Wednesday, 10 May 2017

Fund Buying And Short Interest Will Lead To A Massive Squeeze on AAOI

Over the weekend we recommended a buy on Applied Optoelectronics (AAOI), giving eight reasons to invest in the stock. AAOI has gained $9 in three days since our buy recommendation and sits at around $65 now. Is it too late for investors to join the party? We think not. The stock might go parabolic to $80 to $100 soon on a very heavy short squeeze.

Review reason #6 on our list of reasons to buy - short interest. Recent updates show that the short interest is even higher now:


Short interest at the end of April was 6.38 million, up 1.71 million from 4.67 million two weeks prior. Yahoo Finance has updated the float to be 16.83 million, so short interest is up to 38% of the float. Here is the kicker, a 13G was filed on May 9th that shows as of April 30th, Blackrock owns 2,146,439 AAOI shares. Prior to this filing, Blackrock owned 1,042,286 shares and was the second largest institutional holder of AAOI shares.


Assuming no other institutions bought shares, Blackrock now becomes the biggest institutional holder of AAOI. Between January 1 and April 30th Blackrock purchased over 1.1 million shares. The funny thing is that Blackrock didn't even purchase shares from other shareholders who sold. That volume came out of the increased short interest during that time. Shorts have been so foolish that they have been shorting into Blackrock's purchase. And it doesn't look like Blackrock bought those shares to day trade them.

AAOI ended Wednesday a few pennies off its day high, and made a new 52-week high of $65. Literally every single short out there is losing money on this trade. Some of them quite badly. With Blackrock's purchase, institutional holdings are now over 70%. Shorts are in massive, massive trouble here. Because depending on how tightly held those institutional shares are - and with analyst upgrades to the $100 region they might be holding until then - there aren't enough shares in retail hands in order for them to cover until it reaches $100 and institutions decide to sell.


We think a massive short squeeze is coming on AAOI, even more than what we have seen so far this week. We thought the stock could hit $80 during the summer. At this pace it might hit that number or higher by the end of next week. 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 added another 15 followers to 200 since our alert on AAOI, and those people are probably pretty happy that they got in when they did.

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.

Saturday, 6 May 2017

AAOI: Eight Reasons To Expect This Tech Unicorn To Double By The End Of 2017

Our last pick, Ocwen Financial Corporation (OCN) met our expectations. On April 26 we recommended a buy on OCN, expecting it to hit over $3 from the low $2's which it did a few days later. On May 3 we sold our position after a negative reaction the the company's conference call and it has settled back down to around $2.50. 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 185 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. If you wish to share this post, use the suffix blogspot.mx as blogspot.com doesn't pass some sites' spam filters.

After another successful play in the small cap world with OCN, we have decided to move on to a tech unicorn which has just recently passed a billion dollars in market cap after an excellent Q1 report -  Applied Optoelectronics (AAOI). The term unicorn is usually applied to software and app startups that have turned into billion dollar companies, but we think that it should also apply to this young hardware company uniquely positioned in an explosive industry. AAOI is an optical communication equipment manufacturer that sells specifically to four end markets - internet data centers, telecom, cable TV and fiber-to-home (FTTH). However, by far the biggest driver of its growth and bullish sentiment is its data center business. Its primary customers are Amazon (Web Services), Microsoft and Facebook.

It is always better to be late to a good party than to have missed it entirely. AAOI has moved from $8 to $56 over the past 52 weeks but we think this rise will continue. We believe that $60 is possible as early as next week, $80 by mid-summer and $100 or more by the end of the year, providing a near double for the people who have showed up late to this party in early May 2017. Here are eight reasons why:

1. Record Q1 financial performance beats analyst expectations

A link to AAOI's financial results is here. AAOI's analyst expectations according to Yahoo Finance is here, with the chart provided below as we expect this data to be updated shortly. Highlights:

