Tobin Smith is quite a blast from the past for me, he was a pretty established newsletter pundit, with a few letters under the ChangeWave name, back when we were launching Stock Gumshoe (we started solving teaser ads in 2007), and then sometime after the 2008 crash he seemed to disappear from the newsletter world, instead popping up on Fox News and renting himself out as an “investor relations” consultant, lending his name to what looked more like paid stock promotions (by 2015, many readers around these parts had a bad taste in their mouth when his name came up, and he had been kicked off Fox’s Bulls and Bears show, according to the Wall Street Journal, because of his stock promotion work).

But now he’s back. At some point in the past year or two, he started to ease back into the publishing world — and is now pushing his Transformity Investor ($97/yr), published by a group calling itself True Market Insiders, (he seems to have joined that group in early March, I think it’s the evolution of a publisher that used to be called Tycoon Report that was putting out stuff by Chris Rowe and Costas Bocelli about a decade ago, sometimes using the highfalutin’ name Institute for Individual Investors).

And the questions are piling up, so I guess we’ve gotta take a look.

His first big teaser pitch for this newsletter is based on the idea that the “decoupling” or “Great Unwinding” will lead to huge disruption in the economy, driven by the re-industrialization of the US as we close down global supply chains, the return to self-sufficient strategies by major countries, and, of course, the rise of artificial intelligence. Here’s the lead-in to the ad:

“‘This is the End of the American Age’

“Don’t let Biden fool you – we’re currently living through the biggest economic pullback since World War 2. And if you’re not taking these 3 steps now, you could lose everything.”

The first step is, of course, “listen to Tobin” and realize that the world is changing, that the US will step back from being the global policeman, other powers will rise, and we’ll refocus on building a supply chain closer to home. The other two steps are the investment ones — essentially, sell the companies who rely on globalization, and buy the companies that profit from deglobalization. As Smith puts it:

“You now understand what is ACTUALLY happening in our global economy beyond all worthless and downright misleading headlines.

“Doing that alone puts you back in the driver’s seat.

“The second step people need to take is a bit more complex.

“It’s the actual preparation work.

“You need to sell stocks that will lose their value during the unwinding event… stocks that are tied to globalization and will take a hit.

“And once you do that you need to BUY the right stocks – ones set to benefit from the unwinding.”

And that’s where we can put the Thinkolator to work a little bit… what clues does he drop about these favorite stocks?

“I’m buying energy stocks by the bucketful.

“As the great unwinding happens, the billions of dollars America was spending buying oil abroad could flow back into our OWN economy.

“And I have one American company I believe could be at the heart of that wealth shift.

“An Oklahoma-based oil company…. With lucrative oil plays in some of our Nation’s best fields…

“We’re talking the Delaware Basin, Eagle Ford, Powder River Basin…

“This company could soar as domestic oil companies enter a brand new American oil age.

“It also pays a growing, hefty dividend – so that’s a plus.

So… hoodat? With those clues, the Thinkolator points us to Devon Energy (DVN) as the most likely match. It’s not 100% certain, to be sure, there area lot of companies who operate in the Delaware Basin, Eagle Ford and Powder River areas, and more than one of them pays a dividend… but Devon is a big and successful leader in those areas, with a market cap around $30 billion, it’s valued similarly to other midsize oil companies (about 5X trailing earnings, 8X forward earnings estimates), and it pays an unusually high dividend. The dividend varies, and it has shrunk for three quarters in a row now (it was $1.55 last Summer, this last quarter it was 72 cents), but if they’re able to keep the payout in this current neighborhood that would be a dividend yield of about 6% (the trailing dividend, with those higher payouts last year, is about 9%, so you’ll still see that listed in some sources). Not shockingly high in the oil space, where there are a lot of good dividends after last year’s pricing boom, but pretty nice.

And his next idea?

“… let’s look at the next big buying opportunity in the great unwinding…

“Green energy…..

“The truth is – in this situation you really can have your cake and eat it too.

