Nick Hodge is out with a teaser pitch for another “upgrade” newsletter he’s selling — this time, the upgrade is only available for folks who already subscribe to his Early Advantage newsletter, which is where he used to pitch his speculative microcaps.
Early Advantage is $999/year, and that’s the one that’s still pitching “Obama’s Secret Pipeline” of uranium stocks and has gotten the attention (and sometimes ire) of our readers for past teases about wireless electricity (Energous), various graphite stocks as plays on Tesla or graphene, and the “magic mollusk” and its cancer-curing blue blood (that was Stellar Biotech, which I know a lot of you followed for a while… they just did a 10:1 share consoidation in preparation, again, for a hoped-for Nasdaq listing that was hyped as imminent about a year ago by Michael Robinson, a different newsletter pundit… but are now, down 60% from their 2014 highs, not far from where they were when Hodge started teasing the stock a couple years ago).
But now, apparently, writing about little $50 million stocks for Early Advantage isn’t exclusive enough for Hodge, and he thinks he’ll get 400 buyers for his Nick’s Notebook service at $5,000 (“on sale” for $2,495 at the moment) that will cover private placements and insider deals.
In reality, I suspect that most of the stocks he pitches for this newsletter will not be private placements, but will be “sort of” private microcap stocks, the kinds of little companies that are too small for investment bankers — stocks that are publicly traded but trade only over the counter, and came public through reverse mergers without any scrutiny from institutional investors. We should be careful of these, too, since OTC stocks so often have serious problems, but at least they’re usually traded and have some sort of published financials.
(As you might have noticed, just about every big-ticket “exclusive” newsletter is trying to get into private placements as a way to prove they’re offering something unique and valuable — my advice? Run as fast as you can away from private placements … they may be fun or interesting, or they may sound exciting, but there’s a reason why investors in private equity funds often have to commit to ten years: most venture-backed companies will never turn a profit for you, and investing in one or two of them as a passive, private, small investor is a recipe for disaster, you need a big, diversified portfolio of early-stage companies to have any chance of hitting on the occasional moonshot like Facebook or Uber. There’s such a glut of capital chasing small private companies who want to grow that the ones who are counting on little deals that might be accessible to you and I are really the crumbs of a cake that was eaten by the big dogs).
What, then, is being teased this time? Let’s check out the clues — but first, here’s how Hodge introduces the concept of this early-stage investing:
“Congratulations on joining me in what I believe could be the most important investment decision of your life.
“I recently told you about some early-stage development plays in which investors saw not three-digit… not four-digit… but FIVE-digit percentage profits.
“In some cases, it was even SIX-digit percentage profits.
“Just to be clear: These are profits GREATER than 99,999%… or more than 999 times your money.
“Some of my subscribers practically fainted when they saw these investments.
“One of the stocks I mentioned, Sandfire Resources, jumped from a nickel a share in 2009 to $8 in 2012 — a gain of 15,900% in just under three years.
“That was enough to turn a $1,000 flyer into $160,000.
“Another development-stage play, Blackthorn Resources, an Australian mining company, went from $0.02 to $1.78 in just a few years, up 8,800%.
“You could have made a $2,000 investment and walked away with as much as $178,000 in just three short years.
“And Coalspur Mines, a tiny mining company with holdings in British Columbia and Alberta, shot up from a penny a share to $2.25 in two years’ time.
“That’s 22,400% profits.
“Just think: If you had the nerve to invest five grand in Coalspur, you could have an extra $1.12 million sitting in your bank account right now.”
Now, to be clear, nowhere does Nick Hodge say that he or his subscribers had investment success anything like this — these are just examples, of which you or I could come up with a few, too, of stocks that made ridiculous runs… in this case, stocks that boomed on mineral discoveries, which is one of the few ways, along with biotech and some tech startups, that you can turn a few employees and a discovery or invention into life-changing gains… but it’s also, of course, one of the many ways in which you can lose lots of money very quickly, since the overwhelming majority of early stage mineral explorers (and biotech researchers, and inventors) never discover or create anything of real worth. When you think about those three names, try to also remember that they might have started out alongside 300 similar companies that lost 90% of their value… and no one is all that good at buying “just” the huge winners.
