We turn once again, dear friends, to my favorite kind of newsletter teaser ad: the promotion of “one little company” as the linchpin investment for exposure to a huge global trend.
This time, it’s Alex Koyfman promoting his Penny Stock Millionaire newsletter ($999/year) by promising to reveal the name of a little “Super Battery” company that is “taking on the $100 billion lithium-ion market.” Sounds delicious, no?
The big picture stuff you probably won’t quibble with much… “batteries are important” … here’s some of the spiel to get you warmed up:
“In the world of tomorrow — and I don’t mean in 30 years but in the next five, maybe eight — the bulk of the machines you see on a day-to-day basis will become powered by lithium batteries.
“Lithium already has a monopoly on the small devices, but it’s the large ones that will make the most significant impact in the coming years.”
That has been the driver for every pitch about lithium over the past decade: Demand for lithium ion batteries will grow incredibly as soon as the volume of electric car production really picks up, just because electric vehicles demand such large batteries.
And this is not a lithium miner we’re being pitched this time, it’s a technology company that’s apparently building something better than the current lithium-ion battery:
“… the real opportunity this presents isn’t to the makers… It’s to the companies that innovate on the existing product.
“With the race for the highest capacity, the shortest charge time, and the longest service life now in full swing, companies making even incremental improvements to the battery will inevitably be at the center of attention — both for their patents and for their shares.”
It’s not just a small development, either…
“I’m not talking about incremental improvements here, but a dramatic, multilevel evolution that will give us a vastly better battery, while at the same time making the production process simpler, more efficient, and less taxing on the environment.
“This revolutionary new process dramatically reduces the number of required steps, as compared to current industry standards, taking the production cycle down from as long as a week to less than a day.
“The end result: a battery that can last two to three times longer, store more energy over its lifetime, and deliver more power, while reducing operational and raw materials costs, with an overall cost decrease of up to 40%.”
That certainly sounds like a big deal, though similar promises have been touted for a lot of competing companies who are trying to develop new battery technologies of one kind or another.
So how about some specific clues?
“The company I’ve been talking about has more than 40 patents at various stages of issue, funding from the Canadian government, and collaborative product development deals with a major French multinational, as well as a Chinese cathode producer.
“In a climate where the big brand names are scooping up smaller companies with innovative new products, this hits all the desired check marks.”
And what about the actual product this company is making, if any?
“Figure out a way to make a better cathode, and your resulting battery will charge faster, hold more charge, and last for more charge/discharge cycles.
“So it makes sense that if a company is setting out to make the world’s most effiient, cost-effective battery, the cathode is where it’s going to focus its effort….
“Today, that is exactly what this company that I recently discovered is doing.”
We’re also told that it has a market cap under $70 million, is “barely out of the start-up phase,” and has 12 patents granted globally (plus more than 30 pending or in the application phase). Number of patents doesn’t mean much, of course, it’s the value of the patented technology or device or technique that matters (many companies have hundreds or thousands of patents that have no discernible economic value), but having some patents does, at least, lend a little gravitas and protect them if they do have developed something that’s genuinely unique and valuable.
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“… with collaborative development deals in place with major European and Asian battery makers, it’s advancing rapidly to bring its technology to the consumer market…
“Not to mention the pipeline of top-level auto companies, cathode manufacturers, and other supply chain strategics they are working with to bring deals across the line.”
And Koyfman also tells us that the company is financed through the first quarter of next year… which doesn’t mean all that much, that’s less than a year and they’ll presumably want to raise money before they start scraping the bottom of the barrel, but it’s at least an indicator that they’re not currently desperate.
What is the opportunity for the company? Apparently it’s in licensing producers who will build new assembly lines to commercialize their cathode technology… so that’s good, huge materials-producing companies tend to have low margins, and you probably don’t want a tiny company that’s trying to build giant industrial cathode plants with its own money:
“Each line that gets built using the companies technology could generate $5 million in revenue per year….
“To meet the demand of the market, 100s of lines would be needed.”
We do get a chart showing the stock’s move from about $1.10 back in September to $1.65 at the February peak, and about $1.30 headed into April. That should help us confirm the Thinkolator’s results.
And, of course, when you trot out the stock charts in a newsletter promo, you can’t stop at one — so they show the gains of the past six months or so in a lovely little chart, with 65% peak gains recently, but they compare this to some other companies you might have heard of and show those charts alongside… so your mind begins to connect the idea being touted by Koyfman with those other companies, which happen to be Netflix (up 3,000%+), Apple (up 2,000%+) and Amazon (up 5,300%+).
That’s not all, though, Kofyman also tells us that the opportunity here is better than the opportunity early Apple, Amazon or Netflix investors faced… because his company “isn’t going to make you wait” until the stock is a household name to let you buy shares. I’d insert a cynical little “harrumpf!” here, but you can probably do that for yourself.
So… what’s going to cause the stock to rise?
Koyfman says, “what we’re waiting on now is one or two major press releases, and things will really pick up.”
So that reminds us that yes, this is a company that will be entirely driven by sentiment and the flow of new investors to the “story” — and what causes a flow of investors? Well, a newsletter recommendation or big promo campaign to investors certainly often helps, which is what we’re seeing today, and so do press releases that grab our attention with big contract wins or joint ventures or things like that. With a penny stock like this, it doesn’t take much.
And, of course, the strongest possible motivation for penny stock touts is “FOMO” — the Fear of Missing Out, which is sometimes the only motivational trigger left when you’re in a soaring market.
