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Alex Green “Goes All-In” on Microcap — Says This Is His “#1 Stock for 2023”

What's being teased in ads for Oxford Microcap Trader?

This article was originally published on December 7, 2022, when this ad started circulating — Alex Green’s “#1 Microcap” is again being touted now, so we’re re-sharing the solution here. The ad has not been updated (it’s still dated “November 2022”), and our article is likewise unchanged from December (though I did add some comments to the end… the stock being teased has dropped by ~30% in the last six months).

Alexander Green is pitching some small companies, and talking up the idea of investing in microcap stocks during this market lull — he seems to think it’s an opportunity in small caps in general that compares favorably to 2009 or 2002, the last two times the market recovered from an ugly crash. And he’s got one stock in particular that he teases as his “#1 for 2023”, so let’s see if we can sift through the clues and ID what he’s buying.

The ad is for one of Oxford Club’s “upgrade” newsletters — they’re selling Oxford Microcap Trader ($1,795 for two years, no refunds), which we’ve covered a couple times (Green pitched Huami/Zepp (ZEPP) as the “#1 Microcap of 2021”, and that’s been a disaster as the stock has now lost 90% of its value, but his pitch of Magic Software (MGIC) a year ago has been less dramatic, trailing the S&P 500 by only a little bit).

Here’s how he describes these investments, which he says he’s also buying personally:

“… this market crash has created an opportunity very few investors are aware of right now.

“I’ve been through five bear markets in my career.

“And I’ve invested in every single one of them.

“Every time, I’ve come out far richer than before the crash.

“But this time…

“I’m going in even bigger… but I’m not going all-in on the broad market.

“Rather, I’m going all-in on a specific investment that I believe will perform dramatically better than anything else in 2023….

“I’m putting hundreds of thousands of dollars in a select group of the smallest companies in the market….

“… right now these stocks are also the cheapest they have been relative to large caps in over 20 years.

“In terms of price-to-earnings, they’re cheaper than they were back at the bottom of the dot-com crash…

“This is important.

“Because when small stocks reach historically cheap prices like this, they almost always deliver massive returns in the months ahead….

“Small Stocks Outperform Large Stocks After Crashes.

“The smallest stocks are more agile and have far more growth potential, so they can skyrocket when it’s time to take off from the bottom.”

He says he has a portfolio of five stocks that he’s buying right now to capitalize on this microcap opportunity, but he really focuses on his “#1 Stock for 2023” — so that’s what we’ll focus on today. Here’s how he starts to hint at this particular investment…

“The company has one mission: to transform the drug discovery market.

“It uses artificial intelligence to create new drugs at breakneck speed.

“Its AI-powered drug discovery platform integrates genomics, engineering, hyperscale data science, and machine learning to reduce costs, move quickly, and solve the toughest problems in drug development.”

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OK, so it’s an AI drug discovery stock — there are a bunch of those, which one does Green like?

More clues…

“With advancement in artificial intelligence, we can now develop drugs at record speeds.

“Dr. Andrew Hopkins – the Oxford-trained scientist who studied molecular biophysics – says that by 2030 every new drug will be designed with the help of AI….

“… my #1 microcap is at the vanguard of this revolution.

“The company just went public in 2021, but it’s already making massive partnerships.

“For example, tech giant Nvidia has partnered with this company to design new medicines….

“It’s also partnering with Merck, one of the largest healthcare companies in the world.

“The Merck partnership should bring in over $600 million in upfront revenue… followed by future payments based on drug discoveries.”

He also drops a few clues about the company’s size…

“…it has a market cap of just $280 million.

“But it just got a windfall contract of more than $600 million…

“That’s more than twice the size of the company….

“… the stock is completely undiscovered, hovering around $3 because virtually no investors are even familiar with its name.”

And like many “drug discovery” companies, it’s got at least the potential to earn royalties on drugs in the future…

“I believe this company will be the world’s next big royalty business.

“And a ‘royalty’ is a payment you receive over and over again from owning a single asset, or a single piece of work.

