This article is excerpted from Tom Yeung’s Moonshot Investor newsletter. To make sure you don’t miss any of Tom’s potential 100x picks, subscribe to his mailing list here.
Crypto Frauds Making the Case for Stocks
“More pizzazz than Genghis Khan…”
“The Crocodile of Wall Street…”
Wall Street pundits and tabloid writers found a common fascination this week after a New York duo was detained on crypto conspiracy charges. On Tuesday, Federal authorities charged “Razzlekhan” and her “occasional magician” husband with attempting to launder $4.5 billion worth of Bitcoin (BTC-USD).
“The hackers must have been framed,” one Twitter (NYSE:TWTR) user quipped. “I can’t believe these people controlled keys worth 4bn in bitcoin.”
But it isn’t the first multibillion dollar crypto loss to leave shortchanged investors face-palming. In 2014, investigators found that the Mt. Gox Bitcoin exchange had lost 850,000 BTC (worth $36 billion today) over two years by miscategorizing thefts as deposits. And who can forget QuadrigaCX, a crypto exchange where 26,350 BTC essentially vanished after its founder died without leaving behind the wallet password?
Meanwhile, stocks have had an incredible run. Osisko Mining (OTCMKTS:OBNNF) has already returned 18% since I wrote about it two weeks ago. And the other two picks from that Jan. 27 newsletter haven’t been slouches either.
You’ve heard about Momentum Master crypto all week. Today, we’ll take a look at the other winning strategy I use during times of turbulence:
The Insider Track.
Look at What Insiders Are Doing…
The premise of the Insider Track strategy is maddeningly straightforward. If corporate executives are buying shares in their companies, it’s good odds they know something we don’t.
Consider Rise Gold (OTCMKTS:RYES), a Vancouver-based gold mining firm that owns a California mine.
Two weeks ago, insiders started buying up shares in the beaten-down stock. $280,000 for two directors… $20,000 for the CEO… $20,000 for a non-executive director… It wasn’t exactly clear why at the time.
And then the following week, the company was prominently featured in The Atlantic as an example of a turnaround:
“Gold mines are reopening in places where mining was once thought to be economically unfeasible,” the story went. “Rise Gold… has reason to believe that reopening [the Grass Valley mine] makes financial sense.”
Shares have since risen from $0.41 to $0.65, a 58% return.
…And Add a Bit of Analysis
Insider Track investing also requires some good old-fashioned stock analysis.
When Brandywine Realty (NYSE:BDN) triggered a “buy” last week, I knew to ignore the signs. The C-level “purchasing” was nothing more than an accounting mirage of vesting shares.
Meanwhile, insider purchasing at Longeveron (NASDAQ:LGVN) was a sure-tell sign. Shares would end up rising 10x.
2 Stocks Insiders are Buying: Taysha Gene Therapies (TSHA)
When it comes to insider buying, biotechs are a great bet. Only a tiny sliver of data gets published in clinical trials, giving insiders an informational advantage over outside investors.
And that’s why rare disease firm Taysha Gene Therapies (NASDAQ:TSHA) is so intriguing.
In January, the company published a 12-person study suggesting that its TSHA-120 treatment is effective in staving off GAN disease. The stock didn’t move far that day; most clinical trials require far larger studies to gain Food and Drug Administration approval.
But insiders didn’t seem to care:
- 10% Owner. Bought $1.5 million
- Directors. Bought $103,000
Shares have since advanced 10%.
There are two potential reasons for their bullishness. The first is obvious: Rare diseases often get “free passes” from the FDA. With only 1,200 people suffering from GAN in the U.S., running a massive clinical trial is a mathematical impossibility. Instead, regulators will often grant approvals for a much smaller sample.
The second reason is more speculative. Taysha is developing a novel platform for AAV-based (Adeno-associated virus) gene therapies. Initial results might have not only proved that TSHA-120 works…
…its AAV-based platform might too.
Harrow Health (HROW)
Occasionally, the biotech industry throws us a curveball. And Harrow Health (NASDAQ:HROW) more than fits the bill.
Last week, top-ranked Opaleye Management added another $46,000 to its HROW stake. The Boston-based hedge fund now owns $27 million of the small-cap stock.
Yet other insiders have been quiet. No one else has followed the hedge fund’s lead, despite the fact that Opaleye is a top-100-ranked stock picker, according to TipRanks. And no major clinical trials stand out among the firm’s four candidates.
That gave me a reason to take a deeper look.
And spoiler alert: I like what I see.
It turns out that Opaleye is a value buyer when it comes to HROW. The hedge fund added almost $2 million to their position last year in the $7 to $8 range, and stopped buying the moment shares went above $8.50.
A look into the firm’s financials backs up that point. Harrow Health generates its value from ImprimisRx, a lucrative business that distributes drugs to eye doctors. The company is taking that revenue and plowing it back into R&D. It’s as if a distributor like AmerisourceBergen (NYSE:ABC) teamed up with a pharma development firm: Any new product could instantly receive placement in the marketing pipeline.
In other words, Harrow provides the best of both worlds — a steady stream of income from its traditional business, and upside potential from the development companies it holds. Managers at Opaleye clearly have that in mind.
The $16.4 Billion Insider Sale
When Tesla (NASDAQ:TSLA) CEO Elon Musk announced he would sell 10% of his shares, investors would have been wise to follow suit. Mr. Musk has an enviable record in trading TSLA shares, even ostensibly flouting SEC rules on previous occasion.
In 2019, the billionaire bought shares just as the firm was going through closed-door talks with its bondholders. Shares would rise 300% within a year.
This time around looks more like the opposite. In January, the company announced it would recall nearly 500,000 vehicles over safety concerns. And this week, the firm said that faulty software in another 27,000 vehicles had caused heat pumps to fail.
Tesla is no stranger to quality issues. In 2020, the company saw 2.5 problems per vehicle, according to an analysis by JD Power (BMWs have a third fewer issues). And even Tesla fans (like myself) routinely admit that build quality isn’t their strong suit.
But Tesla’s momentum is fading.
Since reaching an all-time high of $1,243, TSLA has struggled to regain retail imagination. Mr. Musk’s share sales seem to have hit a nerve.
Though the electric vehicle revolution is well on its way, Moonshot investors might want to think twice before choosing this trillion-dollar firm as their next 10x bet.
Moonshot readers will know by now how much I appreciate biotech bets. These firms live and die by their clinical trials, making it easy for anyone with insight to gain an edge.
The industry was briefly turned upside down in the mid-2010s when Valeant Pharmaceuticals (now Bausch (NYSE:BHC)) inadvertently started a rush to vertical integration. For several years, creating winning drugs wasn’t enough. You also needed to convince regulators to look the other way while you bought out other drugmakers and raised their prices by 1,000%.
Fortunately, much of biotech has turned away from that model. Today, most of the industry keeps a separation between marketers (Pfizer (NYSE:PFE), AstraZeneca (NASDAQ:AZN)) and developers (BioNTech (NASDAQ:BNTX), the Jenner Institute).
Occasionally, companies like Harrow Health dabble in both. But investors can’t net the potential profits of playing both sides without taking on some additional risk; they’ll need to keep a careful eye out for the same pricing shenanigans cropping back up.
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.