Everyone seems to love a “micro cap” these days, so the latest teaser pitch from Dylan Jovine over at Behind the Markets for his “upgrade” newsletter caught my eye — it’s called Breakthrough Wealth ($997/yr, 30-day refund policy), and he’s pitching a service that he says will be shooting for 1,000% gains in small companies.
Here’s part of the spiel…
“My name is Dylan Jovine.
“while making nearly 490% on your money just ONCE would be a huge victory…
“Target 1,000% can potentially deliver those types of life-changing returns…
“Month after month…
“All year long.
“As long as you have five minutes a day to spare…
“And can press a couple of buttons on your phone or computer…”
Which sounds fun, of course — though as we all should know by now, when you shoot for 1,000% gains in any kind of short time frame (less than 5-10 years), you’re going to be taking big chances. Risk and reward are always tied together, at least when you’re dealing with a whole portfolio of stocks and looking at averages.
And to entice new subscribers, he dangles this “#1 pick” that he says je just identified…
“Because just hours ago, a tiny micro-cap company…
“Whose stock is trading for just $6 a share right now…
“Lit up the screens at Target 1,000% HQ.
“And our modeling algorithms indicate that starting on February 22, 2021, the value of this small company could skyrocket by up 1,000% or more…
“And potentially turn every $5,000 invested into $50,000.
“This is the best profit opportunity Target 1,000% has ever detected.”
So that’s what we’re curious about — what is this little fella?
We get some more spiel… reinforced by the notion that these little micro-cap stocks are under-followed because the big institutional investors really can’t get involved…
“The truth is that most Wall Street firms are banned from buying micro-cap stocks.
“They’re just too big. A $100 billion mutual fund can’t realistically buy shares in a company with a $100 million micro-cap.
“That means we’re not competing with Wall Street giants that have armies of researchers working for them.Are you getting our free Daily Update
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“That means there’s less competition. And that gives us a powerful advantage.”
And he says that the stocks he’s picking these days for huge returns are a lot trickier than the ones he liked the last time the market created some real “crash” values…
“… most of the money I’ve made investing has been when something bad happens to a company and the stock plummets.
“Just like during the 2009 Market Crash. It wasn’t hard to buy American Express at $13 or Starbucks at $18. Those were no-brainers.
“But now we have a consistent way to spot these in the market even when the market isn’t crashing.”
I don’t know about that — don’t wash the sentiment most of us had following the 2009 crisis memory away that easily — I was buying stocks in 2009 and it was often HARD. Everyone was just beginning to recover from the idea that the world almost came to an end, and while I did end up with some big winners back then I also specifically remember looking at some stocks that were no-brainers in retrospect, like 3M (MMM) in the $30s and Starbucks (SBUX) around $15-20, and passing because I was feeling so cautious. It’s not easy — and, of course, the pundits didn’t make it any easier by screaming about stimulus and Wall Street failing “Main Street” and the fact that we had a new “socialist” in the White House who was going to burn it all down (sound familiar?)
But anyway, before we get to the clues let’s look quickly at the criteria Jovine says he’ll be using for these stock picks…
“Our goal is to make as much money as possible with as little risk as possible.
“And mark my words – it’s the second part of that statement that made this challenging.
“So, I painstakingly went through 50 years of market data.
“I was obsessed with answering one question….
“What do stocks that go up 1,000% in a year have in common?”
That’s the kind of navel-gazing we all do, of course, and there’s no mathematical answer — if there were, it would disappear in a matter of months as the computers absorb it into their trading algorithms. But sure, there are common themes that come up with the big long-term winners… here’s what they pitch as the “key ingredients” they’re looking for:
“Ingredient #1: A Company Has to Have a Unique Advantage….
“Put simply, we have to avoid copycats….
“This could be a new drug, new technology, a new system for doing something, a new medical device.
“Or it could be the best piece of property in an exclusive location.”
OK, so some sort of “special sauce” uniqueness for the company. Can’t argue with that. Next?
“Ingredient #2: A Large Gap Between the Value of a Company and What the Common Stock is Selling for
“As soon as I see a company has a unique advantage, I need to make sure there’s deep value in the shares….
“You can have the greatest company in the world, but if the stock is selling for more than the company is worth, its not worth buying. “
OK, so that’s a “duh” factor — of course we want to pay “less than it’s worth.” Sadly, “what it’s worth” is subjective… and there are few obvious “values” around these days. That must be a “can I justify this price for the business” question, not a particular book value or PE ratio or whatever else.
“Key Ingredient #3: First-time institutional buying.
“You can have a great company, but if nobody knows about them the stock isn’t going to move.
“I’ve seen some great companies whose stocks barely move because nobody knows they exist….
“For a Stock to Rise 1,000% Institutional Ownership has to Rise 1,000% too.”
OK, so it has to be so small that institutions can’t buy it… but institutions also have to be buying it.
And one final criteria…
“Key Ingredient #4: The Stock must trade for less than $10 a share….
“The research proves that stocks priced between $1 and $25 are most likely to move 1,000%.