“You can either buy a royalty-paying asset with cash… or earn royalties from something you created yourself… like a book or, in this case, a drug.

“But once you own a royalty-producing asset, you never have to spend another penny.

“And you can just keep collecting profits – worth many times your original investment – for years or even decades.

“The companies that truly know how to do this are some of the best businesses – and best investments – on Earth. Period.”

No argument there, I do love me some royalties. Drug discovery royalties are a little different from the more traditional stuff like gold mine royalties, or music royalties, but there’s at least some reason to be excited about that notion.

Here’s how Green entices us about those potential future royalties…

“Big companies – like its new partner Merck – will use its technology to develop new medicines.

“And then, if the drug is a success, Merck will do all the work.

“They send out their reps to hospitals across the country…

“Build huge advertising campaigns…

“And make the product a hit.

“With $57 billion in revenue… they can afford to.

“Meanwhile our company will simply collect royalties all along the way.

“It’s a great business model because it keeps costs low and revenue high.

“And already, sales are booming.

“The company just reported revenue growth of 37%.”

So that’s another clue, revenue growth of 37%. What else?

Green also calls this one a bargain, partly because it’s trading at just 0.8X book value — so the market is pricing the whole company at something ~20% lower than the value of its assets.

So… hoodat? Thinkolator sez Alexander Green is hinting at Absci (ABSI), which is indeed a small AI-powered drug discovery tech company. They went public a little over a year ago, in the Summer of 2021 (the IPO priced at $16, and the stock briefly soared to about $30), and is currently just below $3. That would be painful for those who bought during the first flush of enthusiasm last year, since the stock is down about 90% from its highs, but, well, we’re starting fresh with the stock today — what do we know about it?

This is how they describe themselves:

“Absci is the drug and target discovery company harnessing deep learning and synthetic biology to expand the therapeutic potential of proteins. We built our Integrated Drug Creation™ Platform to identify novel drug targets, discover optimal biotherapeutic candidates, and generate the cell lines to manufacture them in a single efficient process. Biotech and pharma innovators partner with us to create the next generation of protein-based drugs, including those that may be impossible to make with other technologies. Our goal is to enable the development of better medicines by Translating Ideas into Drugs™.”

And the first thing that comes to our attention when we look at the financials is that they’re losing lots of money, which is not so unusual for an early stage biotech. The stock does trade at a discount to book value, as Green points out but that’s mostly just because they still have a lot of cash on hand from their IPO. They have burned through roughly $100 million over the past year, but they do still have about $180 million in cash as of the end of September. That’s a huge benefit for a money-losing company, you really don’t want to be in a position where you have to raise money when your stock price is in the crapper — so what Absci enjoys right now is the benefit of time. They say they have enough capital to “operate through 2025,” so they don’t have to care that their stock price is getting clobbered this year.

Well, that’s not really true — they do have to care, since they want to keep their employees happy and, as with most startups, a fair chunk of the payroll is covered by stock-based compensation. When the stock price craters, the employees are suddenly making a lot less moeny and are likely to be pretty grumpy. But still, “survival” for a few years is a good thing — I don’t know what assumptions they’re using to get to that “through 2025” forecast, but it seems to be reliant on some meaningful cash savings from their recent “strategic review” to focus on value creation. That forecast would definitely mean their cash burn is slowing — at the recent pace or $20-25 million in cash used per quarter (about $110 for all of 2022 is their current forecast), they’d burn through $180 million before the end of 2024. Apparently the market crash, and the sudden awareness that it will be harder to raise money next time, has sharpened their motivation to economize.

Will those next few years lead to riches? Well, that depends on what they produce. They are ahead of schedule when it comes to drug discovery deals (they now have 17 “active programs” with partners for drug discovery, ten of which were signed in 2022), but they do still have to actually get through to identifying viable proteins and antibodies for their partners, and seeing them progress through clinical trials.

