’s cash position may not be sufficient to support its daily operations. While the Company believes in the viability of its strategy to produce sufficient revenue and in its ability to raise additional funds, there can be no assurances to that effect.”

3) Penny stock. Agritek Holdings Inc. is a penny stock. Most penny stocks are thinly traded, and Agritek’s no exception. Some 3 million shares of AGTK trade hands every day. That sounds like a lot until you consider the stock’s price at $0.0025. Even if 3 million shares of AGTK trade hands in a given day, that’s only $7,500 worth of stock!

Three reasons to invest in Agritek Holdings Inc. stock (AGTK)

1) A new direction? Last month, AGTK announced a partnership with WoahStork.com – an online marketplace where patients and recreational users can place online marijuana orders with local disensaries. “The parties have agreed on a 30% revenue share on a $3.75 transaction fee with additional revenues to be shared through advertising models, non-cannabis product sales and doctor’s appointment setting and record management fees.” Depending on volumes at WoahStork, this could be the source of revenue AGTK needs to stay afloat. “It is about time we get back to our original roots as being one of the first public Companies within the cannabis sector focusing on technology, storage of patient records and financial transactions within the industry,” CEO B. Michael Friedman said at the time. “We chose to partner with WoahStork creating a partnership with a high barrier of entry on the technology side as they have created technology far more advanced than a social media forum for cannabis or a delivery service.”

2) A “pure play” on pot. There aren’t a whole lot of stocks that give investors direct exposure to the medical and recreational marijuana industry. AGTK fits the bill, and it does it in a wide array of ways: from land holdings to an online cannabis-ordering platform.

3) Monetary damages on the way? In April (on 4/20/16, of course), Agritek Holdings announced a cease and desist and pending law suit against former CEO Justin Braune (now of Vape Holdings). Agritek alleges “the present vaporizer device and cartridge being sold as Vape Holding’s ‘Revival Vape’s’ product line was designed and developed during Mr. Braune’s tenure as Chief Executive Officer of Agritek Holdings under the Company’s wholly owned subsidiary Prohibition Products Inc. with Mr. Braune as President of Prohibition Products.” Agritek was preparing a law suit against Vape Holdings and Mr. Braune for “intellectual property infringement and violation of Mr. Braune’s employment agreement under non-compete clauses.” It’s unclear whether that lawsuit was filed. If so, there’s a chance (however slim) that Agritek could collect some monetary damages down the road.

Should I buy Agritek Holdings Inc. stock (AGTK)?

Getting in on Agritek’s real estate holdings and its partnership with WoahStork.com is tempting, but the company’s financial position looks too tenuous. Couple that with a pending lawsuit against the company’s former CEO, an offline website and no proven revenue streams, and AGTK looks like the longest of long shots. I’d stay clear until they prove they can generate some revenue.

Nano-cap stocks are stocks with a market capitalization of $50 million or less. Check out more of my write-ups on nano-cap stocks here and marijuana stocks here. Full disclosure: I do not own a position in AGTK, and I do not plan to initiate one in the next 72 hours.

Should I invest in AeroGrow International, Inc. (AERO)?

Here are three reasons to invest in AeroGrow International stock (AERO) and three reasons to avoid it.

What does AeroGrow International (AERO) do?

AeroGrow designs and markets the Miracle-Gro AeroGarden brand of products. The company’s headquartered in Boulder, Colorado – ground zero for the push to legalize pot. AeroGardens aren’t necessarily marketed to grow pot indoors, but they can sure as hell be used for that (proof here), and the company probably sells quite a few units to DIY pot-growers. AeroGrow’s motto is “Grow Anything… Anytime… Guaranteed.”

Three reasons NOT to invest in AeroGrow International stock (AERO)

1) Got profits? AERO hasn’t posted a positive year in the past four years. The company lost $0.18 per share (or $1.5 million) in the year ending Q1 2016. No company can consistently post losses without borrowing more money or going under.

2) Increased competition. AERO’s small and specialized enough that the company hasn’t faced serious competition. That said, their systems aren’t chock full of high-tech, hard-to-duplicate technology. If a company with scale moved into the space, it could probably create a cheaper indoor gardening kit that could threaten AERO’s viability.

