Thursday, 13 July 2017

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Tuesday, 11 July 2017

Citigroup And Leerink Create Fake News On Arena Pharmaceuticals To Pump Up Its Share Price For A Secondary

EDIT 7/13: We have closed off our short around $24. The pricing of the offering was at $24.

Arena Pharmaceuticals, Inc. (ARNA) rose 41% from $18.39 to $26.00 on 15 million volume on Tuesday, after the company announced "positive Phase 2 results for ralinepag, an investigational, long-acting, orally administered prostacyclin receptor agonist under development for the treatment of pulmonary arterial hypertension". This is obviously a very positive development for the company. But given that this is a Phase 2, ralinepag is still years away from a New Drug Application being accepted by the FDA, assuming all goes well with Phase 3, and it will cost a lot to navigate through the FDA approval process. ARNA added $240 million in market cap on Tuesday, a fairly high amount for Phase 2 results.

Immediately after the market closed, ARNA got to work on trying to secure the cash resources needed to develop ralinepag by announcing a $150 million offering of common shares. The release states that: "Citigroup, Leerink Partners, Cantor Fitzgerald & Co. and UBS Investment Bank are acting as joint book-running managers for the offering.  JMP Securities is acting as a co-manager for the offering." The terms, including the price of the shares in the offering, were not announced.



Minutes after ARNA announced the offering, two of the bookrunners released updated price targets on ARNA in an attempt to stop the bleeding afterhours. Citi increased its target on ARNA from $23 to $37 and Leerink increased its target on ARNA from $47 to $53.

While ARNA has done what an early-stage pharma company is supposed to do, we smell a rat from the supposedly unbiased firms that happen to have gotten the bookrunning business and are so quick to upgrade the targets. Are these targets not supposed to be based on reasoned, thorough and complete analysis? How can these firms come up with a price target based on reasoned, thorough and complete analysis when the denominator (number of shares) in their valuation isn't even defined thanks to the unknown price of the offering? They are just throwing out made up targets to try to inflate the stock price as much as possible before the secondary. Either to help fill it or to get suckers to buy shares high so that the hedge funds participating in the offering can short the stock at a higher price and cover from the offering.

At what price will the offering be filled? We think $22.50. The underwriters have an option to purchase up to an additional $22.5 million of shares of its common stock at the public offering price, This $22.50 number fits extremely well with that. In the meantime we hold a short position on ARNA and will continue to hold it until we see the pricing of the secondary.

If you like our picks make sure to follow our blog by clicking the follow button on the top of the left hand panel. We are up to 259 followers for a reason.


Disclosure:We are short ARNA

If you're interested in winning sports betting picks, try the Z Code System

If you are interested in penny stock picks, check out Microcap Millionaires.

If you're interested in trading options, both, calls and puts on some large cap stocks, check out binaryoptionsprosignals.com.

Learn to trade stocks, options, commodities and forex with Trader Review.

If you are interested in dividend stocks and return analysis, Then dividendstocksonline.com or Dividend Stocks Rock are for you.

If you're interested in gold, this WSW special report or the Goldmasterinvesting.com Ocean Of Gold Report are for you.

Sunday, 9 July 2017

AAOI Ran On Friday As Expected; DPW Should Run Next

On Wednesday July 5th we suggested that readers pick up shares or call options on Applied Optoelectronics (AAOI) with our article "Unlocking The Secret To Trading AAOI: Buy Before The Friday Short Covering":

"Here's our recommendation for Thursday, July 6th based on AAOI's close of $60.62 on Wednesday. Buy anything under $59 on Thursday, and if it never goes that low, buy it near the end of the day. If you're looking for just a quick couple of dollars profit, sell on the rip on Friday." 

We have noticed a pattern that AAOI performs very well after a Thursday morning dip as shorts cover on Thursday afternoon and Friday. AAOI hit a low of $59.15 on Thursday, just missing our bids in the morning, but we bought up call options on Thursday afternoon. Let's just say that worked out very well as the stock raced over $68 and ended the day up nearly 10% on Friday. If you like our picks make sure to follow our blog by clicking the follow button on the top of the left hand panel. We are up to 251 followers for a reason.

AAOI is still a long term hold with a core position but we took those massive short term profits and we loaded up more on Digital Power Corporation (DPW). We introduced readers to DPW last week with our article "DPW: An Undervalued NYSE-Listed Microcap Poised For A Run Based On Fundamentals". DPW had dropped down to as low as the mid $0.50's last week after flirting with the $1.00 a couple of times. We took that opportunity to load up even more and by the close on Friday, DPW was up 7% to $0.62.