If they do indeed get a drug into clinical trials, with Merck or some other partner, that would lead to meaningful milestone payments… Merck is the biggest of their partners right now, and this is how they summarize the deal:

“Under the collaboration, Absci will deploy its Bionic Protein™ non-standard amino acid technology to produce enzymes tailored to Merck’s biomanufacturing applications and receive an upfront and certain other milestone payments. In addition, Merck has the option to nominate up to three targets and enter into a drug discovery collaboration agreement, and Absci would then be eligible to receive up to $610 million in upfront fees and milestone payments for all three targets, as well as research funding and tiered royalties on sales.”

The up-front payments are pretty minimal so far, a couple million dollars here and there, and we don’t really know what the timeline might be for that “up to $610 million” Merck might end up being on the hook for — presumably those payments are scaled, which would mean that payment for identifying a drug, or entering Phase 1 clinical trials, would be far smaller than the eventually milestone payment for Phase 3 trials, or for commercial approval. Still, we need to remember that that $610 million is money that Absci could eventually earn from their Merck deal… not money they are owed or will definitely receive. They did indeed have 37% revenue growth in a recent quarter (that was actually the June quarter), and it was even faster growth in the last quarter (54% in the September quarter)… but those numbers don’t really mean anything yet, the revenue is not at all steady and is certainly not consistently growing. The company today is valued at about 40X trailing revenues, and about 13X the $17 million in sales that analysts think they’l have in 2023.

And after those milestone payments is when the royalties might kick in — if they’re good and lucky, perhaps there will be a drug borne from their programs that ends up getting approved for commercial sale, or even becomes a blockbuster, and they’ll collect meaningful royalties on those sales. They haven’t disclosed the size of those royalties — so it could be 0.25% of sales, or it could be 8%, or higher or lower (low-to-mid single digit royalties seem to be pretty typical, though there aren’t many AI-discovered-target royalties like this to benchmark from).

That’s a LONG way away, however — AI does speed up the drug discovery timeline, and machine learning and data processing can help to select better drugs, at least in theory… but it doesn’t necessarily make the long process of human testing in clinical trials move any faster. Generally, it takes at least a decade or so to go from the proof-of-concept in the lab through human clinical trials (those are the Phase 1, 2 and 3 trials we often hear cited by biotech pitchmen), and through the FDA approval process to reach a commercial launch — so even if the odds improve because an AI platform might give you a better chance of getting a safer or more effective drug, the time-to-market after you’ve identified the target drug you want to develop is still likely to be very, very long.

I’ve seen estimates from early funding rounds that Absci was valued at close to a billion dollars as a venture capital investment for a while, and raised money before the IPO at a valuation in that neighborhood, eventually reaching a valuation of almost $3 billion at the peak in the weeks after the IPO. That would have been tough to justify, of course, but $250 million? That puts it in the “maybe” camp — they’re not going to make any money over the next couple years, but at that valuation, with enough cash on hand to keep the company going for a couple more years, it’s almost like an option on any potential drugs that they might discover. If they get some exciting news over the next two years about one of their early drug candidates, or get another big pharma company revved up offer a more lucrative partnership deal, then the stock will be fun to own… if there’s no exciting news, and the stock flounders around for a couple years and they have to raise more capital while revenue is still very low, and the daydreams of wealth remain well off in the future, well, it won’t be so fun to own.

So yes, this is one of the companies where you have to accept that an investment is inherently speculative… and that judgement calls about the value of the science and the progress they’re making in the lab or in their collaborative work might vary widely among different analysts and investors, and may change over time. Here’s a note from Briefing.com’s summary of a Cowen upgrade back in August, for example:

“Cowen upgraded Absci (ABSI) to Outperform from Market Perform. The firm cites recent validating partnerships and collaborations, a shift to higher value full-tech stack drug discovery deals and more details on their platform performance gained during a lab tour and CTO discussion as having given the firm increased confidence in the company’s technology and growth potential.”