3) Thin trading. AeroGrow International is an over-the-counter stock. That means it’s not subject to the same stringent reporting requirements of stocks that trade on major exchanges like the NASDAQ. It’s also thinly traded with just 21,000 shares trading hands per day. Tesla (TSLA) averages more than 3 million shares traded every day. If you buy a big position in AeroGrow and want to offload it, it could be days or weeks before you find enough buyers.

Three reasons to invest in AeroGrow International stock (AERO)

1) Revenue is trending up. AERO’s revenue has more than doubled over the past two years from $9 million at the end of Q1 2014 to $19.6 million at the end of Q1 2016. That’s a blistering pace. “We grew by 10% last year (with accelerated growth in the second half of the year highlighted by 43% growth in our Q4) and improved our gross margin by nearly 500 basis points to 36%,” writes CEO J. Michael Wolfe in the company’s latest investor letter.

2) A world-class partnership. AERO partnered with Scotts Miracle-Gro Co. (NYSE:SMG) three years ago. That deal allowed them to start branding their AeroGardens as Miracle-Gro products. Not only does the deal show that Scotts believes in AeroGarden’s viability (and trusts the company to uphold their brand), but it significantly boosted sales for the young company.

3) Product pipeline. AERO’s committed to enhancing the company’s product line. One thing they plan to add is wi-fi-enabled growers. “This is a significant undertaking, but we’re hopeful that by later this year AeroGardeners will be able to communicate with their garden and track its progress on their smart devices,” the company writes. “From receiving reminders on when to water and fertilize the garden to making it super-easy to re-order seed kits and supplies, we think this is a big idea that will drive further engagement with our customers.” AERO’s also focusing on building larger grow kits with more powerful lights – a move that could get pot-growers excited as a common complaint about AeroGardens is the small size of the units.

Should I buy AeroGrow International stock (AERO)?

The company’s slowly moving toward profitability. Occasional cash infusions from Scotts have helped the company grow, and indicate that Scotts (which owns a 39 percent stake in the company) has faith in AERO’s future prospects. Year-to-date, AeroGrow’s up more than 200 percent, yet the stock still has a market cap of just $26 million. If pot did get legalized in other states, AeroGrow could potentially create a product specifically for home-based marijuana cultivation.

When asked how large AeroGrow might get, Wolfe answers like a politician: “The truth is that I don’t know, but I believe it can become a much bigger company than it is today … one that consistently generates good bottom line results while bringing innovative new products to market. The AeroGarden is a product that is ‘right for the times,’ with consumers wanting fresh, safe, convenient food more than ever. And I feel like we’ve really just begun to unlock our North American distribution with Europe and other markets showing considerable promise. Now with improved margins and our branding efforts starting to bear fruit, I’m optimistic that we’re entering a period of strong, sustainable sales and earnings growth.”

It all adds up to a company that’s poised to turned profitable, which makes it a tantalizing stock. It very well could be at an inflection point. If you’re looking for a pure play on pot stocks, though, I’d look elsewhere.

Nano-cap stocks are stocks with a market capitalization of $50 million or less. Check out more of my write-ups on nano-cap stocks here. Full disclosure: I do not own a position in AERO, and I do not plan to initiate one in the next 72 hours.

Should I invest in American Riviera Bank stock (ARBV)?

Here are three reasons to invest in American Riviera Bank stock (ARBV) and three reasons to avoid it.

What does American Riviera Bank (ARBV) do?

A small bank in Santa Barbara, Calif., American Riviera opened in July of 2006. It’s done well, too, recently recently merging with The Bank of Santa Barbara. That gives ARBV two community branches, both of which are focused on growing their deposit bases and expanding lending.

Three reasons NOT to invest in American Riviera Bank stock (ARBV)

1) Under-performance. Year-to-date, ARBV is underperforming the S&P 500. Shares are up 3 percent while the broader market is up north of 5 percent. Still, that’s better than some of the nation’s largest banks. Bank of America (BAC), for example, is down more than 7 percent this year, and JPMorgan Chase (JPM) is down half a percent.

2) Merger woes. ARBV recently merged with The Bank of Santa Barbara. Unexpected costs or difficulties with the merger could impact the bank’s ability to make a profit. Mergers that look great on paper can sometimes result in culture clashes that negatively impact a business.

3) Over-the-counter shares. ARBV trades over-the-counter – not on a national securities exchange like the NASDAQ. That means ARBV isn’t held to the same stringent reporting requirements as companies on the NASDAQ. We know less about ARBV than we do other banks that trade on the NYSE.