DPW has been swinging around wildly like many other microcap and low float stocks, including Marathon Patent Group, Inc. (MARA), Delcath Systems, Inc. (DCTH), Spherix Incorporated (SPEX), Cerulean Pharma Inc. (CERU), ImmunoCellular Therapeutics, Ltd. (IMUC), Cerecor Inc. (CERC), Monster Digital, Inc. (MSDI), Moleculin Biotech, Inc. (MBRX), Opexa Therapeutics, Inc. (OPXA), MYOS RENS Technology Inc. (MYOS), Threshold Pharmaceuticals, Inc. (THLD), Avinger, Inc. (AVGR), CHF Solutions, Inc. (CHFS), CytRx Corporation (CYTR), Dextera Surgical Inc. (DXTR) and DryShips Inc. (DRYS). A lot of those stocks have moved on news that is hard to quantify and others have moved on no news at all. That's why they are moving so violently up and down, because nobody really knows a true fair value. DPW on the other hand has recently released a business update that makes the stock unambiguously fundamentally undervalued at $0.62. It may have gotten caught up with the other high-volume big-swingers over the last few weeks but we strongly believe it is the best of the bunch.




DPW closed up 50% to $0.72 on over 10 million volume on Friday, June 30th after releasing the following quarter-end investor update:

FREMONT, Calif., June 30, 2017 (GLOBE NEWSWIRE) -- Digital Power Corporation (NYSE MKT:DPW) ("Digital Power" or the "Company"), a growth company seeking to increase revenues through acquisitions and organic growth, today announced that is customer order backlog has increased to over $65M, an increase of $8M from the prior update issued by the Company on May 17, 2017. The increase was attributed to organic growth from new and current customers of DPW and the consolidation of financial reporting which now includes Microphase Corporation.

Amos Kohn, the Company’s President and Chief Executive Officer, stated, “We continue to see strength in our custom power supply business as our order book grows. With the purchase of Microphase Corporation, we will also see strong cost savings which will increase our gross and net margins. We are very excited about our continuing prospects to reduce costs while expanding production across the enterprise.”

The Company reported that it has received from its customer, MTIX, Ltd., order instructions with production schedules and specifications which have launched the formal production process for the machines that utilize MTIX’s proprietary technology. On March 15, 2017, the Company announced it had been awarded a 3-year, $50 million purchase order by MTIX Ltd., headquartered in Huddersfield, West Yorkshire, U.K., to manufacture, install and service textile treatment systems that utilize MTIX’s proprietary Multiplexed Laser Surface Enhancement (MLSE™) system. The Company confirmed that though production planning and scheduling had been underway, these tasks are now being driven to completion. The Company is fully engaged to incorporate the customer’s final specifications and schedules into the production cycle and implement, execute and manage all aspects of this new revenue stream. The Company disclosed that invoicing for the initial deposits necessary to launch production total $1.5MM and anticipate additional invoicing to support the escalation of production over the coming weeks. The Company stated that revenue from the production of the MLSE machines will be recognized in fiscal 2017 and should measurably impact both the gross and net profitability for the Company.

Regarding the progress made in production with MTIX, Ltd., Mr. Kohn said, “The execution of the general contract with MTIX, Ltd. has resulted in a positive material change to the future prospects of the Company. The added value to shareholders is yet to be understood. Over the coming years, this contract and relationship we believe will provide massive value to our shareholders.”




DPW has 11,789,546 shares outstanding after a small offering of 289,092 shares were made to certain creditors for the cancellation of $159,000 worth of debt earlier in the week. This could explain why the stock has pulled back from over $1.00 on the day of this great news as creditors would take their easy profits with no regard to the company's bright future. Last week was a holiday-shortened week and there are some preferred shares with a conversion price of $0.60 on the books (negotiated at a time when the stock price was lower so this is NOT toxic convertibles) which may have also played a role in the pullback

Those who were able to see past this minimal dilution have been able to take advantage of a very undervalued company. Even with the recent offering, DPW has only a $7.3 million market cap based on Friday's close of $0.62. This is extremely low for a company with over $65 million in backlog. Backlog is also growing quite quickly - an increase of 14% in the six weeks between mid-May and the end of Q2.

