Tuesday, 15 August 2017

Seven Stocks I'm Watching Closely for the Rest of 2017

As I have been in summer mode, I haven't written much about the stocks in my portfolio lately. Here is an update on seven stocks that I am watching closely for the rest of 2017.

First Global Data (FGD)

I'm surprised at the extreme pullback, but I have taken the opportunity to buy more shares. I hold more FGD shares now than ever before. However, thanks to the tank in the stock price, FGD has slipped to the third largest holding in my portfolio. Despite the negative move, I'm not too upset about it. If FGD was doing poorly I would be but I know that business is going very well.

FGD is the one stock I tell people I know to buy, even those who are unfamiliar with the stock market or who only buy very conservative stocks. Why? For two reasons:

1. FGD has been consistently profitable since Q1 2016. Four of the past five quarters showed positive net income while Q4 2016 only showed a loss because of the stock compensation expense booked in that quarter. The threat of bankruptcy is as about as minimal as it can be for a junior stock and while FGD seems to be battling dilution issues right now, those issues will be in the rear view mirror soon enough. It is extremely unlikely that the company will need to finance to maintain operations in the future, yet possesses a very high speculative upside upon continued traction of the business. I strongly believe that FGD will be a $5.00 stock soon enough, which is more than a 15x upside from current prices. I can see a strategic investment being a possible dilutive event in the future, but that would only be a net positive for existing shareholders.

2. There is plenty of verifiable third party evidence that suggests that business is booming:
  • The Android stats for VPayQwik in the Google Play store showed that the app surpassed 100,000 downloads in January and 500,000 downloads in June.
  • The CEO of Vijaya Bank (FGD's operating partner for VPayQwik) stated that he wants to see more than a million users on this app.
  • The Alexa web traffic stats for firstglobalmoney.com have been on a consistent uptrend. It entered into the top million rank in September 2016 and top 400,000 in June. It sits around 370,000 now after hitting as high as 350,000 at the end of July.
  • The partnership with LianLian to bring remittance services to WeChat is already live. Website link. Note the "Powered by First Global Money Inc." message on the service's interface.
Check my previous articles for links and analysis that back up these points. Points one and three show strong growth in usage of the company's existing payments services which has so far been highly correlated to increased revenues in each quarter since Q3 2016. The WeChat service will not likely impact Q2 but we may see material revenue from the deal as early as Q3 based on the progress made early in the quarter.


Peak Positioning Technologies (PKK)

Like FGD, I have also been buying PKK shares and hold more shares now than ever before. Though for this one I can understand why there might have been such a pullback. The company will not be making original financial projections made for 2017, which may have turned off some investors as Q1 looked weak and I am expecting much the same for Q2. However, rather than this being due to a screw up, this delay in revenue is largely due to the opportunity to pivot into the much higher margin Chinese B2B lending space through Cubeler, ASDS and ASFC. Rather than accepting a small margin on large amounts of revenue-generating transactions processed through Gold River, PKK has the opportunity to increase the margin on these transactions by offering lending and other financial services to its customers. Three press releases in August show that the company has achieved major milestones in getting to this point. I expect marginal revenue from these initiatives in Q3 with a ramp-up in Q4.

Another issue that could be negatively impacting the stock is the discount-to-market financing deal that PKK signed with GEM. Many people were suspicious that GEM was responsible for the recent tank. That may not have been the case, but the July progress report showed that PKK financed through GEM with the investment firm getting 3.3 million shares at an average of a little over 6 cents.

I have stated my concerns to PKK's CEO about GEM, and this was his response:



I was quite encouraged to know that he is aware of the issues surrounding GEM and is using this as a test case. I look forward to hearing more business developments that will encourage the stock price to return and surpass the 52-week highs made a couple of months ago, hopefully before the year is up. Even at 6 cents PKK is still my largest holding, reflecting the large amount of shares I own and the even more severe pullback on FGD. However, the next stock could take over as my largest holding if it continues towards new 52-week highs.


Selectcore (SCG)

I was a reluctant buyer of SCG shares recently. Having seen what happened to FGD since the free trading of shares, I was worried about the impact of SCG's private placement coming due, particularly since the stock price has been so strong since the addition of a Blockchain/Cryptocurrency Strategist to the Advisory Board. So far, so good, as Monday didn't generate much selling. However, there could be a risk of weakness in the short term if anyone does decide to sell their shares. If there is not, I will take that as a very good sign and a precursor to more buying as potential buyers see that sellers aren't blinking and will blink first. Thanks to FGD tanking and SCG remaining near 52-week highs, it's now the second largest holding in my portfolio.

I was at the AGM where CEO Mohammad Abuleil and new Chairman (and CEO of FGD) Andre Itwaru explained the current state of the company and plans for the near future. In addition to leveraging the JV with FGD and existing government relationships, SCG is planning to dive in head-first to several leading-edge fintech solutions. This includes a peer-to-peer lending and microfinancing (getting into the GoFundMe type of space) and possibly creating its own cryptocurrency. While the creation of the currency certainly sounds intriguing, that sounds like something that is far down the road and will have a lot of hurdles to overcome. I'm more interested in the near-term plans.