“Now remember guys, not every investment is going to pan out.
“Our goal is to make high-probability investments.”
That last part is a key consideration for any investor, of course — we often get hung up imagining the possible gains or possible losses and don’t take the time to make more specific guesstimates about how probable they may be. You can gamble, but you should think about the money at risk and be honest with yourself about the odds when you do.
So finally, what’s this stock? More from the ad:
“I’m really pumped up about this. It’s the most excited I’ve been since I recommended Intelsat in our first issue of Behind the Markets.
“But unlike Intelsat which soared 500% in 5 months, I think people are going to be talking about this one for years and years…
“It has all the common denominators of success we talked about earlier (1) a unique advantage; (2) deep value, (3) first-time institutional buying and (4) a share price under $10.”
And then we get a little diagram of a capsule with a double helix inside it…
“What you’re looking at right now is a picture of this company’s breakthrough technology — ‘Cancer Blocker’…
Ah, no it isn’t — that’s a stock photo that’s used to illustrate “genetic engineering” articles. Not sure which agency sells it, if I knew I’d buy a copy as well so I could share it with you, but, well, here’s a similar image I licensed from Getty, just to give you the general idea.
So… what is this little company? Here are our clues:
“I call it ‘Cancer Blocker’ Because it Attacks Cancer at a DNA Level by Blocking the Cells from Reproducing.
“This causes tumors to shrink and die.
“It was first discovered by some of scientists in San Diego working in collaboration with scientists from Oxford, England.”
OK… so what does this “cancer blocker” do? He shows a little image that seems to indicate that it stops cancer cells from repairing their DNA after chemotherapy by sending an “SOS message” … which is done through something he calls “PARP1 Upregulation” — which I know nothing about, but we’ll use that as a clue as well.
“The FDA approved ‘Cancer Blocker’ after it doubled patient survival times during clinical trials….
“… right now the drug is being given to people already on chemotherapy.
“That’s only 20% of patients.
“What if you were able to move the treatment to the front lines.
“Give the drug what we call front-line status.”
So that means he sees this drug as possible going from a fairly small market to a large market — getting used not just as a last resort, but maybe as a first-line treatment someday. Which can certainly be a big deal if it happens, financially.
And he implies that this drug might work in other cancers, too…
“Could it work with breast cancer? Lung cancer? Pancreatic cancer?
“The short answer is yes….
“… some cancers are more sensitive to this kind of treatment than others.
“Specifically, ‘Cancer Blocker’ is most effective with low-oxygen (i.e fast growing) cancers.
“Cancers like –
“Ovarian Cancer which strikes 21,000 people a year
“Prostate Cancer which strikes 174,000 people a year
“Bladder Cancer which strikes 80,000 people a year
“Brain Cancer which strikes 21,500 people a year
“By treating all these different types of cancer, ‘Cancer Blocker’ can save the lives of 330,000 people each year.
“Because of the size of the market, we believe this stock should be selling for $100 a share.
“But the stock is only selling at $6 a share.”
First, we get the hard sell…
“Anyone who joins my research service Breakthrough Wealth, and invests $10,000 following my recommendations, will have the chance to earn a profit of $100,000… in the next year.
“If it doesn’t, then I’ll work an entire second year for them, free of charge.”
Ah, the good ol’ “If it’s not as good as I promise, I’ll give you twice as much of it” guarantee. Does that cheeseburger taste a little rancid? Don’t worry, I’ll give you another one for free! The beauty of the newsletter business is that it is almost 100% scalable at no marginal cost — even more so now that most newsletters don’t send physical copies. Sending your newsletter to 101 people costs the same amount as sending it to 1,001 people… the only scalable cost is the cost of advertising, convincing each new subscriber to sign up, and once you’ve signed up that’s a sunk cost against the price you paid.
But, to be fair, the order form does also say that there’s a 30-day guarantee, so you can get your money back if the service turns out to be something entirely different than you expected. I don’t know exactly how they fulfill that promise, but I do think every service should offer something along those lines, particularly when they’re roping people in by dangling financial porn in front of your eyes (Three 1,000% gains a month! Make $100,000 in a few months!), so I should cheer Dylan for doing that — a lot of the big publishers offer no money-back guarantee at all for their higher-priced newsletters. Push hard on the marketing, sure, but give people a chance to back out if they just got over-excited by the hype, and what’s behind the curtain was not what they expected.
So anyway, back to the point… what’s our stock? Thinkolator sez this is little Clovis Oncology (CLVS)
Clovis is not a microcap, but it is pretty small — I’d call it a regular ol’ “Small Cap,” with a market cap a few days ago of about $700 million at a $6.50 share price (it’s up to $8.20 now, thanks to some market enthusiasm and, perhaps, some additional “short squeeze” trading like we’ve seen in so many stocks recently — and perhaps thanks in part to Jovine’s attentions). Clovis is a bit of a grizzled survivor in the small cap biotech space at this point — this was a $4 billion company when it was on the verge of an expected approval for their lung cancer drug, rocelitinib, about five years ago… and the FDA rejected that and it was abandoned, then it soared again into 2017 and 2018, mostly on hopes for this PARP inhibitor that is the focus of the teaser pitch, rucaparib (brand name Rubraca), and dreams that Clovis would be acquired (like Tesaro, which makes the competing drug Zejula and was bought for $5 billion by GlaxoSmithKline around that time).
