Wednesday, 2 May 2018

Buying Undervalued Weed And Pharma Stocks

With April being behind us, we believe that the selling pressure on weed stocks has subsided and it is now good to go long. Canopy Growth Corporation (TWMJF) (WEED.TO) is challenging $30 in Canada again and while we said that we would revisit a long position after covering our short in the mid-$20's in April, we think that there is cheaper weed and pharma plays out there at this moment. We think that VANC Pharmaceuticals Inc. (NUVPF) (VANC.CN) presents a tremendous buying opportunity thanks to a distribution deal signed with Emerald Health Therapeutics, Inc. (EMHTF) (EMH.CN). Our picks from last week, Celldex Therapeutics, Inc. (CLDX) and Prothena Corporation plc (PRTA) have done well since calling them and we think are on the verge of breaking out in VTVT-like fashion. We are up to 595 followers despite not giving out a lot of alerts, a fact that we think is indicative of a 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 handle @StockTradePicks. We are closing in on 3,000 followers on Twitter as well.

More on VANC later, but first we would like to talk about our two biotech calls in "The Next VTVT-Like Runners And Buyout Candidates". There have been a lot of failed biotech stocks recently, dropping 50% or more in a day on bad news. On April 10, vTv Therapeutics Inc. (VTVT) dropped nearly 80% after announcing Phase 3 study results that didn't meet endpoints. Not only that, but VTVT has negative equity on the balance sheet, so it looked very bleak for the company. That's when it shot up from $0.83 on April 16 to as high as $2.67 on April 18. So anything can happen in this market. We believe that the market is ripe for recovery on beat up biotech stocks and that CLDX and PRTA make great long candidates. CLDX closed the day up over 2% today to $0.79 and has held steady from our buy-in point. PRTA closed at $13.18, up over 8% today. We think it is on the verge of a massive breakout:

The changing fundamentals notwithstanding after PRTA pulled its Phase III study, there is a massive gap between the high on April 23 of $13.70 and the $30's. There is no resistance until $32. Watch carefully for $13.70 to be broken, because if it does, PRTA could move violently upward just like VTVT did when it broke through the high of the day that it gapped down after bad news. It came close to filling the gap:

With PRTA being a much larger market cap company, we don't expect it to fill the gap. But we think that a move up to $20 is possible. CLDX has similar potential if it can break $1.05, though it is not as far along as PRTA is; it still has to break through the $0.80's first:

CLDX has cash per share of $0.99 and book value per share of $1.71 so it has the fundamentals to support a move to at least $1.00. This data is from Yahoo Finance based on year-end 2017 results so there is likely some cash burn in Q1, lowering these numbers a bit, but still well above the current stock price:

PRTA's balance sheet data from Yahoo Finance shows total cash per share and book value per share at $10.84 and $10.58 respectively, lower than the stock price, but this data as of December 2017 doesn't tell us the full story and what really makes PRTA a strong buyout candidate.

Celgene (CELG) invested heavily into PRTA on March 20 with a $100 million upfront payment and $50 million share subscription at $42.57 per PRTA share. Assuming some cash burn, that would add another $2-3 cash per share compared to the December numbers seen above. Reading the SEC filing on the exact nature of the deal, PRTA has a chance to earn up to $700 million each on three different neurodegenerative disease targets for up to a $2.1 billion payout from Celgene. That would give Celgene a lot of incentive to consider buying out PRTA at this low price. After all, CELG did just pay $42.57 for shares a little over a month ago. With PRTA trading not that much above its cash value, why not make a larger offer now while it's this cheap? So watch for the buyout rumors to start swirling as PRTA gets onto more people's radars, because it makes a lot of sense right now. Although there is no guarantee that it will happen, sometimes it's just as good to get into a trade early before market sentiment pushes it up.