Look at DPW's Q1 income statement:

























Revenue was $1,628,000 for Q1 and gross margin was $708,000 or 43.5% and a net loss of $1 million. We know that the three year $50 million contract is being deployed right now and will materially impact numbers in 2017.



Let's say the split over the next three years is $10 million in revenue for 2017 and $20 million each in 2018 and 2019. If gross margin is 40%, that means $4 million will be added to the bottom line, taking the company from a million dollar a quarter burn rate to $300,000-$400,000 in net income for the remaining three quarters assuming costs remain static. 2017 would end approximately breakeven under this scenario. This does not take into consideration the remaining $15 million in backlog which could also have a material impact in 2017 though some of that may be baked into the existing $1.6 million per quarter revenue run rate.

2018 would be a very lucrative year. If $20 million in revenue leads to $8 million in gross profits, a $1 million burn rate per quarter would turn into $1 million in net income per quarter. That is an 8.5 cent EPS per quarter or $0.34 EPS for 2018. A P/E ratio of just 10 would imply a $3.40 stock price. We think a target of $2.00 fairly accounts for any risk this deal may have until it materializes. Now that DPW has garnered the attention of many traders, expect it to start trading at a much more fair price to reflect the value of its backlog.

Disclosure: We are long DPW

If you're interested in winning sports betting picks, try the Z Code System

If you are interested in penny stock picks, check out Microcap Millionaires.

If you're interested in trading options, both, calls and puts on some large cap stocks, check out binaryoptionsprosignals.com.

Learn to trade stocks, options, commodities and forex with Trader Review.

If you are interested in dividend stocks and return analysis, Then dividendstocksonline.com or Dividend Stocks Rock are for you.

If you're interested in gold, this WSW special report or the Goldmasterinvesting.com Ocean Of Gold Report are for you.

Wednesday, 5 July 2017

Unlocking The Secret To Trading AAOI: Buy Before The Friday Short Covering

We have been a big fan of Applied Optoelectronics (AAOI) since early May with our report "AAOI: Eight Reasons To Expect This Tech Unicorn To Double By The End Of 2017" along with several follow up reports since then. While we think the stock could reach as high as $250, we believe that we have unlocked a secret to winning short term trades on the stock as well. We have paid close attention to the price movement of the stock over the past two months and noticed a very consistent pattern.




This trick is particularly useful for weekly options players. Always buy before the Friday short covering. Have a look at the price history since the start of May with relevant numbers highlighted in green and red. If you like our picks make sure to follow our blog by clicking the follow button on the top of the left hand panel.


DateOpenHighLowCloseAdj Close*Volume
Jul 05, 2017
Jul 03, 201762.4163.7561.0461.3961.39970,600
Jun 30, 201761.7463.6260.4361.7961.792,414,000
Jun 29, 201760.1660.8558.7760.0060.001,365,100
Jun 28, 201759.6261.1958.0061.0061.001,986,100
Jun 27, 201761.3062.2358.2758.4458.442,748,300
Jun 26, 201765.0165.0160.7661.5961.594,653,100
Jun 23, 201763.6067.1863.3565.8765.872,987,900
Jun 22, 201763.0663.9461.9263.5863.581,315,700
Jun 21, 201761.1064.3061.0963.1063.101,830,400
Jun 20, 201763.2363.7560.8961.0861.082,002,100
Jun 19, 201763.3065.2362.2963.2063.202,596,600
Jun 16, 201762.2363.1560.1062.8862.882,978,300
Jun 15, 201758.2562.9957.5562.2362.234,006,600
Jun 14, 201764.0064.9059.6160.9560.953,749,400
Jun 13, 201766.7167.8563.2563.8563.853,186,000
Jun 12, 201763.5266.8960.0264.6164.614,931,200
Jun 09, 201773.8974.0062.0464.7164.715,292,300
Jun 08, 201771.7373.1770.7173.1473.142,045,000
Jun 07, 201773.3073.8770.0371.4871.482,756,500
Jun 06, 201771.3575.5970.5073.4173.412,964,600
Jun 05, 201774.9675.0071.8072.4472.442,754,700
Jun 02, 201772.0574.7371.7674.6874.683,986,800
Jun 01, 201770.0571.3669.4470.0170.011,857,300
May 31, 201771.0771.6568.7269.8269.822,395,600
May 30, 201771.2071.8169.1170.4870.482,283,700
May 26, 201767.3772.9567.1271.5171.513,885,000
May 25, 201768.8069.8966.3067.8867.882,555,900
May 24, 201768.2570.2367.8668.6368.632,010,100
May 23, 201771.6071.7067.0669.1569.153,771,600
May 22, 201766.0071.3465.8071.2471.246,771,200
May 19, 201764.7465.9363.5063.5463.542,271,300
May 18, 201760.0665.3058.9663.9863.983,947,300
May 17, 201763.0464.0060.1061.3861.383,507,000
May 16, 201764.1165.2462.5364.9764.972,528,000
May 15, 201765.8066.4063.2564.0164.013,112,500
May 12, 201764.2467.0163.2265.4565.453,004,300
May 11, 201764.0565.3362.0864.2364.233,543,900
May 10, 201761.8165.0061.3664.9764.973,932,300
May 09, 201757.7562.6456.0162.1162.115,046,800
May 08, 201757.1560.0056.5557.3957.395,314,600
May 05, 201751.5356.3048.5055.9655.9610,854,900
May 04, 201747.3048.7546.3446.8146.812,998,200
May 03, 201745.9946.9245.0146.4746.472,121,300
May 02, 201749.9850.3046.2747.3047.302,694,000
May 01, 201750.2552.1049.3350.1350.133,243,700