“While oil isn’t going anywhere… and will likely remain our dominant energy source for 30 years… but renewables are still happening at a vastly accelerating pace.

“The government is going to funnel trillions of dollars into green energy in the years ahead…

“And that means the right green stocks are still going to soar in value.

“But here’s a secret, Brittany…

“And this is one of the most valuable things I’m going to share with you in this entire presentation – outside of the great unwinding itself.

“Right now, 99% of people investing in green energy stocks are doing it completely wrong.”

So what’s the different kind of green energy that Smith is talking about? Turns out, it’s hydrogen… here’s how he puts it:

“During the Trade War, China threatened to cut rare earth metal exports as a way to make the U.S. comply with their wishes.

“That’s why the government has been quietly looking for a new green energy source.

“One that America can actually control

“And they’ve found one – hydrogen.

“We can use hydrogen to fuel green cars…

“We could use hydrogen to heat our homes…

“Even the military could use it… for tanks and military equipment.

“That’s why the American military has been investing billions into hydrogen research over the last dozen years.”

OK, we’ve seen hydrogen pitches a few times in recent years — any details about this one?

Not really. This is the rest of his spiel:

“I’ve added a very attractive hydrogen company to my unwinding portfolio.

“But could hold the key to powering America’s green energy boom.

“It’s a must-have for anyone serious about renewable energy… who wants to get a piece of the government’s trillion-dollar green energy plan.

“But also doesn’t want to get hit hard when a lot of the battery stocks on the market don’t work out… that’s just the reality we’re looking at.”

He doesn’t get any more specific than that, I’m afraid, so we’re left to guess — my guess would be that he’s promoting Plug Power, which is a stock he talked up during the previous hydrogen fuel cell hype cycle back in 2013-2014 or so. There’s definitely more government funding going into the “hydrogen economy” as part of Biden’s “green infrastructure” part of the spending boom authorized in recent years, but I can’t help but remain skeptical of this one, I’ve been stuck in the skepticism rut with Plug Power for more than a decade and I can’t seem to get out. Which has been good for my portfolio in recent years, the stock is almost back down to where it was in 2014, but if green hydrogen does really take off, and Plug turns out to be a big beneficiary, I’m probably going to have a hard time changing my mind about this one. Here’s what I said when a different newsletter was promoting them as the company behind the “peeing car” that had Tesla scared:

“I’m very skeptical of PLUG, which has raised money on hydrogen stories for 20+ years, and sold tons of fuel cell forklifts, but has never made a profit… it might be that they’re getting more “real” now, helped by more aggressive spending by customers and the government on hydrogen fuel cells and “green hydrogen” infrastructure, but it will take some time for me to get over my skepticism with this one. If you’re looking for optimism, they’re growing revenues at close to 50% a year and think they can be at “break even” in a couple years, and they should have enough cash to keep investing in that growth for at least another year or two. I’m sure we’ll hear more about them in the years to come as the “hydrogen economy” becomes a popular story again, much like it did for a while back in 2013-2014, when the first real hydrogen fuel cell car was released.”

That was back in February, when PLUG had fallen from the COVID mania heights of $70 to about $17, and now it’s at about $9, largely because the future revenue estimates have been coming down and the earnings estimates have been coming down much faster, but they still need a lot of capital for their expansion goals. There’s still lots of talk about making big future investments, maybe with government loan guarantees, maybe with private infrastructure funds, and they think they’ll start to have announcements about where that funding might come from by sometime later this year (they’re trying to put together a package to invest $6 billion in some hydrogen projects in Finland, most recently). It’s a tough time to need a lot of capital, even if you’re in a government-favored business like green hydrogen, so the hype has faded a bit recently.

As I said, though, that’s just a guess. The third pick is in artificial intelligence, and it’s going to sound familiar:

“Thanks to the unwinding, A.I. has become more than just a potential trillion tech boom…

“It is probably our biggest national security priority.

“The U.S. The Department of Defense is even calling A.I. ‘the new oil’ ….

