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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.
War Puts Investors on Edge
Over the past week, investors have balanced humanitarian concern over conflict in East Europe with the fear of losing money (or worse… missing out). Ask any asset manager how to make money right now, and you'll see them squirm at the thought of war profiteering.
The tension is understandable. Wall Street veterans who quip that it's time to buy "when there's blood in the streets" surely aren't thinking about actual bloodshed. On the other hand, my first foreign assignment ended after a bullet came through the office window.
I actively encourage anyone with the financial means to help where they can. And though investing is one of the last things on most people's minds right now, it's more important than ever to keep a level head and diligently manage your portfolio. When the global situation is changing as rapidly as this, investors have to stay on their toes.
Conservatism Works, Even in Moonshot Investing…
I'll be the first to admit: finding high-quality Moonshots is hard.
With the exception of biotechs (which need FDA approval for human trials) pretty much anyone can start a tech firm and claim they're doing something special.
- No product? No problem. Companies like QuantumScape (NYSE:QS) and Nikola (NASDAQ:NKLA) have raised billions from investors looking for the next Tesla (NASDAQ:TSLA). Both have since fallen 85%.
- Former scam artist? There's still crypto. In January, DeFi platform Wonderland (TIME-USD) revealed that one of its co-founders was Michael Patryn, a serial crypto scammer. At one point, TIME was worth $11 billion.
Meanwhile, regular readers will know The Moonshot Investor generally avoids these hyped-up stocks. Only so many $50 billion unicorns ever fatten up into $500 billion behemoths.
Instead, I've always prefered "safer" high-growth bets like Camtek (NASDAQ:CAMT), Unity (NYSE:U) and POSaBIT (OTCMKTS:POSAF) that have room to grow. These "Mini-corns" also have sought-after products, giving them the luxury of improving existing products rather than creating a market from scratch.
…But Moonshots Are Also a Numbers Game
However, the market occasionally throws us a curveball. These are companies with questionable technologies, but price tags that are hard to resist.
And the most recent candidate?
Nano One (OTCMKTS:NNOMF).
At first glance, investors will understand why I've avoided this Canadian-based lithium play until now. For years, Nano One has been developing a process to improve the cost and performance of cathodes in lithium ion batteries. But despite millions spent in R&D, its patented "One Pot Process" (a name that sounds more like my abilities in the kitchen) still only offers vague promises to use "a fraction of the carbon footprint and potential savings of many $1000s per tonne." It still lacks any paying customers.
Understandably, shares have since fallen from its 2021 peaks. Its enterprise value now stands at $168 million, 70% lower than its all-time high.
And that's where the numbers game comes in.
Fancy a Gamble?
Investors are now faced with a tantalizing wager. If Nano One succeeds in creating a superior lithium-ion cathode, its OTC shares are easily worth $8, a 320% upside (And should the company stumble upon some breakthrough technology, shares will become worth billions).
On the other hand, a total flop isn't a total loss. Investors will still walk away with 50 cents per share in cash. Professional gamblers will instantly see a one-sided bet.
Insiders have also realized the odds on the wager:
- CEO. Bought CAD 10,720
- COO. Bought CAD 10,800
- Senior Officer. Bought CAD 14,460
Though Moonshot readers will understand my hesitation to speculate on a productless company, insiders are signaling that its R&D discoveries are more substantial than public statements let on.
Investors Are Still Souring on QuantumScape
Meanwhile, one battery firm is still falling behind:
When the firm announced earnings on February 16, shares dropped more than 9% even though the firm met all four of its 2021 milestones.
It's a problem of valuation.
When QS went public last year, the startup's $45 billion market capitalization put the firm in the same league as General Motors (NYSE:GM) and Ford (NYSE:F). Fellow billionaire-turned-philanthropist Warren Buffett had just finished a successful exit of Snowflake (NYSE:SNOW). Surely, Bill Gates would have the same magic touch?
Instead, investors would lose their shirts. QS shares fell 88% from the all-time highs, turning $100,000 investments into $12,100.
Today, the battery startup is still richly valued. Its $7 billion market capitalization represents a 25x multiple on potential 2026 revenues… if they ever materialize. And the firm is meeting developmental milestones with suspicious precision.
QS will eventually become a stock to buy again. But for now, investors with "buy-the-dip" funds can find better targets to acquire.
The "Safest" Bet of All
I'm often asked for stock picks that will make people instant millionaires.
Of course, everyone knows that's impossible. Even psychics can't tell you which penny stock will become the next GameStop (NYSE:GME).
But we can get close.
The Insider Track strategy has been one of my favorite tools for finding high-probability bets. An investor following a C-Suite strategy would have returned 24% per year since 2009, turning a $10,000 investment into $160,000, according to financial data site TipRanks. Selecting for top-ranked insiders increases the outperformance by another 8% per year.
Some of these picks have obvious catalysts. Last week, 4 insiders bought shares of gold exploration company Integra Resources (NYSEAMERICAN:ITRG) after shares dropped 35% (Executives clearly realize that 77 g/t veins in its Florida Mountain are worth more than the markets believe).
And who can forget Rise Gold (OTCMKTS:RYES), a similar firm where insiders bought right ahead of a positive news profile in The Atlantic.
That's what makes Nano One such a promising rising star (and QuantumScape a falling one). When insiders at opaque companies are doubling down, there's usually good reason to take a second look.
P.S. Do you want to hear more about cryptocurrencies? Penny stocks? Options? Leave me a note at firstname.lastname@example.org or connect with me on LinkedIn and let me know what you'd like to see.
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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.
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