Three reasons to invest in American Riviera Bank stock (ARBV)

1) Strong growth. 2015 saw significant growth for the bank. According to ARBV’s 2015 annual report, the company grew its average total loans by 14 percent to $179 million. The bank also grew its average assets by 12 percent to $232,000. All told, the bank had net income of $1,303,000 in 2015 (unadjusted for non-recurring merger-related costs). That worked out to $0.48 per share. “Our bank finished the year with a record $249 million in assets and 18% higher pre-tax income over 2014 excluding merger related costs,” the company wrote.

At the end of 2015, ARBV had a book value of $10.56. Today, shares are trading at $11.65. Over the past five years, ARBV shares have appreciated more than 124 percent. That’s well above the S&P 500’s return of 84 percent. “Our goal is to reach a $1 per share earnings run rate by year end,” ARBV wrote early in 2016.

2) Great track record. American Riviera Bank celebrated its 10th anniversary on July 18, 2016. The finance industry is one of the most heavily regulated industries on the planet. Staying in business and growing over the course of a decade (particularly through the housing and financial collapse of 2007-2008) is impressive.

3) Merger time. American Riviera Bank merged with The Bank of Santa Barbara effective January 1, 2016. While this is adding significant merger-related costs to the company’s books, ARBV believes the “merger has positive financial synergies.” If you’re looking for growth, two branches are better than one.

Should I buy American Riviera Bank stock (ARBV)?

ARBV’s shares look appealing so long as interest rates begin to normalize. Artificially-low interest rates make it difficult for banks to generate big profits as the spread between their borrowing rate and the rate they lend to customers is small. If ARBV can continue to grow, it will do so by capturing more of the Santa Barbara County market – an area with a median household income of $63,409. Santa Barbara County is the 17th-wealthiest county in California. Right now, ARBV controls 2.77 percent of the market there (by deposits).

Nano-cap stocks are stocks with a market capitalization of $50 million or less. Check out more of my write-ups on nano-cap stocks here. Full disclosure: I do not own a position in ARBV, and I do not plan to initiate one in the next 72 hours.

Should I invest in NZCH Corp. stock (ZPCM)?

Here are three reasons to invest in NZCH Corp. stock (ZPCM) and three reasons to avoid it.

What does NZCH Corp. (ZPCM) do?

NZCH was formed in Nevada in 1999 with the goal of “creating and operating a global network of independently owned websites.” As of last year, HRG Group owned approximately 97.9% of the company’s outstanding common shares. NZCH Corp.’s stock is currently classified as a penny stock.

Three reasons NOT to invest in NZCH Corp. stock (ZPCM)

1) No revenue, no focus. Formerly Zap.Com Corporation, NZCH Corp. owns a portfolio of domain names. Their dotcoms include nine names: betacenter.com, betaworld.com, buybid.com, eatfood.com, instantwinner.com, netcentralbank.com, paranoid.com, thefed.net and zap.com. Unfortunately, NZCH Corp. hasn’t figured out what to do with its portfolio of names. “The Company has not identified a specific industry to focus on,” NZCH writes. “As of June 30, 2016, the Company had not generated any revenues.”

2) Shedding cash. Over the past two years (2014-2015), NZCH Corp. lost about $150,000 a year. That loss was attributed to SG&A (Selling, General and Administrative Expenses) with $50,000 per year going to auditing. As of Dec. 31, 2015, the company had $595,514 on hand. At the NZCH’s current burn rate, it’ll be out of money in four years.

3) Thin trading. NZCH is a penny stock, but it’s thinly traded even for a penny stock. Average trading volume is 27 shares a day! Shares often go weeks without a single trade. That means if you buy some ZPCM and want to offload it, it could be weeks or months before you find a buyer.

Three reasons to invest in NZCH Corp. stock (ZPCM)

1) Leadership. The company’s president and CEO, Omar M. Asali, has an impressive resume. He currently heads up HRG Group Inc., a $3.2 billion company that trades on the NYSE under ticker HRG. HRG owns and operates NZCH Corp. Before joining HRG, Mr. Asali was Head of Global Strategy at Harbinger Capital Partners, LLC. “Before joining Harbinger Capital in 2009, Mr. Asali was the co-head of Goldman Sachs Hedge Fund Strategies (‘Goldman Sachs HFS’) where he helped manage approximately $25 billion of capital allocated to external managers,” per HRG Group. Over the past five years, HRG’s stock is up more than 500 percent. If Mr. Asali can’t figure out a business strategy for NZCH Corp. it’s probably because he doesn’t have time to devote to it.