There are lots of companies in the “drug discovery” space, including many in recent years who really talk up the fact that they’re leveraging “AI” or “big data” to more efficiently or effectively identify promising drug candidates — so if you’re looking for comparisons among somewhat larger or more mature companies you might take a gander at AbCellera (ABCL), Schrodinger (SDGR), Exscientia (EXAI) or Recursion Pharmaceuticals (RXRX), just to pull out a few examples . They’ve all done terribly over the past year or so, too, but not nearly as poorly as Absci at this point — and they’ve either got better current cash flow or a little more clarity about revenue growth over the next few years… but they’re also substantially larger, and not quite so dramatically cash-rich (relative to their market cap) that they trade at a discount to book value like Absci.

Absci’s “big picture” potential is summed up pretty well in their latest Investor Presentation, if you’d like to try to wrap your head around what they’re doing, or there’s a plain-language news story from earlier in the year here that gives an idea of how the company sees its path (or a more complicated piece about their NVIDIA collaboration here).

As for me? I love the idea of being involved in drug development technology and getting the long tail potential of royalties in a decade if some of the candidates turn into successful and commercially viable drugs, and I’ve had some experience investing in both drug discovery platforms (Schrodinger (SDGR), quite unsuccessfully so far) and royalty companies (Royalty Pharma (RPRX) and Ligand (LGND), with more success), so I can see being tempted here… but I don’t know what the odds are of Absci finding that eventual success, and the payoff is so far into the future that I probably shouldn’t be dabbling in this kind of stuff — judging preclinical drug development ideas is pretty far from my circle of competence. If you’re much more expert on the science than I am and see great potential, or are looking for a ten-year speculation on something cool in the drug discovery space, well, you may come to a different conclusion. Which is A-OK — it is, after all, your money on the line.

5/23/22 Update: Still no real revenue for Absci, and they’ve burned through another $40 million or so of cash in the last two quarters, with some clear effort to reduce expenses a bit, so no big changes on that front, though they’ve reduced their expected ‘cash burn’ for the year to $90 million, and say they expect to have enough cash either on hand or incoming from current projects to operate into “late 2025” now.

They do have a new “undisclosed partner” as of March, with a Phase 2 drug candidate that will use Absci’s tools to “optimize pharmacokinetic properties”, and have some new early stage drug discovery partners. They’re also trying to lever the AI connection, noting this in their last corporate update:

“Achieved industry breakthrough as the first to design and validate de novo therapeutic antibodies with zero-shot generative AI. This breakthrough unlocks the potential to accelerate time to clinic by over 50% and increase probability of success in the clinic. Absci’s zero-shot model generates antibody designs that are unlike those found in existing antibody databases, in cycle times as little as six weeks, including de novo versions of all three heavy chain CDRs (HCDR123). The data published also demonstrates the effectiveness of Absci’s generative AI platform at generating de novo antibodies that bind to the target of interest, with a hit rate up to five to 30 times greater than biological baselines examined.”

So far, that has failed to generate any AI-driven enthusiasm for the stock, despite the ongoing AI mania. They’re still moving forward, still probably several years from the potential revenue impact of large milestone payments or, further away, royalties on any approved drugs.

So… is this microcap your cup of tea? Too bitter? Share away with a comment below.

P.S. Alexander Green teases four other microcaps in this ad as well, they don’t get the same focus and he doesn’t drop as many hints, but we identified those other stocks in this follow-up article.

Disclosure: Of the companies mentioned above, I currently own shares of Royalty Pharma, NVIDIA and Schrodinger. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.

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Gary Kolb
Gary Kolb
December 6, 2022 4:24 pm

Travis, you did a fantastic job in your analysis of Alex Green’s “Goes All-Inn” “#1 Stock for 2023” as he teases in ads for the Oxford Microcap Trader. You perform a valuable service for all of us investors who are confronted with such ads, especially those of us who are retired and trying to avoid such highly speculative stock recommendations. I am a subscriber to Marc Lichtenfield’s The Oxford Income Letter, and I find it very useful because it focuses on income with some growth. Thanks again, as always, for your insight.

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matsuo
Member
matsuo
December 12, 2022 3:33 am
Reply to  Gary Kolb

Hi Gary, thanks for your information. Do you mind sharing a few tickers from your Oxford Income Letter that you think are really good recommendations? Many thanks.