  • total revenue increased to $96.2 million, up 91% compared with $50.4 million in the first quarter 2016 and up 13% compared with $84.9 million in the fourth quarter of 2016.
  • This beats consensus of $95 million and comes in line with the highest analyst estimate of $96.2 million.
  • GAAP net-income was $1.00 per share and non-GAAP net income was $1.10 per share. 8 cents of this 10 cent difference is attributed to share compensation expense. As the stock price has risen greatly over the last year, any employee stock and options are worth a lot more as a result, requiring this expense.
  • Analyst consensus was $0.98 in EPS. Even considering the GAAP EPS, this is a beat by 2%. When considering the non-GAAP result, which is what most analyst expectations are compared against, this beats by 12% and beats the highest estimate of $1.02 by 8%. 



This growth was largely driven by the data center business where revenue grew from $39 million to $79.6 million for Q1, a growth rate of 104%. Gross profit nearly tripled from $14.3 million to $41.5 million as demand transitions towards higher-margin 100G products.


2. Q2 guidance

Updated Q2 guidance can be seen at this link to the Q1 conference call:

"Moving now to our Q2 outlook, we expect Q2 revenue to be between $106 million and $112 million, representing 92% to 103% year-over-year growth. We expect Q2 non-GAAP gross margin to be in the range of 41% to 42.5%. Non-GAAP net income is expected to be in the range of $22.2 million to $24.3 million, and non-GAAP EPS between $1.09 per share and $1.19 using a weighted average fully diluted share count of approximately 20.4 million shares. We expect our income tax rate for the quarter to be approximately 20.5%."

The mid-point of $109 million in an expected range of $106 to $112 million in revenue beats previous analyst consensus of Q2 revenue of $98 million by 11%. The mid-point EPS of $1.14 in the expected range of $1.09 to $1.19 beats previous analyst consensus of $0.96 by 19%.

This beat is so large, particularly on the bottom line number that analyst expectations of a $3.90 EPS for 2017 no longer makes any sense. Analyst consensus was $1.94 for the first half of 2017. Non-GAAP EPS is on pace to be $2.24 for the first half of the year. Extrapolating this 15% improvement over full-year 2017 and that would lead to a consensus 2017 EPS of $4.50. At $56, AAOI is trading at only a 12.4 P/E multiple. A $100 stock price leads to a reasonable 22.2 P/E multiple. This is why we think the stock can make it to $100 by the end of the year.


3. Excellent balance sheet management

AAOI is in a very cyclical and competitive industry. Balance sheet management is paramount in the good times as well as the bad times, because things can turn on a time. AAOI has done an excellent job in this aspect. Here is a snapshot of the balance sheet:


Key points to highlight:

  • Cash has risen from $52 million to $60.6 million over the three month period from December 2016 to March 2017.
  • AAOI's long-term debt has been paid down from $42.8 million to $28.6 million during the quarter and is now less than half of cash.
  • Accounts receivable are up 34% from Q4 2016 and up 72% from $38.8 million at the end of 2015. This increase is still at a much slower pace than revenue growth. Days Sales Outstanding are decreasing. This is a positive sign as it shows that AAOI's customers are quick to pay their bills and that AAOI's revenue recognition policy is sufficiently conservative. 
  • Inventory is up $57.5 million from $51.8 million from the end of 2016, but is down from $66.2 million at the end of 2015. This is a mixed result. Inventory is turning over very quickly which is generally a good sign. But the decline from 2015 to 2016 when revenue nearly doubled may be indicative of the company struggling to meet high demand. The good news it that inventory increased slightly in Q1 and AAOI made $7.2 million in capital investments during Q1 for production equipment and building improvements. 


4. Analyst upgrades

Analysts had a very positive reception after the call. Review analyst upgrades at this link. Raymond James increased its target on AAOI from $74 to $100. Cowen raised its target from $75 to $94. So we aren't the only ones who think AAOI can hit $100 in short order. We think that as more analyst upgrades come early next week, the stock will be pushed over $60 and into a new 52-week high. After that, the sky is the limit.