There is a reasonable amount of institutional ownership of Clovis shares, as you’d expect for a biotech that’s been around for a while, but it has generally been rising a bit — the biggest shareholders are the index fund managers, of course, but there are some active funds that have been buying a little more, too, including a few health care-focused managers like Palo Alto Investors and Armistice Capital. I don’t know enough about them to be excited or dissuaded by their presence.
Clovis does keep getting new indications approved for Rubraca, it appears (three now, I think), and studying it in late-stage studies in new cancers, so there is some realistic possibility that the market could become meaningfully larger, either as a solo drug or in combination with some other cancer drugs… but it has not yet become a really meaningful revenue producer.
There has been some concern over the years about Rubraca losing patent protection, since this drug took a long time to get developed and is starting off fairly small on the sales front in its first years — I guess that’s because the first rucaparib patents start to expire in a couple years, but they also do say that they’ve extended those patents with new claims on higher doses and forms and methods, and that they believe they have protection until 2035. Which would be particularly helpful if they get into some higher-volume indications for broader use.
I have no idea what the competitive landscape is, but there is competition (and yes, the technology does have roots in Oxford, as teased, there’s an interesting short piece about the basic technology of PARP inhibitors here that goes into that, if you’re curious). How Rubraca compares with other PARP inhibitors or other treatments for ovarian or prostate cancer is a closed book for me, I’m certainly not going to become an oncologist overnight… but, well, it does seem that it at least works well enough to get sales growing. They launched some new indications last year, and sales have stayed at a decent level despite the general slowdown of non-COVID work in hospitals, even starting to grow a tiny bit in the fourth quarter.
And yes, to further match up with those clues, the expectation is that they will report their next quarterly earnings on February 23 — and they have already preannounced their revenue estimates. Earnings dates aren’t generally hugely important for biotech companies, they aren’t nearly as important as clinical data releases can be, but if they say anything meaningfully different than that about the last quarter… or issue exciting guidance for 2021 because of promising sales to start the year… well, that could impact the shares in the near term. Not hugely likely, I would guess, biotechs tend to try to get their most exciting news out at the JP Morgan Healthcare Conference, when everyone is listening.
So that little bit of growth in the fourth quarter, combined with some optimism about their next product candidate when they presented at that conference earlier this month, seems to have helped juice the shares a bit, too. Here’s a little excerpt from an Informa summary from their presentation:
“Clovis Oncology CEO, Patrick Mahaffy, reiterated Clovis’ strong position in second line maintenance in ovarian cancer space with strong market uptake despite challenges posed by COVID-19. Mahaffy then noted the company transition from its main growth driver, Rubraca, to a true commercial stage biotech with multiple indications and expanded pipeline. The first noteworthy highlight was the US approval of Rubraca in May 2020 for mCRPC, the first approval in its class in prostate setting. With a 55% PSA response, Clovis expected a gradual uptake in the prostate cancer landscape despite virtual launches from COVID-19 due to many physicians’ consideration of PSA response being a predictor of a tumor’s behavior. Additional ongoing studies of Rubraca were also discussed, with a prominent focus on upcoming monotherapy readout from Phase III ATHENA study in the second half of 2021.
“However, the star of the presentation was the enthusiastic showcase of a new candidate, FAP2286. Mahaffy introduced FAP-2286 as Clovis’ foray into a new opportunity in radionuclide therapy, following the success of Lutathera…. Mahaffy reported that Clovis is shying away from M&A deals to focusing on its existing asset, FAP-2286, making late 2021 – early 2022 an important inflection point for Clovis Oncology.”
So with that laid out as a possibility, maybe adding a second attention-getting drug to a portfolio that is generating revenue and growing (if not nearly enough revenue to make a profit just yet), and with enough cash on hand to make some good progress on that new drug… this seems like a somewhat interesting speculation on an almost “back from the dead” biotech (OK, not dead… but at least sleeping). I don’t typically invest in small single-product drug stocks, or much in biotech at all, but I’ll put a little flier on the long-term options (January) for this one, just to see if they can catch some lightning with early attention on this new drug (or, perhaps, some surprisingly strong growth for Rubraca). I’ll mostly ignore that for a while and it’s a tiny speculation, but it will show up in the Real Money Portfolio for the Irregulars on Friday.
If you think I’m crazy, or are enthused about Clovis Oncology yourself… or, for that matter, if you have a different favorite microcap that you think has a chance for 1,000% gains, well, feel free to share your thoughts with a comment below. Thanks for reading!
Disclosure: I own shares of 3M and now call options on Clovis Oncology. Since this is a small and illiquid name, I’ll extend my trading embargo on Clovis for ten days from the date of publication.