Hodge says he picks up these stock ideas at dinners, at conferences, hobnobbing with the wealthiest investors, and that he’s been keeping track of them in his notebooks and is ready to start sharing those insider ideas with you, dear reader. He gives a couple examples of big winners that he might have had if he’d been offering this service up in the past, and some that he says are real — including one where he recommended a stock because some big investor confidant told him it would soon be the subject of a big promotion.
So that’s why he started this “Private VIP Investment Group,” he says, those ideas were just too exclusive for his larger list of Early Advantage subscribers…
“… these companies are tiny, often trading at less than a buck a share.
“That means they’re simply too risky for my regular readers. Penny stocks are often penny stocks for a reason.
“Investors could easily lose ALL of their money on these highly speculative plays. It would be the height of irresponsibility to recommend any of them to my regular subscribers.”
And those examples he provides in the ad are of course, all some of his best ideas that worked (or on which there’s some sort of positive spin that can be taken), that’s why they’re in the ad — what are the ideas he’s teasing now? Here are our clues:
“Million-Dollar Opportunity #1: Never Work Again with this Tiny Company Poised to Dominate the $11 Billion Medical Marijuana Market
“A tiny device about the size of a smartphone (I have one right in front of me) could single-handedly revolutionize not just the entire marijuana industry but also many other food industries as well….
“Think of it like the ‘Tricorder’ on Star Trek — only this is real.
“You place a tiny amount of any substance you wish to analyze in a small compartment in the device… and within seconds, the results are visible on your smartphone screen.
“Engineered to detect molecules in vapor, the patented technology behind this product was used by NASA and funded by the U.S. Department of Homeland Security (as well as the Bill and Melinda Gates Foundation).”
Sounds pretty cool, right? Who doesn’t want a Tricorder?
A few more clues?
“For health-conscious consumers, the possible uses are endless. You can use it to…
- Test what you ingest for potency and harmful additives
- Test what you eat for dangerous allergens
- Test what you drink for hidden drugs, including date-rape drugs
- Test what you breathe for harmful pollutants
“The sky’s the limit for this ambitious start-up.”
And he touts this not just because of this technology that can test your water, air and food, but because it’s going to be a key tool for the marijuana business.
Here’s the clueification on that:
“Conservative estimates are that it will be an $11 billion industry within four years just with the current legal environment.
“What’s more, if the legalization movement spreads to all 50 states, it will soon be bigger than the entire organic food industry — or a $35 billion market.
“And the single-biggest problem facing everyone from individual users to retailers: quality control.
“Current projections foresee sales of the chemical analyzer skyrocketing from $14 million in 2015 to $59 million in a year — revenue growth of greater than 400%.
“As we speak, this company is quietly placing its initial tranche of 16 million shares with private investors for less than $0.50 per share.
“It has raised $3 million through what are called subordinated promissory notes with warrants.
“And here’s the great part of this: There is a way for regular investors in our private VIP group to buy these shares right now.
“At its current price of $1.60, you could buy 1,000 shares for only $1,600.
“I believe this stock could easily top $20 a share within a matter of months… and could eventually reach as high as $100.”
Golly, private investors are getting shares right now and we get to buy it for $1.60? How fabulous!
So what is this peach? Thinkolator sez we’re being teased about: MyDx (MYDX)
Which is indeed an OTC company that came public via a reverse merger back in May of this year, and they are selling a chemical analyzer that does pair with your smartphone and vaporize small samples of things to tell you the chemical composition — their first product is indeed for marijuana, called the CannaDx sensor, and they aim (at least in a theoretical sense) to have other sensor products available in the future for analyzing other stuff.
The analyzer is about the size of a couple smartphones stacked on top of each other, and it’s got a little sensor that you insert — that sensor is designed for a particular kind of testing, so what’s available now is the CannaDx sensor, and inside that sensor you insert a disposable cartridge that contains your testing sample — the analyzer is about $700, the CannaDx sensor is about $70, and the cartridges are about $1.50 each. Their pitch is that this system not only tests for purity and contaminants, but will also, through their phone app and the collected data from lots of other people doing this same testing on their samples, help to tell you which strains of medical marijuana are going to be the best match for your symptoms. So it’s kind of like personalized medicine, Cheech-and-Chong style.