“It’s become very clear this technology is extremely powerful – and the country who controls A.I. will remain top dog.

“With the most advanced military… the most advanced surveillance systems… the most advanced technology companies…

“China and Russia have both invested upward of $300 million in A.I. – and that was just in 2021.

“And the U.S. is going to have to top that…”

It’s not another pitch for Alphabet, NVIDIA or even C3.ai this time, though…

“… they’re not just looking at big FAANG stocks – that money is also going to flow into small A.I. companies…

“Companies that NO ONE has heard of, but are providing critical hardware and software for the A.I. megaboom.

“That’s where the real opportunity is here…

“I even have an extensive 40-page report just about A.I. that you won’t find anywhere else…

“It names a $2 with 20x potential…

“I’ve nicknamed it ‘The A.I. Masterkey.’

“And I want to bring it up because – while I can’t tell you it’s a ticker on camera…

“This is an incredibly small company… and announcing it to the public through a huge forum isn’t an option…

“This stock is truly the perfect example of the kind of research you’re going to be getting if you join the Transformity Investor community.”

In looking at Tobin Smith’s activity over the past few months, I think I know what he’s talking about… but let’s hear the final clues first:

“I’ve already had multiple private conversations with their founders…

“You’d like them – both smart guys.

“No one in the Wall Street crowd is talking about this stock – which is crazy, because it’s already clear – this is going to be huge.

“… this tiny firm is also doing something entirely unique…

“I’m talking about a revolutionary advantage… not even Google or Facebook has figured it out.

“And I believe it’s going to become a real goldmine for investors.

“… this company has built the internet – but for A.I.

“Literally any company working with A.I. could need to deal with this company.”

OK, so we can be pretty sure that Tobin Smith is still talking up the same AI stock he’s been touting repeatedly on Twitter over the past few months — and it’s the same one you’ve seen in a lot of paid stock promotions recently, too, a little firm called Verses AI (VERS on the NEO exchange in Canada, VRSSF OTC in the US).

I have a hard time taking companies seriously when my inbox is full of paid promotions, but those promotions and the AI connection are certainly having an impact, and maybe Tobin Smith and other pundits who have latched on to the story are helping as well. Smith has been touting the stock since at least March on Twitter, here’s the earliest one I noticed…

And that particular special report is still linked for free from his Twitter feed, so you can check that out if you want his reasoning. He says it’s a buy below $2.50 and has a $25 target over the next two years. At the time, the stock was around a dollar in the US pink sheet trading, now it’s right around $2.50.

So what do we know about Verses, beyond the hype and Tobin Smith’s endorsements and the many paid promotions we’ve seen of the stock? They have a big picture investor presentation that will probably get you excited (that’s what it’s supposed to do, of course), and they base a lot of their goals and projections on the idea of the “Spatial Web,” as co-founders Gabriel Rene and Dan Mapes describe it in their book of the same name. The big push is for their Kosmos operating system, which they envision as the key infrastructure for running AI applications (including tools to build apps, distribute them, and sell them), and their initial products to pilot this platform are tools called Wayfinder (for mapping a picking route in a warehouse), a Datalens tool to analyze warehouse systems, and a research project on urban air mobility called Guaradion, which sounds like it’s a planning tool for urban airspace in the drone age. They have a pipeline of projects that they envision as working through a “General Intelligent Agent”, which they describe as a AI personal assistant for everyone that will be available this summer, though details are otherwise sparse on that.

This is by far the most heavily traded stock on the NEO exchange, which was mostly home to cannabis companies a few years ago, and it trades in pretty heavy volume for a penny stock, about 2-3 million shares a day. What it doesn’t really have yet are any meaningful financials. We do know the share count, at least, they came public through a reverse merger with a shell company about two years ago, and they’ve raised a lot of money through private placements and warrants. According to that investor presentation, they have about 152 million shares outstanding (fully diluted, including founders shares), which would actually mean that the company is trading at a market valuation of just under $400 million (most sources will list a market cap of $160 million, but that’s just based on the publicly traded 65 million or so shares that are currently liquid).