5. Optical supercycle: buzzwords that create volatility

If you do a search on the words "optical supercycle" you will get a lot of divergent opinions. These buzzwords seem to have been invented by sell-side analysts as AAOI and other companies in the industry had an extremely hot 2016. But some naysayers have doubted the virility of this "supercycle" as larger players in the optical industry haven't seen such intense growth and stock price performances have greatly diverged by the various mid-cap players. A great example is Acacia Communications (ACIA) which started out extremely hot after its IPO in the spring of 2016. The stock price jumped to over $100 by the summer but has since pulled back by more than 50% to the high $40's.

The naysayers in the industry and the lack of recognition that AAOI may be doing something special that is driving customer loyalty for its data center equipment has led to a lot of people blindly shorting this high-flying stock, leading into the next point.


6. Short squeeze potential on a thin float stock

AAOI has a fully diluted share count of 20.4 million. AAOI's short interest can be accessed at this link, as well as this snapshot:


AAOI's short interest has been increasing over the past several weeks, and is likely a contributing factor when the stock price pulled back substantially after the first time it hit $60 in late March. It's a good idea for investors to keep an eye on this short data for when it is made available as of April 30th, but if it has remained steady at 4.7 million shares, that means short interest is 23% of the fully diluted share count. Yahoo Finance does not have float details. However it shows insider holdings of 7% and institutional holdings of 67%, and AAOI hasn't given institutions any reason to rush out of the door. So the short interest outstanding as a percentage of the float will be substantially higher than 23%.



7. Data center builds are ongoing

Lending further support that the optical supercycle is more than just an empty phrase meant to pump up the industry, the big internet companies continue to build data centers. Last month there was a report that Amazon Web Services is building data center facilities in Sweden. This would be AWS' fifth data center in Europe. But the most important point may be the second last paragraph in the article:

"Another reason for this data center proliferation across many countries is that many nations have data sovereignty laws requiring citizen data to be kept in the country of origin. The old days when AWS Dublin data center could serve all of Europe are over."

Data sovereignty will remain an issue going forward in Europe and other places across the globe. This would necessitate the building of data centers in the country of origin if one does not yet exist for those countries that have such laws. Here is a link to an excellent article introducing the issue from a customer perspective.

Facebook is building a massive data center in Nebraska that plans to be up and running by 2020. This center would be the company's sixth in the United States but only ninth worldwide. With Facebook being a global company and actively trying to improve its global ARPU ex-North America, its only choice will be to build data centers outside of the United States in order to reduce latency to its global user base and comply with aforementioned data sovereignty laws where applicable. The company has determined that six centers are needed to cover North America and surrounding regions which may cover up to 10% of the world's population, if that. So how many data centers is Facebook planning to have to span the rest of the globe? Certainly more than three. Germany, France and Russia each require their own centers to comply with their to data sovereignty laws.

The data center builds are ongoing with no end in sight. We believe that the optical supercycle will remain robust for years and when the investment community finally wakes up to this fact, AAOI and other optical component manufacturers will be at much higher valuations. At least until the supply can catch up to the demand. Looking at AAOI's income statement, as well as auxiliary line items such as inventory, it looks like we will have a while to go before that balance is achieved.

8. AAOI makes a good buyout target

Anyone can say this of the company that they own. But we believe that this industry is ripe for consolidation with how many players there are out there that provide various inputs into the data centers and other areas where optical equipment is required. Consolidation into larger players should improve manufacturing capacity to get to the supply-demand balance quicker and purchasers will be looking to eat up as much market share as possible of this growing pie. Given the robust state of the optical communications equipment industry, AAOI's unique position in the industry and its reasonable valuation, we think AAOI will be in the middle of this M&A frenzy if it so chooses to be purchased. Investors can make their own decisions but we think we have presented a good enough investment case with the previous seven reasons whether one wants to believe in a buyout scenario or thinks it's just a fantasy.

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.