Will it be a hit? I dunno. The product has been for sale for a couple months, presumably it would mostly be purchased by dispensaries at first since it’s a relatively high-ticket item and I assume most users don’t have the need for detail that this system might provide, but it looks like it’s really being marketed with a bit of consumer glitz, at least on the website. I don’t know what the count is of total legal dispensaries in the US, but presumably it’s at least in the thousands — California alone has at least many hundreds of dispensaries, though here in Massachusetts they’re regulating them more heavily and I think we only have a half-dozen or so… it’s early days for legalization in New England.
But it’s really just a story you’re buying into at this point — they started selling this first product in July, and there’s no indication of when a non-cannabis sensor might be developed or marketed to let you test food or water or whatever else (probably a good idea, since that’s a much harder market to target). They say they’re selling at least some of these devices, and they’ve done a management shakeup to lead this next phase with salespeople, etc., but I have no idea how many they might sell, or how long it will take. They went from no inventory to about $500,000 of inventory as of the end of June, so presumably that inventory is assembled analyzer devices and stuff that they can sell. If the markup is 100%, maybe that’s can create $1 million in revenue? Over what period of time, I have no idea.
This company started as an Indiegogo crowdfunded operation, and in that campaign (last year), they had a goal of pre-selling 100 units — they did that, and a bit more, but were far, far short of their second goal of 1,000 units, and that was at a price far below the current retail price (the campaign priced them at $399, they’re $699 on the website now). I don’t know how that compares, but it’s worth looking their Indiegogo campaign over a bit if you’re tempted — and, especially, pay attention to the fact that this campaign last year raised only $40,000 and consisted of only 141 preorders… whether that means the market is limited, or just that folks would rather buy a real product after its built, or what, I don’t know. They had about $140,000 worth of customer deposits on their books as of the end of December, and that number hadn’t changed by the end of June — so the real changes at the company, the new management team, the initial product sales, have all happened since they last filed their financials and it’s a bit of a black box for passive investors who don’t know any more detail about the company.
Right now, MYDX is valued at over $20 million. That’s pretty impressive, going from a $40,000 Indiegogo campaign into a $20 million company in 18 months (they’ve also raised about $7-8 million in venture funding) — but it’s hard for me to think of that $20 million as reasonable without having any idea how many devices they might sell… or even how much it’s going to cost them to sell the devices, and how long their cash balance will hold out under those expenses. I’m glad that they have a targeted audience that’s pretty small and specific in Marijuana dispensaries, and that there may well be a real advantage for dispensaries who can test and provide this data to their customers, but if the company’s valuation is based on turning this into a consumer product with much more widespread use in testing food, water and other stuff, then I would guess that the Marijuana rollout has to work really well and give them a decent base to stand on. Interesting business school case to figure out how best to try to roll out this product, but it would make me nervous to put my money into it without a lot more information.
Maybe Nick Hodge has that information and has some kind of sales projections or financial model for MYDX that I haven’t seen, who knows. There is a recent investor presentation, which makes it sound exciting and cool, but it’s pretty slim on real projections — it indicates that they’ve delivered those first 220 preordered units earlier this year, and that’s about it… other than stating that they’ve done the “preliminary R&D” for their food testing sensor that’s initially going to try to sense the presence in samples of a couple dozen different chemicals that are linked to cancer. So it sounds cool, and maybe the company will end up doing very well — but hopefully looking at the facts and financials will let you consider it more soberly than will daydreaming about 10,000% returns.
How about another one? We’re skipping number two, since I’m pretty sure that’s a genuinely private one called Voxovox that he’s written about publicly before.
But next Hodge also touts a natural resources company in this pitch… a Phosphate explorer — sound like fun?
Here’s how he describes it:
“Million-Dollar Opportunity #3: Imagine Investing in a Tiny Company With the One Product Necessary to Feed the World
“The U.S. — and North America as a whole — is becoming more and more dependent on the Middle East for a crucial resource.
“And it’s not oil.
“In fact, a strong argument can be made that this resource is even more valuable than oil… because without it, mankind can’t feed itself.
“I’m talking about phosphate — the component in fertilizer essential for root and stem development in plants, and for which there is no agricultural substitute.”
So that’s a little eye-catching — Phosphate is largely controlled by the Kingdom of Morocco, at least to a substantially greater extent than Saudi Arabia controls oil. They’re the second or third largest producer of phosphate (China and the US, both big consumers of phosphates, also produce a lot), and arguably the owner of the largest reserves.