Beyond that, though, it’s essentially a startup with a tiny amount of revenue from pilot projects. That puts them in a similar boat to the big wave of venture-funded AI projects that are hoovering up money from VC firms right now at $100+ million valuations (here’s one list of a few, just to give you an idea of how many people are chasing this theme). They do have both the advantage of being public (which lets them control the story, and take advantage of a public mania), and the disadvantage (every time they raise money, the current owners will be angry about the dilution… and they’ll be watching the income statement each quarter).

This is still very much a promotion and R&D story, in the most recent quarter they’ve so far reported (December 31), they had about $1.5 million in R&D spending and almost $600,000 in “investor relations” spending, which is where those promotional materials and conference presentations many of you have seen will have come from. I’d be surprised if those expenses didn’t rise in the last quarter, but don’t know when they’ll be reporting their March quarter. Their revenue was $560,000 in the December quarter, mostly from completing some pilot “proof of concept” contracts, which was twice as much as the quarter before but, of course, still small when measured next to their net loss in the quarter of $4.6 million. In some ways, this looks like the kind of income statement you see from a biotech startup — you have to go in acknowledging that they’re going to burn money for a while.

And those early stage projects are not steady on the revenue line — their revenue in the last nine months was actually lower than the same period in 2021, because they had a SaaS project with $2 million in “set up” revenues back in 2021, though their expenses soared from about $2 million in the comparable period of 2021 to about $12 million last year. In the final nine months of last year they raised about $10 million and spent about $13 million, so they should have had enough to get them through the first few months of this year, though they raised another $7.5 million in a convertible debt offering in March (all those numbers are in Canadian $$, just to be clear).

There is still plenty of news flowing into the company, their CEO gave a speech at the LD Micro conference on Monday of this week, they claimed a “technical breakthrough” and patent filing in a press release about two weeks ago, and they’re trying to participate as “thought leaders” in AI in collaborating on a special report called The Road to Autonomy.

It’s all pretty impressive looking, and it may well be that the story will drive them further than anyone imagines… who knows, maybe Tobin Smith will be right and they’ll turn into the leaders of AI — it’s just that I have a hard time imagining that, and with so much money flowing into AI from so many large companies and governments, I would put the probability of a leader emerging from a highly promoted penny stock at “very low.” Not impossible, just improbable… which means, don’t get your hopes up too much. The stock could certainly go up a lot higher if the AI mania continues to build, even if they don’t turn into a viable company (it’s up more than 400% since January, after all, people don’t spend time dithering about balance sheets and dilution during a mania)… so I won’t try to talk you out of speculating on a highly promotional penny stock that’s burning cash, I agree, it’s a fun story. I’ll just remind you that it is, indeed, a speculation — they are talking up products and leadership, but there’s not much evidence yet of commercial viability.

Who knows, maybe Tobin Smith would even agree with that — in the past he was all about buying into big trends and changing technologies, and if you wait until these little startups really make sense and have sustainable businesses that have proven to have some appeal in the marketplace, well, you might have to pay more for them. That’s the payoff… participate early, and know that the company’s chances are slim, or wait until the risk is burned off a bit, they’ve raised a lot more money, and the path seems clearer. With this one, I’d personally be inclined to wait, I guess I just don’t trust glitzy ideas that present at LD Micro and spend lots of money attracting investors before they’ve got a real product that customers are buying. I suspect that I would make a terrible venture capitalist.

They ought to have some quarterly earnings coming out at some point, their quarter ended more than two months ago and they’ve continued to raise money, so perhaps that will be the next bit of news, either bad or good.

Lots of readers have asked about this one, or talked up the potential in emails to me or in comments here on the site, so you won’t have to go far to find someone with a lot more enthusiasm… I’ll turn it back over to you, do you want to buy into the Verses AI story? Think the wave will lift this penny stock to the heavens, or that their product introductions later this year will turn into revenue-generating hits? Prefer to wait and see that revenue come in first? Do let us know with a comment below.