The initiative that I found to be more realistic, achievable and profitable in the short term (possibly before the end of 2017) is the integration of a cryptocurrency solution into SCG's existing point-of-sale platform. Basically, SCG wants to sell Bitcoin and similar kinds of online currencies the same way that it used to sell prepaid phone cards. I asked at the AGM if SCG plans to get into the cryptocurrency dealer space - it does not. Which is what I prefer because I don't want SCG getting caught up with the volatile nature of these things.

SCG once achieved $100 million in annual revenue selling prepaid cards. So the company doesn't have an issue with reach. The problem was that this business was extremely low margin and became obsolete as the carriers improved their web services where customers could easily top-up their balances online. If a cryptocurrency sales solution catches on, it could be a cash cow for years, similar to how businesses like Thomas Cook have made money dealing in physical foreign currencies at kiosks. This is still in the concept phase but I am willing to wait to see how much progress can be made on this in 2017.

Like FGD and PKK, SCG's financials are due in two weeks. The income statement has been up and down since 2016, but still greatly improved over previous years. I looks forward to seeing Q2 2017. The balance sheet should also look the best it has in years.


Assure Holdings (IOM)

I recently sold all of my shares in IOM above $3.00 to purchase more of the three aforementioned stocks. This quick triple has saved my portfolio this summer and allowed me to redeploy more cash into the other stocks as well as the final two on this list. This was slightly below my planned $4.00 target but considering the tank in FGD and PKK I decided to sell a little bit lower and looks like I timed it well as the stock has pulled back to $2.50. This is a price that I would seriously consider buying back in if not for the fact that FGD and PKK are still outstandingly low.

Why did I sell my IOM shares when the company had such a strong Q1 and is trading at an annualized P/E ratio of well less than 10? Keep in mind a couple of the risk factors I outlined in my Seeking Alpha article. First, the stock has moved a lot so insiders or owners of the old shell that existed prior to the RTO might be encouraged to take their profits. Second, the accounts receivable balance is high and has been growing which is always a concern when it comes to businesses that bill Medicaid and the insurance companies in the U.S. Q1 showed positive operating cash flow so the company is collecting on at least part of its invoices. I'll continue to monitor the A/R balance closely when reviewing Q2 and beyond should I decide to buy back in.


Peeks Social (PEEK)

As I stated a few weeks ago, I sold out of my position in PEEK to buy FGD and PKK. I suppose it worked out since PEEK has dropped from the $0.80's to the $0.50's while FGD has dropped from $0.40 to $0.29 and PKK has stayed flat at 6 cents. I still have no plans to buy back in at this moment, but continue to follow the situation.

Recall my article from last October outlining the risks and opportunities that I see in PEEK. I guess the first elephant in the room that I have to acknowledge is that leveraging the old Keek user base wasn't nearly as lucrative as I had hoped. So Mark Itwaru is trying to find other ways to grow the user base to scale. Marketing expense was $1 million in Q1. Assuming the 30/70 split between PEEK and Personas applies to marketing costs as well, that means Peeks Social spent $3 million in advertising for the quarter. There are no details around the marketing expense, so I can only guess at the split between the Caribana sponsorship and what might be paid as an upfront signing bonus to celebrities like Scott Disick.

Maybe the strategic spending Mark is doing will be successful in bringing users onto the Peeks platform and encouraging revenue growth. However, having been burned by this business model before with other investments, I'll continue to sit on the sidelines until I see this strategy gaining traction or the stock becomes too irresistibly cheap to pass up a buying opportunity. My opinion on this is that YouTube helped to make Justin Bieber much more than Justin Bieber ever made YouTube. The Peeks platform is a great opportunity for people to get noticed and earn an income. In my opinion, Peeks needs to find its own stars to make rather than try to recruit existing stars to the platform (except in the case where the offer box is used for e-commerce initiatives).

With that being said, I noticed that the Mayor of Toronto John Tory gave a shout out to Peeks' Twitter account during the Carnival, and it has 230,000 followers. Clearly there is some boost in the Peeks brand name from this sponsorship deal. The next challenge is converting those followers into Peeks users who create content and/or tip others for their content.

There were several large investors in PEEK and even employees of the company present at the SCG AGM. That just goes to show you how incredibly stupid it is to try to gain traction in one of these stocks (PEEK, FGD, SCG) by trashing another. I firmly believe that the Itwaru brothers will help each other out. 


Lightning Ventures (LVI) and MGX Minerals (XMG)

Both of these companies are new to me and are in the oil/mineral extraction and technology space. I've known some of these "water into wine" type of companies before and they generally don't work out. However, trusted associates of mine who are shareholders and close to the management teams are quite bullish on each company. I expect to be talking with management along with writing more detailed reports on both of these stocks and in the case of XMG I have already once spoken with management.

Both companies have the typical risk associated with pre-revenue businesses that are trying to showcase new technology - financing/dilution/insolvency risks before things get off the ground and the risk that someone comes along and builds a better mousetrap if things do get off the ground. But for now I am fairly confident that both companies have a reasonable chance to become revenue-generating in 2017 along with signing (more) contracts with oil and gas players. At least confident enough to make both of these picks public. I'll give them both to the end of the year before re-evaluating my investment. For now I am slowly adding to my position while they are in a quiet period.

I own several other small positions, many of them I have already disclosed in other write ups. I'm also buying and selling other stocks to pass the time, but these seven are the ones I am watching the closest for the rest of 2017.

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