On Friday, May 5th, the jump from $46.81 to $55.96 was justified because of strong Q1 earnings.

On Thursday, May 11th, AAOI opened at $64.05 but dipped $2 to $62.08 before recovering by the end of the day to $64.23. May 12th was another winning Friday with the stock hitting as high as $67.01 before settling at $65.45. Buying the Thursday dip and selling on the Friday rip, or even setting up a stop loss could have resulted in nearly a $5 win with perfect timing and luck. But more realistically even a win of $2 to $3 could have been had.

On Thursday, May 18th, the stock opened at $60.06 and dipped to $58.96 before ending the day strong at $63.98. The next day the stock actually ended down at $63.54 but did hit as high as $65.93. Another opportunity to make as much as $7 with perfect timing but more realistically at least $3 or $4.

On Thursday, May 25th, the stock opened at $68.80. Unlike the prior two Thursdays, it had a weak close at $67.88 but the next day it closed up to $71.51 and nearly hit $73 so no matter what price you paid for it on Thursday, you still made money on Friday.




The trading pattern on June 1st and June 2nd was very similar to the prior week. You wouldn't have made much money searching for a dip on the Thursday, but as long as you got in around $70 by the end of the day, you made good money on the Friday as it closed at $74.68.

For June 8th and June 9th the numbers are red because this is the one week where this trading strategy blew up. The stock dropped from $73.14 on Thursday's close to $64.71 on Friday. Still, had you bought on the dip on Thursday as low as $70.71 but at least under $72, you would have had a chance to sell at $74 or at least take a stop loss and break even in the low $70's before it really cratered.

On Thursday, June 15th, AAOI's dip occurred right away with the stock opening down over $2 from Wednesday's close and providing people an opportunity to buy in under $58 before ripping to a $62.23 close. Friday was relatively uneventful with a close of $62.88 but you still already made the money the previous day. Even if you had a stop loss taken out at Friday's day low of $60.10 for fear of the stock repeating the prior week's performance, you still made a couple of bucks

On Thursday, June 22th, AAOI opened at $63.06, dropped as low as $61.92 and closed at $63.58. If you missed out buying near the lows as that was not much of a dip, even buying over $63 was profitable as AAOI closed at $65.87 the next day and traded over $67.

June 29th and 30th had a very similar trading pattern as the previous week. Not much of a dip on the Thursday but even if you bought in at $60 by day's end, you had a chance to make $2 to $3 with a high of $63.62 and a close of $61.79 on Friday.




What we believe is happening is that shorts are controlling the stock price earlier on in the week, but as the weekend nears they don't want to hold over the weekend for fear of a positive news event like a buyout and will cover before Friday's close, sending the stock price up.

Here's our recommendation for Thursday, July 6th based on AAOI's close of $60.62 on Wednesday. Buy anything under $59 on Thursday, and if it never goes that low, buy it near the end of the day. If you're looking for just a quick couple of dollars profit, sell on the rip on Friday.

Disclosure: We are long AAOI

If you're interested in winning sports betting picks, try the Z Code System

If you are interested in penny stock picks, check out Microcap Millionaires.