Monday, 1 May 2017

OCN: Looks Like The Pump And Trump Short Squeeze Will Continue

EDIT: May 3, 9AM PST: We have now sold our position in OCN. The stock is not reacting well after this morning's conference call.

On April 26 we recommended a buy on Ocwen Financial Corporation (OCN) when it closed at $2.29 the previous day. We thought it would go at least to $3.00. It has done so today with an agreement with New Residential Corporation (NRZ) sending the stock up about over 33% to over $3.10. We have taken some profits but remain heavily invested in this trade as we think the Pump and Trump short squeeze is just at its beginning.

There is a must read article from John Devaney called "Ocwen Financial: Calling Republican Lawmakers What Is Going On With The CFPB". This short squeeze could be very strong if this author gets his way and the Republicans listen. Recall from our previous blog the share float and short statistics on OCN according to Yahoo Finance:



If you like our picks make sure to follow our blog by clicking the follow button on the top of the left hand panel.

Disclosure: We are long OCN

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, 26 April 2017

OCN: A Pump And Trump Short Squeeze Play

Before we get into our latest pick, here is a quick review of our last one. On April 17th, we called a buy on North Atlantic Drilling Limited (NADL) when it was trading around $2. A recently signed $1.4 billion contract along with U.S. President Donald Trump's goal to increase offshore drilling has us thinking that the likelihood of NADL being bought out before it faces liquidity issues has increased. The market agreed and on April 20th the stock ran to over $3. Hopefully everyone who follows our blog took our advice in the last paragraph of the article:

"If you buy in and the stock runs a lot and you have profits, don't forget to take some off the table."

Because NADL has dropped back down to $2.19 on Tuesday after many traders have left the building. It's still up 10% from our call, but that has decreased from it being up over 50% just a few days prior. It still remains a compelling long for high risk investors and a buyout could come at many multiples of the current stock price. But when trading these stocks, always make sure that you take some profits off the table. We find a winning strategy is to take enough money off the table to recover your original investment and let the rest ride.

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 have 173 followers, which has increased from 138 four weeks ago from our report on APOP. While that one hasn't worked out yet, we have had many more winners than losers and you can easily verify this by checking our post history. We believe that our good growth in followers despite the few articles we publish is indicative of people liking our picks and research.

So onto our next Pump and Trump play. Ocwen Financial Corporation (OCN) got sandblasted for a 60% loss on the same day NADL scored for us and our followers. On April 20th, OCN fell from an intraday high of $5.51 to a low of $2.12 and closed at $2.49 after it was announced that the Consumer Financial Protection Bureau (CFPB) sued OCN. It revisited $2.12 on Monday and has since bounced back to close at $2.29 on Tuesday. We think this is a strong buy at least to the $3's based on the following:

  • A technical double bounce off the $2.12 low
  • People knowledgeable of the industry calling this lawsuit unfair
  • A move by Trump and the Republicans to gut the CFPB
  • A high short interest along with high institutional and insider holdings that could cause a short squeeze

We are not going to pretend that we know the gritty details of the sub-prime mortgage industry. However, we are able to read expert opinions on the subject and it sounds like this author on Seeking Alpha is spot on with his article "Ocwen: My Take On Recent Events". We suggest that readers read this if they want some background.

Next, the announcement of a Bill to gut the CFPB is heading to the House Committee. The CFPB was created by Barrack Obama six years ago. Its dismantling would fall very much in line with the current Trump administration's goal of reducing government regulations and red tape, and in line with the general Republican goal of destroying Obama's Presidential legacy. A particularly telling excerpt from the article:

“For conducting unlawful activities, abusing his authority, denying market participants due process, Richard Cordray should be dismissed by our president,” U.S. Rep. Jeb Hensarling, (R–Texas) snarled at the director of the bureau, who was summoned to Capitol Hill earlier this month to justify his existence.

“Not only must Mr. Cordray go, but this CFPB must go as well.”

It sounds to us that OCN has a huge political ally in the Republican-held Congress simply by having a common enemy. At any time OCN could move back up on the political whims of Washington or even the speculation of the political whims of Washington that the CFPB will be dismantled. That leads us to the last point.

