We are happy to report that another one of our Canadian picks ended up winning big. In "Canadian Stock Due For A Big Bounce" we predicted that Valeura Energy Inc. (VLE.TO) (PNWRF) would bounce back strong after it tanked to less than $1.00. Last Friday that prediction came true as VLE moved up 37% to $1.29. We are up to 868 followers on our ValueTrades blog despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. You can also follow us on Twitter @StockTradePicks. We have nearly 4,000 followers on Twitter.
Our next pick is a little different in that it expires on December 17 so traders need to be prepared to move in and out quickly. We only recommend this because of the extremely high upside scenario compared to its price. Katanga Mining Limited (KATFF) (KAT.TO) has tanked from $0.35 to $0.125 on the TSX in less than a month on a rights offering. The rights offering will significantly improve its balance sheet but also result in billions of shares being issued. The security to trade would be the rights themselves, trading under the symbol KAT.RT until December 17. Each right entitles an eligible shareholder to purchase 31.0858657370516 common shares at a price of $0.1295 Canadian per share.
The extreme leveraged upside makes KAT.RT a bargain at its $0.01 close on Friday. Here is a chart that displays the KAT.RT's intrinsic value based on KAT's price:
At $0.13, KAT.RT is worth 1.55 cents. The rights are immediately exercisable so someone could short the stock at $0.13 and buy KAT.RT at 1.5 cents and make a tiny arbitrage profit. But KAT hit a high of $0.135 on Friday. If someone shorts the stock at that price, they could cover and make an arbitrage profit by paying all the way up to $0.17 for KAT.RT. This is why we think KAT.RT makes such a compelling buy. Should the stock price bounce to $0.15, the rights are intrinsically worth more than $0.63. Every penny higher than that would add on another $0.31 of value to the rights.
There is a risk that the stock could be under $0.125 and the rights expire worthless in three weeks. However, Glencore has already subscribed to the rights issue by pledging to exchange nearly $6 billion worth of debt. Glencore owns 86.3% of Katanga shares. If no one else subscribes to the rights offering, Glencore would own essentially all of the shares and be above the 90% ownership threshold that no longer requires minority interest approval in the event of a takeover bid. The 13.7% minority stake owns 261 million shares and rights of the 1.9 billion float for each right now. We believe that there are institutional holders who will not want Glencore to skirt minority shareholder rules and will do what they can to keep the stock price above $0.13 and ensure everyone exercises their rights. That would make a floor value of 1.55 cents for KAT.RT if this were the case.
Buying KAT.RT at a penny, or two pennies leads to a risk of loss of 1-2 cents in three weeks. But it leads to a potential upside of many. many pennies. Traders should position their size according to the amount of risk they can stomach over these next three weeks.
Disclosure: We are long KAT.RT
As we prepare for 2020 trading, we have to figure out what's next for Canadian Microcap stocks? TradeMiner identifies seasonal trends and market cycles and Microcap Millionaires finds the next big small cap plays in weed and other industries while Addicted to Profits makes trades from a Canadian perspective.
There are also some good books available such as:
Stock Investing for Beginners: Marijuana Stocks
Make Money Online With Cannabis Stocks: Learn This Basic Strategy and Build Wealth With Cannabis Stocks
Beginner's Guide to Investing in Canadian & US Pot Stocks
Marijuana Stock : Investing in Marijuana Stocks for Passive Income
How To Invest In Cannabis or Marijuana Stocks - Cannabis Investment Group
Here are some other good stock market resources. This includes technical analysis and day trading, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies:
The dividend stock report from dividendstocksonline.com
Our next pick is a little different in that it expires on December 17 so traders need to be prepared to move in and out quickly. We only recommend this because of the extremely high upside scenario compared to its price. Katanga Mining Limited (KATFF) (KAT.TO) has tanked from $0.35 to $0.125 on the TSX in less than a month on a rights offering. The rights offering will significantly improve its balance sheet but also result in billions of shares being issued. The security to trade would be the rights themselves, trading under the symbol KAT.RT until December 17. Each right entitles an eligible shareholder to purchase 31.0858657370516 common shares at a price of $0.1295 Canadian per share.
The extreme leveraged upside makes KAT.RT a bargain at its $0.01 close on Friday. Here is a chart that displays the KAT.RT's intrinsic value based on KAT's price:
At $0.13, KAT.RT is worth 1.55 cents. The rights are immediately exercisable so someone could short the stock at $0.13 and buy KAT.RT at 1.5 cents and make a tiny arbitrage profit. But KAT hit a high of $0.135 on Friday. If someone shorts the stock at that price, they could cover and make an arbitrage profit by paying all the way up to $0.17 for KAT.RT. This is why we think KAT.RT makes such a compelling buy. Should the stock price bounce to $0.15, the rights are intrinsically worth more than $0.63. Every penny higher than that would add on another $0.31 of value to the rights.
There is a risk that the stock could be under $0.125 and the rights expire worthless in three weeks. However, Glencore has already subscribed to the rights issue by pledging to exchange nearly $6 billion worth of debt. Glencore owns 86.3% of Katanga shares. If no one else subscribes to the rights offering, Glencore would own essentially all of the shares and be above the 90% ownership threshold that no longer requires minority interest approval in the event of a takeover bid. The 13.7% minority stake owns 261 million shares and rights of the 1.9 billion float for each right now. We believe that there are institutional holders who will not want Glencore to skirt minority shareholder rules and will do what they can to keep the stock price above $0.13 and ensure everyone exercises their rights. That would make a floor value of 1.55 cents for KAT.RT if this were the case.
Buying KAT.RT at a penny, or two pennies leads to a risk of loss of 1-2 cents in three weeks. But it leads to a potential upside of many. many pennies. Traders should position their size according to the amount of risk they can stomach over these next three weeks.
Disclosure: We are long KAT.RT
As we prepare for 2020 trading, we have to figure out what's next for Canadian Microcap stocks? TradeMiner identifies seasonal trends and market cycles and Microcap Millionaires finds the next big small cap plays in weed and other industries while Addicted to Profits makes trades from a Canadian perspective.
There are also some good books available such as:
Stock Investing for Beginners: Marijuana Stocks
Make Money Online With Cannabis Stocks: Learn This Basic Strategy and Build Wealth With Cannabis Stocks
Beginner's Guide to Investing in Canadian & US Pot Stocks
Marijuana Stock : Investing in Marijuana Stocks for Passive Income
How To Invest In Cannabis or Marijuana Stocks - Cannabis Investment Group
Here are some other good stock market resources. This includes technical analysis and day trading, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies:
The dividend stock report from dividendstocksonline.com
The dividend stock report from Dividend Stocks Rock
Goldmasterinvesting.com Ocean Of Gold Report for the top 15 gold mining companies
Trader Review
The Trader's Academy Club
The Wealth Builder's Club from beatthemarketanalyzer.com
MyBB: A Forum For Investors and Traders
Spartan Trader Forex Academy Live Daily Trading Room
And try the Z Code System if you're looking for other ways to make money systematically outside of the stock market.
Goldmasterinvesting.com Ocean Of Gold Report for the top 15 gold mining companies
Trader Review
The Trader's Academy Club
The Wealth Builder's Club from beatthemarketanalyzer.com
MyBB: A Forum For Investors and Traders
Spartan Trader Forex Academy Live Daily Trading Room
And try the Z Code System if you're looking for other ways to make money systematically outside of the stock market.