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charlie1030
Member
May 28, 2023 6:06 pm
Reply to  matsuo

ABR and NWBI are in the compound income portfolio

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Newbie_Investor
Guest
Newbie_Investor
August 25, 2023 11:29 am
Reply to  Gary Kolb

You may wish to check out BRAD THOMAS, of WIDE MOAT RESEARCH, and his Intelligent Income Investor newsletter: He ONLY recommends DIVIDEND-PAYERS (or Sleep-Well-At-Night – S.W.A.N. stocks).

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thinkonitlater
Member
thinkonitlater
December 7, 2022 12:14 pm

They’re going to get swallowed up. Acquired, my projection. Glaxo, JNJ or…then all you get is a premium ( usually, but not always ), minus a corporate action fee. You could end up with less than your investment depending on either your size-in or price positioning. The majority nibbling stands the greater probability of some loss.

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Gerard O'Dowd
Member
Gerard O'Dowd
December 7, 2022 2:39 pm

Travis: I appreciate the list of speculative startup companies in the space compared to small number of successful drug royalty companies. It is a very competitive field. Most on the list will fail because of the reasons you describe re:the extended time of the FDA approval process and the small chances of ultimate approval for any one drug candidate-success is far from guaranteed, though I don’t know the trends of the FDA approval rate of Phase 1,2, or 3 clinical trial candidates during the past decade.

The number of “drug candidate discovery” companies you list reminds me a little of the crowded field of internet stocks in the late 1990’s, many of which failed in the subsequent high tech .com bust. The analogy is imperfect, but I think there was simply too much VC cash in recent years looking for a place to invest in a good story that captured all the buzz words that drove up the valuation of the companies you mentioned in the early funding steps and the sheer number of start up entries in AI/Big Data drug candidate discovery sector. Time will tell if they actually speed up or improve the efficacy and safety of drug discovery.

Look at the investment debacles in Crypto Coin/ Block Chain like FTX in 2022, all over priced speculative plays accelerated by the easy money policy of the Fed Reserve and the dark money of VC partnerships. The era of easy money ended this year; speculative investments like FTX cratered across the board no matter how hyped or promising the story. The amount of Investment Capital lost on Crypto/Block Chain speculations hyped by VC’s and individual investors this year is simply staggering.

It’s also a bit sobering to realize that drug candidate discovery is Big Pharma’s most basic function that it doesn’t need much help doing especially in those therapy fields where in house R&D groups possess deep fundamental molecular knowledge of particular disease states and existing therapy candidates in the published scientific literature.

Most Big Data/AI drug candidate discovery start ups will fail, merge, or be acquired by Big Pharma likely at severe discount to IPO or late VC funding round valuations.

Glaxo Smith Kline GSK could acquire one of them because it is undergoing a restructuring of its early stage drug discovery process in oncology therapy after spinning off Haleon (its OTC consumer drug business) as an independent business this year. GSK might acquire or do an exploratory small deal with one of the businesses on your list. It is a possibility that might help GSK ramp up its early drug candidate evaluation and selection process.

GSK is a deeply discounted value play that has optionality features for future equity price appreciation on potential drug discovery approvals all on its own. Plus it pays a nice dividend.

Wish you and your family a Merry Christmas.

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Paul Mikoll
Guest
Paul Mikoll
December 23, 2022 3:09 pm

I don’t know what Alex is pitching here but I have followed him before and he did recommend Nio when it was around $1.00. I bought and sold NIO about five times when it was climbing in 2020 and did quite well. I also know he is big on BFLY for its CT imaging device that he believes will go global soon and on LBTYA which is British and also in Denver.