If you're interested in trading options, both, calls and puts on some large cap stocks, check out binaryoptionsprosignals.com.

Learn to trade stocks, options, commodities and forex with Trader Review.

If you are interested in dividend stocks and return analysis, Then dividendstocksonline.com or Dividend Stocks Rock are for you.

If you're interested in gold, this WSW special report or the Goldmasterinvesting.com Ocean Of Gold Report are for you.

Sunday, 2 July 2017

DPW: An Undervalued NYSE-Listed Microcap Poised For A Run Based On Fundamentals

On Tuesday morning we introduced our readers to Applied DNA Sciences, Inc. (APDN) when it was trading at $1.40. We suggested that it will hit $2.00 shortly and so far it has come close, hitting as high as $1.94 and closing at $1.76 on Friday. If you like our picks make sure to follow our blog by clicking the follow button on the top of the left hand panel. We are up to 241 followers despite the relatively few articles that we publish. We think this good growth in followers is indicative of people liking our picks and research.

NASDAQ-listed penny stocks have been on a tear over the last couple of weeks, particularly those that have broken out from a long-term downtrend like ReWalk Robotics Ltd. (RWLK), AVEO Pharmaceuticals, Inc. (AVEO), Marathon Patent Group, Inc. (MARA), Delcath Systems, Inc. (DCTH), Spherix Incorporated (SPEX) and CHF Solutions, Inc. (CHFS). Some of them moved on news, others have simply moved from their oversold condition. But there was one active stock on Friday which really stands out as being highly undervalued based on fundamentals trading on the NYSE, Digital Power Corporation (DPW).



DPW closed up 50% to $0.72 on over 10 million volume on Friday after releasing the following quarter-end investor update:

FREMONT, Calif., June 30, 2017 (GLOBE NEWSWIRE) -- Digital Power Corporation (NYSE MKT:DPW) ("Digital Power" or the "Company"), a growth company seeking to increase revenues through acquisitions and organic growth, today announced that is customer order backlog has increased to over $65M, an increase of $8M from the prior update issued by the Company on May 17, 2017. The increase was attributed to organic growth from new and current customers of DPW and the consolidation of financial reporting which now includes Microphase Corporation.

Amos Kohn, the Company’s President and Chief Executive Officer, stated, “We continue to see strength in our custom power supply business as our order book grows. With the purchase of Microphase Corporation, we will also see strong cost savings which will increase our gross and net margins. We are very excited about our continuing prospects to reduce costs while expanding production across the enterprise.”

The Company reported that it has received from its customer, MTIX, Ltd., order instructions with production schedules and specifications which have launched the formal production process for the machines that utilize MTIX’s proprietary technology. On March 15, 2017, the Company announced it had been awarded a 3-year, $50 million purchase order by MTIX Ltd., headquartered in Huddersfield, West Yorkshire, U.K., to manufacture, install and service textile treatment systems that utilize MTIX’s proprietary Multiplexed Laser Surface Enhancement (MLSE™) system. The Company confirmed that though production planning and scheduling had been underway, these tasks are now being driven to completion. The Company is fully engaged to incorporate the customer’s final specifications and schedules into the production cycle and implement, execute and manage all aspects of this new revenue stream. The Company disclosed that invoicing for the initial deposits necessary to launch production total $1.5MM and anticipate additional invoicing to support the escalation of production over the coming weeks. The Company stated that revenue from the production of the MLSE machines will be recognized in fiscal 2017 and should measurably impact both the gross and net profitability for the Company.


Regarding the progress made in production with MTIX, Ltd., Mr. Kohn said, “The execution of the general contract with MTIX, Ltd. has resulted in a positive material change to the future prospects of the Company. The added value to shareholders is yet to be understood. Over the coming years, this contract and relationship we believe will provide massive value to our shareholders.”



DPW has 11,789,546 shares outstanding after a small offering of 289,092 shares were made to certain creditors for the cancellation of $159,000 worth of debt earlier in the week. This could explain why the stock pulled back from over $1.00 late in the day as creditors would take their easy profits with no regard to the company's bright future. Those who were able to see past this minimal dilution have been able to take advantage of a very undervalued company based on this update. Even with the recent offering, DPW has only an $8.5 million market cap based on Friday's close of $0.72. This is extremely low for a company with over $65 million in backlog. Backlog is also growing quite quickly - an increase of 14% in the six weeks between mid-May and the end of Q2.

