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.
VOLT Information Sciences Gets Bought… at a 100% Premium
Regular Moonshot readers will know I’m something of an agnostic when it comes to investment styles.
Tech… Crypto… Commodities… Deep value… OTC penny stocks…
When it comes to picking big winners, you don’t get any points for style.
That’s sometimes driven my fellow analysts at InvestorPlace crazy. What kind of analyst writes about Dogecoin (DOGE-USD) and Peabody Energy (NYSE:BTU) in the same sentence like I just did?
But these wide-ranging investments can pay off handsomely when they’re one-sided bets. Just ask any investor who bought into Longeveron (NASDAQ:LGVN) on my recommendation.
And if you’re willing to get down-and-dirty with the investments that Wall Street generally shuns, you’ll end up with companies like Volt Information Sciences (NYSEAMERICAN:VOLT), my No. 2 overall pick for 2022.
How to Gain 100% in 24 Hours
This NYC-based staffing firm was a typical deep-value play — a medium-cap firm trading at a deep discount and roundly ignored by Wall Street analysts. When was the last time Goldman analysts got excited about a staffing firm?
But then came a major twist:
Labor markets became astonishingly tight.
While Goldman analysts sit in their offices predicting $200 barrel oil and a thousand new wells, the drillers are asking themselves, “Where am I supposed to find another 100 to 200 technicians to dig these holes — just as everyone else is doing the same thing?”
And that’s why Volt has been such a winner. With E&P (oil exploration and production) firms paying handsome premiums for skilled workers, VOLT suddenly has the kind of pricing power that comes around once a decade.
On Monday, the firm announced Vega Consulting was buying the company for $6 — in cash.
Not some vague merger with a tin of Grandma’s homemade cookies as a kicker.
Investors who bought Volt are now turning their $2.95 entry price into a 103% return.
And if you missed out on my #2 pick for the year, there’s still time to buy my #1 Moonshot pick for 2022.
The Little Marijuana Stock That Could
Admittedly, my top pick for 2022 was chosen at the worst possible moment. Valuations in high-growth companies have collapsed this year; the once-high-flying ARKK Innovation ETF (NYSEARCA:ARKK) is down 42% and now trades below its pre-pandemic price.
My #1 choice was no different at first. Shares in the fast-growing company also lost 40% in the first eight weeks of the year.
How things have changed.
Since February 24, shares have rebounded on the realization of the company’s fundamental value. It’s now 10% higher than when I first recommended it in August.
The company? POSaBIT Systems (OTCMKTS:POSAF).
Investing in Growth Stocks… With Style
POSaBIT is one of my favorite types of growth stocks — a cash-generating business trading at a massive discount. The small-cap company generated $1.3 million in adjusted EBITDA last year and expects revenues to grow another 100% next year.
As for its business, POSaBIT has quietly become king in the point-of-sale (PoS) industry for cannabis dispensaries. No U.S.-listed company can deal in Schedule 1 drugs. So, unlike Square’s parent Block (NYSE:SQ) — which found themselves spending billions to muscle into the industry dominated by Fidelity National Information (NYSE:FIS) and Fiserv (NASDAQ:FISV) — Canadian-listed POSaBIT has waltzed in with virtually no competition.
And the best part? POSaBIT shares are priced at 3.4x forward revenues, making it less expensive than the 3.7x multiple of FIS and FISV.
For a company growing as fast as POSaBIT, that’s ludicrously cheap.
That’s why individual investors have an edge. If you’re willing to buy an ugly duckling, you’re going to outperform those who settle for something “easy” like Apple (NASDAQ:AAPL).
Selling Moonshots on Re-Entry
Last week, I received a reader question:
“I would… like to understand how to play such moonshots. For example, when [ENSV] skyrocketed today, I sold some at $5.5, then it went further up, so I sold some at $6.80, then it wet down to $5.25 so I sold more. Then later it shot back up to $8…”
The same reader also bought Longeveron at $3 and sold at $12.
The biotech would ultimately surge to $45 before dropping back again.
So how do you know when to sell?