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hans hart
Guest
hans hart
January 18, 2023 1:01 pm

Green talks about a drone stock also. I put a little in JOBY, ACHR, EVEX. Sold my LILM. HOPEFULL THX

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hans hart
Guest
hans hart
January 18, 2023 1:13 pm

WHOPS forgot about DPRO . Drone stock that is supplying drones to Ukraine. Up 20 $ today at open. Thx

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Rick May
Guest
Rick May
January 20, 2023 12:15 pm

Do you know what I like about these stock services? Alexander Green’s presentation’s host states that, “He’s beaten the market by 158% since 2001 . . . surviving five bear markets.” Then these two go onto say that he has picked the low a few times and then detailed a number of stocks that Green recommended that had huge gains (one over 3000%). There were enough examples to make one rich, so I ask this question. Why is his return only 158% better than the market?

pepp
Member
pepp
January 22, 2023 9:48 am

ABSI is not in his current portfolio

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french canadian
Member
french canadian
February 3, 2023 6:47 pm

On Februrary 3, 2023, Agora France (Bill Bonner) launched Alexander Green’s “Microcap” teaser. Alexander seems to have partnered with Agora France for a few months by reproducing Alexander’s articles in French, and this Alexander’s teaser seems to be the first in French (featured on video by a French beauty).
The subscription is 1790 € for 1 YEAR whereas with Oxford Club it is only 1795 $ for 2 YEARS.
If it’s more expensive in France it is not only to pay the French beauty’s salary, but maybe because he told the French beauty to give away, without a subscription, a 6th stock that he likes even if it is not exactly a microcap:
STEM Inc. (STEM)

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Marsha
Guest
Marsha
May 23, 2023 6:44 pm

I heard that the doctors who came up with the COVID vaccine did it in a weekend. Did they use AI?

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Marsha
Guest
Marsha
May 23, 2023 6:47 pm

What are Nick Black’s tollbooth AI companies? Thinkolator, who??

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pepp
Member
pepp
May 23, 2023 7:28 pm

ABSI is not in Microcap portfolio. 5/23/2023

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cabaoke
Member
cabaoke
May 24, 2023 12:58 am

Classic chess move. Sometimes the obvious move is the best. In this case I am inclined to think they are just paid pumpers.

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cabaoke
Member
cabaoke
May 23, 2023 7:34 pm

My 2 cents (or maybe a nickel after inflation) I don’t personally like the Oxford club after all their pumping of Foxx Con and Nvidia (Nvidia did go up not for about 2 years after they started pushing it)

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Paul Mikoll
Guest
Paul Mikoll
June 8, 2023 6:39 pm
Reply to  cabaoke

Alex is not pushing Foxconn, he is pushing Hon Hai, 2317 on the TWSE

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sct2ali
sct2ali
May 23, 2023 9:19 pm

Took Alexander Green’s recommendation and bought ABSI on 3 Feb. 23 at $3.40; sold on 27 Feb. at $2.17 – when it dropped below my 25% “sell stop,” falling 36% in less than a month. I felt relieved to exit – even more so lately when ABSI closed today at $1.81, down 47% since 3 Feb. (And, no, I did not subscribe to Green’s Microcap Trader. I never pay for “any” of the various “premium” services hyped by various companies like the Oxford Club. Hard to see ABSI as much of an inducement to shell out $1,795 for such “swell” recommendations in Microcap Trader. ) As Travis notes, Green hasn’t been very stellar with his “special picks” – he’s been flogging Foxconn since 2018; for the first several years, his “pick of the year” never moved at all.

For reasons that are a mystery, to me at least, it’s not unusual for Oxford Club “analysts” to use a stock recommendation to hype a “premium” service and then never include that stock in any of their portfolios. They explain it as certain situations where they feel a company may be of extraordinary value but may not necessarily fit within the selection guidelines of their existing portfolios. In these cases, the recommendations are to be considered speculative and should not be considered part of any of the Club’s portfolios. Just mumbo jumbo nonsense to me.

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charlie1030
Member
May 28, 2023 6:12 pm

ABSI is no longer in the microcap portfolio. It is only in a “special” report. It was in the portfolio in January 2022 but was later dropped after being stopped out. I would venture a few hundred shares now as a speculative risk where you may lose all.

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Logical
Guest
Logical
August 16, 2023 6:44 pm
Reply to  charlie1030

Absi
A bs investment

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