OCN looks like a great candidate for a short squeeze. Look at the stats from Yahoo Finance


There are 14.5 million shares short on a float of 89.3 million. What's more, the shares are mostly held by insiders and institutions. According to the NASDAQ site, institutions hold 65.4 million shares. If institutions are holding, especially in light of the favorable regulatory events that may happen soon, OCN is primed for a short squeeze.

Disclosure: We are long OCN

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.


Monday, 17 April 2017

NADL: An 11th Hour Buyout Target?

Some life was breathed into North Atlantic Drilling Limited (NADL) last week when the company announced 10-year contract awards totaling $1.4 billion with ConocoPhillips (COP). The market reacted very positively with the stock price rising 270% from $0.74 to $2.70 on April 11 the day of the announcement, and hitting as high as $3.89 the next day. The stock has pulled back to $2.10 on Thursday and it may be an opportune time for an entry point around $2 pre-market Monday for those who like a volatile, news-based stock with a small float and a lot of upside potential in an industry that looks to be in recovery. According to Yahoo Finance the float is only 7 million shares (24 million total outstanding) with 1 million short so it's still a prime short squeeze target.

NADL is not without its risks. It wouldn't be trading this cheap if it didn't. It is a subsidiary owned by Seadrill Limited (SDRL) which is coming under fire for a need to restructure its massive $10 billion debt amid the struggling the offshore oil rig business. SDRL had warned the investing public earlier this month that a restructuring may be needed that will result in little value left to shareholders, while also announcing the positive news that the window for negotiation has been extended its creditors. As a subsidiary of SDRL, NADL may be dragged into this. NADL has $2 billion of a credit facility that was due June 30, 2017 but has since been extended to September 14, 2017 as part of the larger extension granted to SDRL. You just need to check a multi-year chart on either NADL or SDRL to know what the market thinks of the situation for these stocks. But with great risks comes great potential rewards. The $50 million market cap for NADL looks like a bargain to us given the new contract with COP. Perhaps it will also look like a bargain to those companies looking to expand their offshore oil drilling businesses by acquiring NADL at a discount.

Offshore oil drilling has been impacted greatly in the last few years thanks to the drop in oil prices and political pressure to reduce this activity. While oil prices have rebounded slightly into the $50's for 2017, U.S. President Donald Trump is preparing executive orders to increase offshore oil drilling, including moves to open the Atlantic coast to offshore drilling for the first time in more than 30 years. It's expected moves like these that may have helped to persuade COP to make such a large 10 year commitment with NADL in the first place. Prior to the contract announcement, NADL reported that its backlog was $300 million. This $1.4 billion contract will result in more than a 5-fold increase to that number. As part of the deal, $58 million of existing backlog is extinguished, so adding $1.4 billion to $242 million results in backlog of $1.64 billion.

A lot of this revenue is expected to be in the outer years so it may have little impact on near-term financials. However, NADL is trading at a deep discount even after the most recent rise in price thanks to the contract announcement. The EV/EBITDA multiple is only 7.5 which is quite low given the newly announced backlog. NADL's EBITDA is $310 million according to Yahoo Finance. Enterprise value (EV) includes a company's debt. NADL's enterprise value is $2.33 billion versus a market cap of only around $50 million. Needless to say, this company's stock is going to be highly volatile especially if a buyout does come at the 11th hour.

NADL actually has pretty good operating cash flow, reported to be $129 million in 2016 despite being in an industry under pressure. NADL showed a net loss only because of very heavy depreciation amounts for its rigs.

There is a rumor that Transocean (RIG) plans to purchase West Rigela project worth $568 million which is 23% owned by NADL. If such rumors are true and if there is a continued increase in offshore drilling activity, NADL as a whole may become a buyout target at the 11th hour. It would make sense for SDRL to try to sell its stake in NADL as part of a greater effort to stay afloat in its own right.