Look at DPW's Q1 income statement:

























Revenue was $1,628,000 for Q1 and gross margin was $708,000 or 43.5% and a net loss of $1 million. We know that the three year $50 million contract is being deployed right now and will materially impact numbers in 2017.



Let's say the split over the next three years is $10 million in revenue for 2017 and $20 million each in 2018 and 2019. If gross margin is 40%, that means $4 million will be added to the bottom line, taking the company from a million dollar a quarter burn rate to $300,000-$400,000 in net income for the remaining three quarters assuming costs remain static. 2017 would end approximately breakeven under this scenario. This does not take into consideration the remaining $15 million in backlog which could also have a material impact in 2017 though some of that may be baked into the existing $1.6 million per quarter revenue run rate.

2018 would be a very lucrative year. If $20 million in revenue leads to $8 million in gross profits, a $1 million burn rate per quarter would turn into $1 million in net income per quarter. That is an 8.5 cent EPS per quarter or $0.34 EPS for 2018. A P/E ratio of just 10 would imply a $3.40 stock price. We think a target of $2.00 fairly accounts for any risk this deal may have until it materializes. Now that DPW has garnered the attention of many traders, expect it to start trading at a much more fair price to reflect the value of its backlog.

Disclosure: We are long DPW

If you're interested in winning sports betting picks, try the Z Code System

If you are interested in penny stock picks, check out Microcap Millionaires.

If you're interested in trading options, both, calls and puts on some large cap stocks, check out binaryoptionsprosignals.com.

Learn to trade stocks, options, commodities and forex with Trader Review.

If you are interested in dividend stocks and return analysis, Then dividendstocksonline.com or Dividend Stocks Rock are for you.

If you're interested in gold, this WSW special report or the Goldmasterinvesting.com Ocean Of Gold Report are for you.

Tuesday, 27 June 2017

APDN: The Next Multi-Day Runner Like RWLK, AVEO, MARA or DCTH

NASDAQ-listed penny stocks have been on a tear over the last few days, particularly those that have broken out from a long-term downtrend like ReWalk Robotics Ltd. (RWLK), AVEO Pharmaceuticals, Inc. (AVEO), Marathon Patent Group, Inc. (MARA) and Delcath Systems, Inc. (DCTH). One that looks like it will follow these stocks with a multi-day run is Applied DNA Sciences, Inc. (APDN). It rose 28% to $1.40 on volume of just under a million shares, breaking out from the $1.20 resistance on Monday. APDN's move was a response to the positive news release on Friday:


Applied DNA Sciences, Inc. (“Applied DNA,” “the company,” NASDAQ: APDN), is pleased to announce it has received an order to tag 27.5 million pounds of cotton to kick off the 2017/2018 ginning season, composed of three US cotton varietals. The three varietals are Pima, Delta and Acala, which fall under the Pimacott®, HomeGrown™ LoneStar™ and HomeGrown Acala™ programs. The company expects to ship SigNature® T DNA to mark 27.5 million pounds of cotton before the end of June.

“Now in our third season, Applied DNA’s SigNature T DNA has been meeting the need for supply chain traceability, transparency and trust within the cotton industry ecosystem with national retailers, their supply chain partners, and consumers. We are proud to continue to tag, test and track cotton for the 2017/2018 ginning season.” stated Dr. James A. Hayward, President and CEO of Applied DNA. “This order demonstrates our success in further entrenching SigNature T DNA in an established revenue-generating vertical and in extending the adoption of our proven technology platform. Although we cannot predict the timing of follow-on orders, conversations with our customers lead us to believe that additional opportunities to tag cotton during the 2017/2018 ginning season are likely.”

For this order, the customer has agreed to more customary and favorable payment terms, allowing for earlier revenue recognition than past cotton orders. This new order is incremental to DNA concentrate to tag 30 million pounds of cotton that was shipped during fiscal 2016 to establish an on-site reserve of SigNature T DNA before the harvest begins.

APDN is a molecular-based technology solutions company that helps to protect products, brands, entire supply chains, and intellectual property of companies, governments and consumers from theft, counterfeiting, fraud and diversion.  The fact that APDN has been asked to tag cotton for the third season and is receiving better payment terms and follow-up orders is indicative of the company's customer being satisfied with APDN's DNA authentication service. The business appears to be gaining a lot of traction as revenue increased 58% last quarter. Based on the trading pattern of the aforementioned stocks, some of them having moved without news, we believe that APDN will hit $2.00 shortly, possibly on Tuesday.