Strategy 1. Fundamental Value: Sell On the Way Up
When it comes to deep value stocks like Enservco (NYSEAMERICAN:ENSV), Volt or Summit Midstream Partners (NYSE:SMLP), investors need to sell on valuation.
Consider SMLP. Midstream oil & gas assets are typically worth 10x to 11x EBITDA, so an “average” valuation for Summit takes its $210 million EBITDA, multiplies it by the 10.5x midpoint and subtracts its $1.35 billion net debt. I know it’s boring, but here’s the best part of this $15 stock.
The outcome? $120/share, a 700% upside.
Sometimes, these figures come with uncertainty.
- High end. If SMLP produces $250 million EBITDA and markets value the firm at 12x EBITDA, we’re now at $230/share.
- Low end. $200 million EBITDA at 9x is $62, and so on.
Other times, a $6 cash offer for VOLT gives it virtually 100% certainty. The larger the “uncertainty factor,” the more you should sell on the way up.
So if “uncertain” SMLP starts rising from $15 to $80… $100… $120… I’d be selling a little bit all the way to the top.
Strategy 2. Speculative Bets: Sell On the Way Down
Meanwhile, speculative companies like Longeveron or GameStop (NYSE:GME) are the opposite. Is GameStop a $100 company? Or is it a $500 one? Who really cares. Reddit investors are buying as long as prices are going up.
Here’s where I use my Momentum Master strategy to sell.
It’s a straightforward rule. Once prices drop below a predetermined moving average, I cash out. In other words, I’m selling on the way down.
As for which moving average, you have a choice between a variable moving average (VMA) or a standard 25-day one. The shorter the moving average, the sooner the sale.
Timing Your Sales
These two strategies obviously produce different results. Selling on fundamentals means you’re slowly reducing positions as prices rise. Meme stocks mean cashing out 100% once they start falling.
How quickly you do so is a matter of choice.
I’m naturally a tortoise when it comes to profit-taking because taxes on short-term gains are as high as 37%. To counter that tendency, I adjust my strategy to force sales earlier than I normally would.
On the other hand, some investors are hyperactive as a gerbil on caffeine. These are folks who sell the moment they see 20% gains, so they need a strategy that slows the time they take before cashing out.
Whatever your strategy, you’re aiming for a happy medium between selling too early and selling too late.
The Future of Moonshots
You’ve probably noticed some changes here at the Moonshot Investor. Fewer meme coins and NFTs, more deep value plays and commodities.
That’s no accident. In October, I wrote that Fed Chair Jerome Powell was signaling the top of the market. Stocks and crypto would peak three weeks later.
Today, America is faced with two new threats:
Millions will see their life savings shrivel away. Five years of 7.9% inflation will shrink the value of $100,000 into $68,000. Ten years will have melted it to a paltry $46,000. And if we’re banning Russian oil and Chinese goods at the same time, whatever you’re left with won’t go nearly so far as it does today.
The Moonshot Investor will be helping readers avoid such a disastrous outcome in two ways.
First, we’re going to outrun the problem. If your Moonshot portfolio doubles in value, who cares if inflation was 15% last year?
Second, I’ll tackle the issue head-on. Many stocks offer protection from inflation, and a return to U.S.-based supply chains will make certain companies — like 3D printing firm Desktop Metals (NYSE:DM) — no-brainers.
As markets move from zero-revenue tech stocks to one wary of a growingly assertive Russo-China alliance, InvestorPlace and I will be doing our part to help you navigate this new reality. We already know that Jerome Powell rang the bell at the top of the market. Now it’s time to protect ourselves from the years of turmoil to come.
P.S. Do you want to hear more about cryptocurrencies? Penny stocks? Options? Leave me a note at email@example.com or connect with me on LinkedIn and let me know what you’d like to see.
FREE REPORT: 17 Reddit Penny Stocks to Buy Now
Thomas Yeung is an expert when it comes to finding fast-paced growth opportunities on Reddit. He recommended Dogecoin before it skyrocketed over 8,000%, Ripple before it flew up more than 480% and Cardano before it soared 460%. Now, in a new report, he’s naming 17 of his favorite Reddit penny stocks. Claim your FREE COPY here!
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.