If NADL was to be sold for an EV/EBITDA multiple of 9, that would lead to a $2.7 billion dollar valuation. Subtracting the $2.3 billion in net debt that would leave $400 million left for shareholders, around $16.50 per share. This is just an illustration of the extreme upside potential for NADL if the offshore drilling industry improves over the next several months. The actual valuation could be higher or lower. What about SDRL itself? Well we think NADL has much more upside. $2 billion in debt is a lot easier to work around than over $10 billion in debt. So we believe NADL makes the better trade based on its move last week and the direct impact that the deal with COP will have on NADL's financials. If you buy in and the stock runs a lot and you have profits, don't forget to take some off the table. Do your own research and judge for yourself if NADL is appropriate for your risk tolerance. But we think the $2's are a good entry point for us.

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 have 171 followers, which has increased from 138 less than three weeks ago from our last report. We believe that our good growth in followers despite the few articles we publish is indicative of people liking our picks and research.


Disclosure: We are long NADL

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 Profitably 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.

Thursday, 30 March 2017

Cellect Biotech: Price target $20 on APOP, $12.50 on APOPW

APOP Price Target: $20
APOPW Price Target: $12.50

On March 16th, we called a buy on Cellect Biotechnology Ltd. (APOP) and recommended that people sell their position on Catalyst Biosciences (CBIO) after it finally achieved the heavy spike we had expected on February 13th in our article "The Next Reverse Split-Fueled Runner". Just prior to that call, we called KBS Fashion (KBSF), "KBSF: Undervalued Microcap Set For Post-RS Run Like DRYS, ETRM or IPDN" on February 9th and KBSF rose from a split-adjusted stock price of around $3 to as high as $18 in the following days. Note the timestamp of 8:35 AM U.S. Pacific Time or 11:35 New York time on the March 16th article. APOP was trading around the mid-$8's at that time and CBIO at $15 or $16. For a while on Wednesday morning the calls went against us, but by the end of the day APOP finished strong at $8.74 and CBIO sunk to $10.51.

We had seen what had happened to stocks like DryShips Inc. (DRYS), EnteroMedics Inc. (ETRM), Interpace Diagnostics Group, Inc. (IDXG), Real Goods Solar, Inc. (RGSE), Globus Maritime Limited (GLBS) and SAExploration Holdings, Inc. (SAEX) after their reverse splits in late 2016. So that's why we recommended KBSF and CBIO. Unlike KBSF, CBIO doesn't have the financial performance to support a strong stock price. We think that now that it has had its big move, a financing will come. We don't mean to trash the stock, but looking at DRYS, RGSE, ETRM, IDXG and many others, traders can see that all of those stocks fell mightily after their big spikes. KBSF has also pulled back significantly, but it's different in that it has over $14 per share in cash. It can fundamentally support a stronger stock price. Read our other articles on KBSF if you want to learn more.

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 138 followers. At the time of the KBSF article on February 9th we had 83 followers. We have only released 6 blog posts on 3 different stocks (KBSF, CBIO and APOP) since that time. So our strong growth in followers despite not many posts should be indicative of the quality that people feel they are getting from reading our research. If you follow, you should get an alert on Google+ when we have a new report up (when you use Chrome). So keep your eyes peeled. We don't post a lot because we want to be 100% sure about our picks. There is no doubt a lot of crap in the small cap world on the NASDAQ that we have to skip over.

To understand why we like APOP so much, read the excellent news that the company released on March 27 regarding its successful first cancer patient stem cell transplant for its Phase I/II clinical trial using its ApoGraft™ technology.