So we’ve let the cat out of the bag a little — and yes, I can tell you that I’ve already consulted with the Mighty, Mighty Thinkolator… and this stock is Nano One Materials (NNO.V, NNOMF).
Nano one is, well, small — no surprise there. It’s even small compared to a lot of the silly little startup CSE-listed marijuana stocks, the market cap is only about C$85 million, so if you translate that into real money it’s only $63 million (that’s at the current 96 cents a share, C$1.29… and yes, I’m joking with the “real money” jibe, we love Canadians here at Stock Gumshoe, and knee-jerk reactions mocking Canadian dollars are, well, a dime a dozen up here in New England).
And yes, this is a company that is trying to develop new solid-state battery materials, primarily cathodes, and commercialize them with partners. They’re still at a very early stage, here’s a quote from the CEO in their latest press release:
“There is a global effort underway to increase the energy density and safety of lithium ion batteries, and solid-state batteries are one of the more promising solutions. Nano One has developed a number of cathode materials and processes that have caught the attention of the industry, primarily from within the automotive sector. We have many third-party evaluations now underway with the goal of partnering to make solid state batteries a reality.”
And the clues do all match — they say they’ve received more than $4 million in grants from the Canadian government over the years, that they’re financed through the first quarter of 2020, and that they have a bunch of patents (their investor presentation says 9 patents and 30+ pending, but that was as of October and they’ve gotten three patents approved since then, one each in the US, Canada and China).
The big picture pitch is that “solid state lithium batteries will be huge,” and that’s a contention shared by many in the industry — though there are lots of different competing technologies for building different kinds of solid state batteries. “Solid state” in this case just means a battery that uses some kind of solid — maybe a polymer or some kind of thin film or whatever else — instead of a liquid electrolyte, and that can make for much more flexibility in form factor for batteries but, most importantly, it improves safety… the liquid electrolyte is what presents the most fire risk for lithium ion batteries if they’re pierced or have some similar problem, so it’s understandable that car companies trying to develop safer electric cars are among the first possible customers for solid lithium batteries.
Will Nano One be the company to develop cathodes for that critical technology, or win the technology race? I have no idea. They have, they say, “active opportunities” with 16 battery makers and tier 1 automotive companies, and a pilot plant that they can use to simulate at-scale production for these partners, with preliminary plans for a larger production unit that could handle 3,300 tonnes/year of cathode material (which would be enough for 24,000 smaller-battery electric vehicles), but they’re not actually selling anything to anyone yet. I’m not a part of this industry, but I would assume that all the big automotive electronics and battery companies are partnered with multiple R&D projects and exploring lots of different designs or technologies or materials for next-generation batteries, there’s no reason to commit to a single design or technology until there’s some certainty that it can work and be safe, efficient and cost-effective.
So as far as I can tell (which isn’t very far), pretty much everyone is still in the R&D/exploration stage still with these solid state battery materials, and I don’t know if this is going to be an industry that lends itself to one solution or to hundreds of slightly different solutions, but I’d guess the latter. Since there are dozens of smallish battery tech companies just on the public markets, let alone the many projects and technologies that are still in university labs or more secretive private or venture-funded startups (or within the battery companies themselves), I know only enough to tell you that I don’t really know anything.
The story sounds fascinating, as did the “Quantum Glass Battery” pitch from Matt McCall a few months ago (I went into quite a few of the smaller players in covering that pitch), and the most interesting company touted by McCall back then, Illika, is similar to Nano One in that they’d like to pursue growth through licensing, but if I were to invest in this industry I’d want to understand it a heckuva lot more than I do.
There’s a good rule for investing in R&D or “breakthrough technology” kinds of stocks, whether they’re in biotech or technology or an affiliated area: If you invest in companies like these and you’re not an expert on the competitive landscape in battery technology, you should probably assume that the person who sold shares to you is an expert, and bid accordingly.
I’m often tempted to buy shares of companies who are working in areas that I don’t really understand, and it’s usually a mistake… but the temptation is real, and sometimes the stories do work out. If you do dabble in hugely speculative stocks like these, little R&D projects with no revenue, no real products or orders yet, and an ongoing need for more financing, at least try to think more about risk than about those dreamy 100%-in-a-day returns when you’re deciding on your position size, and think about whether you’re betting on some dumber investor coming along to bid it up in a few months, or are really speculating on the long-term development of a specific technology.
The only way to be really comfortable betting on stocks like these, in my mind, is to get to know them well, try to think about what information you’d want if you were on the board and watch their progress and their description of their progress closely (pre-revenue companies almost habitually “move the goalposts” when talking about their plans and progress)… and then go in with a small position, a lot of patience, and the assumption that you will probably lose 100% of your investment. Think of it as a hobby — hobbies are often expensive and time-consuming, but in indulging your hobby you can also build your experience and expertise (or at least learn some expensive lessons).
The daydreams about 500% or 1,000% (or more) returns in five or ten years are what keep you warm at night and keep you excited about new ideas, but you don’t need anyone to reinforce those, the market is designed to keep that profit-lust fire burning at all times… it’s the sober and firm assumption that you’re risking 100% losses in each position like this that will let you keep high-risk speculations small, and help you to avoid blowing up your portfolio along the way.
So that’s my final sermon for the day: Keep the dumb bets small.
Which means its time to turn it back over to you, my favorite readers — have any thoughts on solid state batteries? Have you developed some industry knowledge that helps you separate the Nano Ones from the Illikas and Solid Powers and Quantumscapes and Ionic Materials of the world? Think one or some of them are a solid bet, or want to nibble on them all? Is this all just a pig in a poke? Let us know with a comment below.