2) Domain names. As stated above, NZCH does own the rights to nine domain names: betacenter.com, betaworld.com, buybid.com, eatfood.com, instantwinner.com, netcentralbank.com, paranoid.com, thefed.net and zap.com. Domain names are like real estate on the internet. NZCH could build whatever they want on any of their domains, and domains do have some intrinsic value. Insurance.com, for example, set an international record when it sold for more than $35 million in 2010. Zap.com is a memorable, three-letter domain, which gives it some value. That said, I’m not particularly impressed with NZCH’s other domains. If they build a thriving business out of any of their domains, it will be because of the underlying businesses – not the domain names.

3) Upward trend? ZPCM shares recently hit a 52-week high at $1.75.

Should I buy NZCH Corp. stock (ZPCM)?

Put it on the back burner. If and when they come up with a business strategy, it might be worth taking another look. My best guess is HRG will eventually sell their domains and shut down NZCH.

Nano-cap stocks are stocks with a market capitalization of $50 million or less. Check out more of my write-ups on nano-cap stocks here. Full disclosure: I do not own a position in ZPCM, and I do not plan to initiate one in the next 72 hours.

Listing the top 8 highest-rated silver stocks

If you’re ready to wade into the silver markets, start with the market leaders. Here are the Top 8 silver mining stocks with the highest analyst ratings. A rating of 1 is a “strong buy.” A rating of 5 is a “sell.”

Company Ticker Analyst rating YTD return
Silver Wheaton Corp. SLW 1.9 -28.8%
Mines Management, Inc. MGN 2 -40.4%
Coeur Mining Inc. CDE 2.6 -37%
Silver Standard Resources Inc. SSRI 2.6 48.6%
Endeavour Silver Corp. EXK 2.7 -18%
Fortuna Silver Mines Inc. FSM 2.7 -45.7%
First Majestic Silver Corp. AG 2.8 -23.3%
Hecla Mining Company HL 3 -17.5%

Just one of the stocks above is in positive territory for the year: Silver Standard Resources. And what a year its had leaping up by nearly 50 percent in value.

Here’s the same group of stocks listed by market cap:

Company Ticker Market Cap
Silver Wheaton Corp. SLW $5.5 billion
Hecla Mining Company HL $834 million
Silver Standard Resources Inc. SSRI $582 million
First Majestic Silver Corp. AG $439 million
Coeur Mining Inc. CDE $438 million
Fortuna Silver Mines Inc. FSM $305 million
Endeavour Silver Corp. EXK $173 million
Mines Management, Inc. MGN $8 million

What do analysts like about the top 3 stocks on the list?

1) Silver Wheaton Corp. Hands down, Silver Wheaton has my favorite business model in the precious metals industry. Known as a “silver steaming” company, SLW helps other companies fund the development of future mines in exchange for fixed-cost silver when those mines becomes operational. That’s how SLW currently has fixed costs for silver production of $4.36 per ounce.

2) Mines Management, Inc. This one makes me nervous. Mines Management has been in danger of getting de-listed by the NYSE after its share price faltered. Additionally, the company has posted losses over the past five fiscal years. Mines Management did submit a compliance plan to the NYSE, which was accepted. The company has until the end of 2016 to get compliant. It’ll likely need an infusion of cash to do so. The company’s primary asset – the Montanore silver-copper project located in northwestern Montana – holds 166 million ounces of silver per a Canadian National Instrument (NI) 43-101 that was completed in 2011.

3) Coeur Mining Inc. Analysts currently have an average price target of $6.46 on Coeur Mining. That’s 100 percent more than the stock’s current price of $3.22. Coeur did surprise analysts with a smaller-than-expected loss last quarter. The company lost $0.11 per share vs. the consensus estimate of -$0.22. Revenue hit $166.3 million vs. an estimate of $165. “On average, equities research analysts anticipate that Coeur Mining will post ($0.76) EPS for the current fiscal year” (source).

See related: I’m a bull on Silver Wheaton: Here are 3 reasons why.

Photo credit: JM Griffin and Michael LaTerz.