Someone might think, well what's the big deal? Biotech companies start recruiting people for Phase I/II studies all the time. Understand that this is a stem cell transplant. Biotechs testing out drugs have to pass certain safety standards before they can start giving their drugs to people. But as far as the actual administration, it's as simple as swallowing a pill. The proof of efficacy doesn't come until the end of the study. APOP on the other hand is performing the following with ApoGraft:

"All of our research efforts to date have culminated in clinical trials that we plan to commence in the third quarter of 2016 related to a process we call ApoGraft. The ApoGraft process begins with the donor’s white blood cells being collected into a standard infusion bag using specialized equipment in a process called cell apheresis. The collected cells (the untreated sample - ‘standard of care’) undergo quality control tests, and upon confirmation of their quality, are then washed in an incubation medium and centrifuged. The white blood cells are counted and resuspended in the incubation medium in the appropriate concentration. These cells are introduced with FaSL and incubated. Following incubation, the cells are again centrifuged and washed and subsequently resuspended in Plasma-Lyte added with 5% Human Serum Albumin (HSA) or equivalent. A few cell samples are then taken for a second quality control test that includes sub-population characterization in the same manner as described above. The graft that contains stem and progenitor cells and graft-supporting T-cells is transfused to the patient within approximately 4 hours via filter."

The fact that the patient isn't already very sick from this transplant is an encouraging sign. Now it's just a matter of waiting to see if the patient remains in good health. From clinicaltrials.gov, we can see Cellect Biotechnology's study parameters under the trial record NCT02828878:
























We see that the primary endpoint measure is the number of adverse effects on a patient in the first 100 days. Now the study is meant to be complete by September 2018, but data is expected before then and we know that the clock has already begun ticking on the first patient. So the stock could move well before then if stories of a "miracle process" get out.

Shorts are resorting to desperate lies - Could a short squeeze be coming?

There's nothing more telling about how desperate shorts are when they inundate social media sites with falsehoods. This short has nearly 30,000 followers on StockTwits and has led those followers down a wrong path based on this lie:












The claim that APOP hasn't made a dime in 15 years is completely inaccurate. Last year's F-1 statement confirms that Cellect Biotherapeutics was incorporated in Israel in 2011. Dr. Shai Yarkoni co-founded the company in 2011 and became its CEO in 2013 according to Bloomberg. So how can the company have not made a dime in the past 15 years when it has only been around for six? The CEO made mention of the drug being in development for 15 years, but anyone with any experience trading biotech companies knows that there is no expectation of revenue during the development stage, especially for stem cell research. The stock listing on Tel Aviv existed prior to Cellect but if the company got listed through an RTO whatever the previous company did that owned the stock symbol has no relevance to today.

Look at the balance sheet with the first two columns in Israeli Shekels and the final column translated to U.S. Dollars:

























APOP is well cashed up with about $8 million U.S. in working capital. Take a look at the accumulated deficit. It's only $9.3 million even as the company has managed to get so far as being able to do stem cell transplants. This is very cheap by anyone's standard. The fact that someone is trying to point out that it hasn't made a dime in 15 years is intellectually dishonest. Shorts or potential shorts have been misled and now may have to cover on a very small float stock.

According to Yahoo, APOP's float is only 3.14 million shares. The short interest as of March 15 is only 42.7K shares but that came before the big spike on Monday which has no doubt collected more shorts. In a few days we will know the short interest for the end of the month. We can expect a squeeze at any time especially since we know that there is little near-term threat for financing.

Target: $20 on APOP, $12.50 on APOPW

There are 107 million shares outstanding on the Tel Aviv exchange. The ratio of shares to ADS on the NASDAQ is 20, meaning that there is about 5.4 million ADS outstanding on APOP on the NASDAQ listing. We can round that up to an equivalent of 6 million to account for existing and recently granted options.

As part of the financing and listing completed last July, 969,231 warrants with an exercise price of $7.50 and a term of 5 years started trading under the symbol APOPW. With an expiry date in 2021 these warrants are a great opportunity to buy into the company with leveraged upside. At $8.74, the stock price offers 129% upside to $20. At a closing price of $2.30, APOPW offers 443% upside because the warrants would be worth an intrinsic value of $12.50 - $20 on APOP less the $7.50 strike price of the warrants.