Phosphate explorers and producers had a brief shining moment when they started to get attention five or six years ago, as all fertilizer prices were peaking, but phosphate gets a lot less attention than other nutrients and fertilizers like nitrogen and potash, and there are many fewer companies levered to phosphate prices than there are to potash.
But which one is it that Hodge is touting? Here are the clues:
“A brand-new phosphate deposit has been discovered in Canada… and no one — I mean no one — knows about it yet.
“It covers over 96 square miles, or 61,440 acres.
“And a single, unknown, but publicly traded company has TOTAL control over this new deposit.
“An enhanced prefeasibility study was completed in May 2012 that showed estimated reserves of some 472 MILLION tonnes of ore grading 6.9% P2O5.
“Translated into English, that means this tiny company will be able to produce an average of 3 million tonnes of high-grade phosphate for the next 26 years at least.
“The value of all this phosphate is estimated to be $1.9 billion.”
OK — so it sounds like this isn’t a brand new discovery, they’ve at least had a few years to do some prefeasibility studies, but they’re likely quite a while from actually building a mine — particularly given the difficulty in raising capital to build any kind of new mine in recent years.
Some more details? Or hints?
“This tiny company already has the support of the First Nations, which is critical in Canada. A cooperation agreement was signed between the company and three Innu First Nations in June 2015.
“Full permitting is expected in late 2015 and is expected to go according to plan.
“The company will likely generate $700 million per year in revenue with EBITDA of $300 million and a payback of just 4.4 years…
“Now, phosphate and related fertilizer peers are generally valued at four to five and a half times revenue, or seven to 12 times EBITDA.
“Because this is such an early-stage play, let’s cut those in half to remain conservative…
“At two times revenue, it would be a $1.4 billion company. With current shares outstanding, that would make it a $12 stock.
“At three and a half times EBITDA, it would be a $1.05 billion company. That would make it a $9.50 stock.
“It currently trades at C$0.90 — or just $0.63 U.S.”
And Hodge indicates that he expects they’ll probably get taken over before they get to that point, maybe by one of the big North American fertilizer miners (Potash Corp., Agrium or Mosaic), but, of course, who knows?
So who is it? This is little Arianne Phosphate (DAN on the Canadian Venture exchange, DRRSF OTC in the US), owner of the Lac à Paul project in Quebec’s Saguenay-Lac-Saint-Jean region.
And they presented at the LD Micro conference in June, along with MYDX — sometimes it seems like the Angel Investing editors use that as their main idea-generating source.
Arianne’s Paul project is, they say, the largest greenfield Phosphate rock project in the world, and can add meaningfully to global supply — but it is, of course, going to be expensive. The most recent version of their investor presentation, from March, indicates that they expect permitting by the third quarter — which ends today, so presumably it will be at least the fourth quarter before that happens, since I’ve seen no information release.
The project is large, it seems appealing and has government cooperation, and there are customers who are looking to diversify their phosphate supply chain so they might be able to get offtake or partnership agreements to help fund the development — but the biggest issue, of course, is financing. Their presentation indicates that they need about $1.2 billion in capital to build the mine and start producing — that may be a reasonable capital cost for a long-lived mine (and it’s not unusual for potash and phosphate mines to have 100 year lives, so their goal of extending to a 50-year mine life is not crazy), but it doesn’t mean that they’ll find it easy to raise that kind of money in the current market environment. I’d guess it will take quite a bit longer than they’re hoping.
Doesn’t mean that Arianne can’t work out as an investment, of course — it’s just that these little junior companies that try to go from discovery to development can sometimes find, if they’re unable to sell out to a big major at a strong premium, that building a mine is a tough project to manage on the books when you’re talking about a tiny little $50 million company trying to manage a $1.2 billion capital project. And no, I have no inside information on whether they’ve got appealing prospects lined up to provide financing or to partner with them. They will need financing before the end of the year, so unless a big partners steps in with cash very soon they will have to sell stock — in this environment, that’s very likely to drive the shares down… so if you find this compelling, you might want to be opportunistic and see if the stock drops when they sell stock (the risk of “missing out,” of course, is that if they do make a major deal and get a lot of financing from a partner — which seems very optimistic to me — the stock could leap higher overnight).
So… sound like your kind of investment? Interested in MYDX’s handheld scanners or Arianne’s acres of phosphate? Let us know with a comment below.