2016 silver price predictions: Look for a recovery

Four years ago, analysts everywhere were making predictions about the price of silver. Now, it’s hard to find anyone talking about it. Paul Mladjenovic, author of Precious Metals Investing for Dummies, believes prices for the white metal will bolt higher in 2016, though. Indeed, he believes silver has a “strong chance at hitting” $25 to $29 next year (source).

Adam Koos, president of Libertas Wealth Management Group, agrees without giving a specific price target. He expects silver to start a bull run late in 2016. “Take a little hiatus until 2016 … when the US president will be a huge question mark, US stocks will most likely pick up in volatility and any rate increases will have already been priced into the metals,” he told MarketWatch.com this summer.

Kunal Shah, head of commodities research at Nirmal Bang Commodities, believes silver prices should settle between $16.95 and $17.40 per ounce by the end of 2016. “Industrial demand has remained very strong from electrical, solar and various industries so we recommend that any decline in silver prices now should be used as excellent buying opportunity,” he says (source).

That falls in line with silver price predictions from a Reuters poll over the summer. Polled analysts expect silver prices to recover to $17.21 an ounce in 2016 (source).

RBC analysts expect silver prices to be around $19 an ounce by 2018 (source). That’s roughly 20 percent higher than today’s silver price of $15.50. That’s not exactly a big surge. RBC is, however, bullish on a handful of gold and silver stocks. While silver prices have plummeted, stocks in the sector have gotten hit even harder. They should start recovering rapidly as the price of silver drifts higher.

One of the biggest silver bears I can find is Jing Pan, a research analyst and editor at Lombardi Financial. Pan believes we could see a squeeze next year that might push silver prices up to $31 an ounce (source). He cites decreased mining activity, elevated demand and a skewed gold-silver ratio as the major drivers. Today’s gold-silver ratio hovers around 72:1. If we get to 35:1, we’d be around Pan’s target price, and that’s still far higher than the “natural” gold-silver ratio of 17:1.

Interestingly, 2015 is expected to be the first year in 12 years that silver mining output will actually decline. “We’re just not seeing the investment in new mine capacity that would be needed to sustain continued record peak production,” Andrew Leyland, an analyst with GFMS, told the Wall Street Journal. GFMS forecasts silver prices will average $16.50 an ounce in 2015, and rise to $17.50 an ounce in 2016.

Photo credit: Loopack.

I’m a bull on Silver Wheaton: Here are 3 reasons why

This post is part of our 3-up, 3-down series where we look at three bullish arguments and three bearish arguments for momentum stocks. Look at the facts, and you decide. See more posts on SLW here.

The bullish case for Silver Wheaton

1) Low-risk business model. Hands down, Silver Wheaton has my favorite business model in the precious metals industry. Known as a “silver steaming” company, SLW helps other companies fund the development of future mines in exchange for fixed-cost silver when those mines becomes operational. That’s how SLW currently has fixed costs for silver production of $4.36 per ounce.

2) Record production. Other companies may be shuttering mines, but Silver Wheaton continues to hit all-time record production numbers. In Q2 2015, the company produced 11 million silver equivalent ounces and sold more than 10 million ounces of silver for the first time in the company’s history.

“The record production and sales were driven by strong results from all of our flagship assets the Salobo, San Dimas and Penasquito mines as well as the first substantive production from Constancia, which achieved commercial production earlier this year,” said Randy Smallwood, SLW’s president and CEO, during last quarter’s conference call. Those numbers will continue to grow as we’ll see below.

3) Leveraged growth. Silver Wheaton is growing its silver production at a time when silver prices could start edging up. Any rise in silver prices leverages profits that the company books. For 2015, SLW expects production to grow by 23 percent over the previous year. That would put them at 43.5 million silver equivalent ounces. The company expects that growth to continue steadily through 2019 when they should produce 51 million silver equivalent ounces. The higher the price of silver, the higher the company’s profits. Take a look at the table below to see how much a jump in the price of silver could impact Silver Wheaton’s profits (assuming their costs stay at $4.36 per ounce):

Price of silver SLW profit on 50 million ounces of silver
$15.25 $544,500,000
$20.25 $794,500,000
$30.25 $1,294,500,000

Since Silver Wheaton’s cost basis for its silver will not rise, the company can book virtually any gain in the price of silver as profits.

Check out more coverage on SLW here.