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Disclosure: We are long APDN

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Tuesday, 20 June 2017

AAOI: Strong Buy Price Target $250; Short Squeeze Imminent

On May 6th we initiated a strong buy call on Applied Optoelectronics (AAOI) with our article "AAOI: Eight Reasons To Expect This Tech Unicorn To Double By The End Of 2017". The stock moved from $55.96 to as high as $75.59 before pulling back to the $62 range despite excellent news of increased laser production. Today represents an excellent buying opportunity as new 52-week highs should be coming over the next few days.

Our follow up piece on May 10th called "Fund Buying And Short Interest Will Lead To A Massive Squeeze on AAOI" gives readers even more reason to be bullish on this great company and one on May 30th called "AAOI Would be $200 If It Was Valued Like NVDA" shows that AAOI is far undervalued when compared to NVIDIA Corporation (NVDA) which has been on a tremendous run thanks to the sharp increase in data center demand. If you like our picks make sure to follow our blog by clicking the follow button on the top of the left hand panel. We are up to 234 followers despite the relatively few articles that we publish. We think this good growth in followers is indicative of people liking our picks and research.

It has become apparent that shorts are getting very desperate on AAOI and will try any type of seedy tactic to bring it down. Some no-name firm called BWS Financial called a $25 target on AAOI citing a nonsensical reason with 100G pricing about to be destroyed. BWS Financial is led by Hamed Khorsand who is wrong more often than he is right, with a success rate of only 46% according to TipRanks. So a short call on AAOI by him should be seen as a 54% bullish sign!



BWS and associates look to be excessively desperate to cover their short with this facade. Short interest ballooned to 8.3 million at the end of May as the stock price was on its way up to $75. The float is only 18 million so now the short interest is closing in on 50%. Usually a stock with that high level of a short interest is a biotech or some other junior company that is losing lots of money and investors figure that they will need to finance at below market levels. But AAOI is forecasted to have a $4.71 EPS in 2017 and $5.21 EPS in 2018. These shorts are blindly shorting a stock that has moved a lot, paying no attention to the fundamentals behind the move. Oh well, it's their funeral.



Instead of a $25 target, it's possible that the team at BWS made a mistake and meant a $250 target, given the latest run on NVDA. NVDA's financial ratios according to Yahoo Finance can be seen here. AAOI's can be seen here. While AAOI has been on a huge run, what investors must understand is that it is STILL undervalued. Look at this chart comparing NVDA to AAOI:











Using traditional valuation metrics, AAOI is two to five times undervalued relative to NVDA. AAOI's trailing P/E is 22 which is reasonable for a "normal" growth stock. However, this opportunity with the datacenters has been proven to be anything but normal. NVDA is trading at a trailing P/E of 53 and it has a market cap of $95 billion compared to AAOI's which is just over $1 billion. The smaller company is usually valued at a more aggressive multiple to reflect the fact that its growth rate should be higher.

The forward P/E takes into account expected near-term growth and we see the difference is even more extreme. NVDA's forward P/E is 46 while AAOI's is a bargain basement 12, meaning that AAOI is nearly four times as undervalued. Judging by forward P/E, AAOI's stock price should be $237 to be comparable to NVDA. The PEG ratio takes into account expect 5-year growth. This shows the most extreme difference between the two companies with AAOI being over five times undervalued versus NVDA with a fair stock price being $330. The revenue multiple and price to book value also shows that AAOI is over three times undervalued compared to NVDA.

If we average these five figures, AAOI would deserve a stock price of $228.96 just to come in line with NVDA's valuation. AAOI is a highly undervalued stock and it has a lot more room to move. Never mind $100 which was our original target and the target of analysts, AAOI deserves to be $250 when compared to the other hot stock in the datacenter industry.

Disclosure: We are long AAOI

If you are interested in penny stock picks, check out Microcap Millionaires.

If you're interested in trading options, both, calls and puts on some large cap stocks, check out binaryoptionsprosignals.com.

Learn to trade stocks, options, commodities and forex with Trader Review.

If you are interested in dividend stocks and return analysis, Then dividendstocksonline.com or Dividend Stocks Rock are for you.

If you're interested in gold, this WSW special report or the Goldmasterinvesting.com Ocean Of Gold Report are for you.