The warrants are under no threat of being exercised because they are publicly traded with so much time left to expiry. It makes more sense for warrant owners to sell them than to exercise them and will remain so until 2021 when there is little to no time value left. Including the warrants there are about 7 million fully diluted ADS shares outstanding. A $20 target leads to about a $140 million fully diluted market cap which we find a fair comparison versus other early stage biotechs in the $100-$200 million market cap range.

While our target is $20, we are not seers nor the gospel. The stock price could top out at $12, $20 or $50 for all we know. We recommend that if traders find themselves to be substantially in the money that they ease out of a trade with profits. For instance, if you bought 10,000 shares at $9, you can begin selling at random prices - say, 1,000 shares at $12.32, another 1,000 at $13.68, another 1,000 at $15.07 etc. Choose random numbers instead of $12, $13, $14 etc to avoid building sell walls at certain prices. KBSF ran from $3 to $18 with our target being $30. Imagine how foolish it would have been to have not sold a single share and watch is pull back to as low as $5. New traders tend to want to do an all-or-nothing scenario where they buy all their shares and sell all their shares in one shot. You will never win trading like that. You will do much better easing in and easing out of trades.

Disclosure: We are long Cellect Biotechnology

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Tuesday, 28 March 2017

CBIO scored huge, APOP is next

On February 13th we called Catalyst Biosciences (CBIO) "The Next Reverse Split-Fueled Runner" just like KBS Fashion (KBSF), DryShips Inc. (DRYS), EnteroMedics Inc. (ETRM), Signal Genetics, Inc. (SGNL), Interpace Diagnostics Group, Inc. (IDXG), Real Goods Solar, Inc. (RGSE), Globus Maritime Limited (GLBS) and SAExploration Holdings, Inc. (SAEX) have done. It took a little while and we were bagholding for a bit but today's move of over 200% shows that we were right. We recommend taking profits on CBIO and have moved onto our next play. If you like our picks make sure to follow our blog by clicking the follow button on the top of the left hand panel.

It's an ideal time to get into Cellect Biotechnology Ltd. (APOP). It has pulled back to the mid $8's today after running heavily yesterday on excellent news, its first successful cancer patient stem cell transplant:

"TEL AVIV, Israel, March 27, 2017 (GLOBE NEWSWIRE) -- Cellect Biotechnology Ltd. (APOP) (APOP), a developer of stem cell selection technology, announced today that the first stem cell transplant procedure has been successfully performed using its ApoGraft™ technology in the Company’s Phase I/II clinical trial in a blood cancer patient.  

Up to 50 percent of stem cell transplant procedures, such as bone marrow transplants, result in life-threatening rejection disease, known as Graft-versus-Host-Disease (GvHD). Cellect’s ApoGraft™ technology is aiming to turn stem cell transplants into a simple, safe and cost effective process, reducing the associated severe side effects, such as rejection and many other risks.

Dr. Shai Yarkoni, Cellect’s CEO said, “After 15 years of research, this is the first time we have used our technology on a cancer patient suffering from life-threatening conditions. It is a first good step on a road that we hope will lead to stem cell based regenerative medicine becoming a safe commodity treatment at every hospital in the world.”

Based on the successful transplantation results, the independent Data and Safety Monitoring Board (DSMB) approved the enrollment of 2 additional patients for ApoGraft™ treatment to complete the first study cohort as planned."

This news is huge because usually these type of things take place in a test tube. APOP is actually in a Ph 1/2 setting and has had success and is trading at less than a $50 million market cap. The company has only 5.38 million ADS outstanding (1 ADS is worth 20 shares listed on the Tel Aviv exchange) and is well cashed up with no need to finance any time soon with $8 million in working capital and a low burn rate:




Not only does APOP have a good chance to run after today's pullback, traders can get a leverage opportunity because APOP has warrants trading publicly under the symbol APOPW. The warrants have an exercise price of $7.50 and expire in 2021. They trade around $2.50 right now, so they are pretty cheap considering there is more than four years left on their expiry.

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 Profitably 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.