VANC is different from these companies as it is a nanocap trading in Canada. It has only 31 million shares outstanding and a $7.5 million market cap so it can really move but unlike these other two companies doesn't have a lot of cash so it's not the balance sheet that makes it such a compelling play. It is the distribution deal with EMH:

"New joint venture, Emerald Health Naturals, secures exclusive Canadian rights to sell proprietary non-cannabis health products that support the human endocannabinoid system

Initiative leverages natural health product development, marketing and sales expertise of Emerald Health Bioceuticals, VANC Pharmaceuticals and GAB Innovations to establish brand and sales in strategic distribution channels

VICTORIA, British Columbia, April 17, 2018 (GLOBE NEWSWIRE) -- Emerald Health Therapeutics Inc. (EHT) (TSX-V:EMH) (OTCQX:EMHTF) (Frankfurt:TBD) launched today a multi-pronged program to market and sell a proprietary, award-winning non-cannabis line of endocannabinoid-supporting nutritional products in Canadian grocery, natural health product, and pharmacy stores. EHT has entered into a 51:49 joint venture, to be called Emerald Health Naturals (EHN), with San Diego-based Emerald Health Bioceuticals, Inc. (EHB). EHN has secured exclusive Canadian marketing and sales rights to EHB’s unique nutritional supplements, which use non-cannabis, non-psychoactive plant-based ingredients to provide potentially beneficial support to the body’s endocannabinoid system.

In this initiative, EHN has agreed to acquire the assets of GAB Innovations (GAB) and has granted non-exclusive sub-distribution rights to VANC Pharmaceuticals (VANC). Both GAB and VANC have established networks and a history of sales success in the natural health product and pharmacy channels. Gaetano Morello, ND, the founder of GAB, has been appointed CEO of EHN.


Granted VANC Pharmaceuticals Inc. (TSX-V:VANC) (OTCQB:NUVPF) a non-exclusive right to distribute EHN’s endocannabinoid-supporting products to Canadian pharmacies. VANC has a well-established sales team and key relationships with Canada’s largest pharmaceutical wholesalers as well as pharmacy and grocery chains. VANC will concurrently issue to EHN 3,030,303 warrants to purchase shares of VANC."

EMH is a licensed producer valued in excess of $500 million market cap. One thing to note about this collaboration is that EMH featured VANC prominently in its news release about the distribution deal. When news like this comes out, usually it's the smaller company that makes a bigger deal of it. EMH must think highly of this deal with VANC. When we compare the $7.5 CAD million market cap of VANC to the $550 CAD million market cap of EMH, it's easy to assume that the whale may want to swallow up the mouse or at least put a significant strategic investment into it.

Upon announcement of this deal VANC immediately spiked to $0.40 but in the two weeks since has drifted back down to the mid-$0.20's. Trading has picked up with VANC increasing 34% on 2.5 million volume on April 30, and it closing at $0.265 today, recovering what it lost on Tuesday's pullback. We think this is an ideal level to buy VANC as Canada marches towards legalization in a couple of months and the cannabis industry, including EMH, remain robust.

This news on VANC isn't quite as good as past weed-related stocks we have recommended like Snipp (see report), Pascal Biosciences (see report) or Isodiol (see report) but VANC's market cap and share float are also a lot smaller than any of those companies, so an investor has to keep that in mind. Snipp in particular has been frustrating as a wave of good news has occurred on it but the stock price has dropped to 11 cents, indicative of too much cheap paper out there. VANC won't have the same problem. VANC's stock price would need to triple to come to a similar market cap as SPN or PAS so there is plenty of room for upside. And there is massive upside if further news surrounding the deal between VANC and EMH show that VANC deserves to be trading at a market cap in excess of $25 million.

Disclosure: We are long stocks listed in this report.

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The Cryptocurrency Codex from the Cryptocurrency Institute 

Secrets To Unlimited Free Bitcoin 

The Crypto-Currency Evolution eBook

Bitcoin Complete Guide for Dummies

The Bitcoin Miracle Guide

The Bitcoin Cheat Code Book

The Crpytocurrency Course

Bitcoin Investing Live

If you're interested in making money investing or trading the stock market, here are some good resources to assist you. This includes technical analysis, investing in the weed sector, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies.

Microcap Millionaires Free Video: Cheap Gold Miner Set to Soar in Fall 2017

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