Bausch Health: Clout Chaser Puts Out Suspect Bankruptcy Rumor; I Expect BHC To Return To $7.50

A quick check of my article history on Seeking Alpha shows that I have never been a fan of Valeant, now known as Bausch Health Companies Inc. (BHC). But with the company having long since been pounded into the dirt, I am willing to look at a long position when I feel something has happened that presents a buying opportunity. 

That opportunity occurred on Wednesday when the stock dropped by nearly half before recovering to be down -23% on the day over what I consider to be a suspect Chapter 11 bankruptcy rumor. I expect the stock to recover to approximately $7.50 - the price it was before this rumor gained traction - over the next few days.

Harvard Zhang appears to be a clout chaser

A clout chaser is someone who seeks attention, followers or users to their paid subscription services. You see this all the time in the fintwit space. Namely on Stocktwits where the feed of some random stock that was up 200% on the day is inundated with users who "called" the stock, with a screen capture of a mildly bullish statement made days or weeks prior with the massive gain in price attached to it. These posts are usually accompanied by a link to some kind of service or Discord chat. These users gloss over the other hundred or so posts they placed on stocks that didn't go on massive runs, hoping that not everyone will notice their cherry picking scheme.

A popular trend I see on X is wannabe sports reporters who claim to have an inside scoop on trades or free agent signings. They put out countless rumors then delete the ones that don't turn out but keep the few that were right purely by coincidence in order to make it look like they know what they are talking about or have special insider knowledge and connections. What happened to BHC might be the Wall Street version of that.

Harvard Zhang, Deputy Managing Editor - Distressed Debt at Reorg, has distinct elements of being a clout chaser.  His X profile header is a screenshot of what appears to be some sort of article that mentioned him as a leading source of a bankruptcy filing: 

I find this to be cheesy. It's the equivalent of me posting a screen shot of my Tipranks rating to my X account. Everybody has right and wrong calls in the market. Those who consistently get calls right and beat the market will gain followers and respect organically. They don't need to pump their own tires this hard. This was my first red flag when assessing the viability of this bankruptcy rumor.

Zhang's 10 year old account has less than 500 posts. While I could not gather enough archived evidence to prove or disprove that he deletes tweets, of the ones that are there, I would consider them to be a hard sell for Reorg:

This screen capture is a good sampling of the tone and language around his tweets. Vague messages "citing sources", sometimes from months prior. It's not that difficult to take a look at a badly indebted company like 2U, Inc. (TWOU) and speculate that liquidity issues will arise at some point in time. He appears to be mixing in reasonable guesses of companies that will face liquidity issues with bankruptcy news that occurs a day or hours after reporting it. He is likely scouring court dockets and being the one of the first ones to report on any bankruptcy filings before companies file the bad news with the SEC. All in an attempt to make it look like he and/or Reorg has some insider knowledge and connections.

The other common factor in his tweets is that they always point to Reorg. Reorg is a subscription service for data, analysis and intel that claims to assist subscribers make better investment and business decisions. Ultimately this is what his efforts are all about. To promote Reorg's services and increase its visibility. Considering the very minimal interactions (likes, views and comments) on most of his tweets, the attempt doesn't seem to be gaining much traction.  

Reorg's story changed as BHC denied any talks with creditors

On Wednesday, Zhang posted the following on BHC: 

The tone was notably more direct than usual, as Zhang made claims of a prepacked chapter 11 filing. Rather than the vague tone seen throughout most of the rest of his feed. 

BHC categorically denied the rumors, stating that it is not in any talks with creditors for bankruptcy proceedings. In the release, BHC noted that Reorg changed its story to claim that BHC is not actually a part of the bankruptcy talks. Rather it's creditors talking amongst themselves. That's all well and good, but as long as debt covenants are being met by BHC and it doesn't default on any interest payment, that talk is nothing more than talk without the company at the table.

My speculation is that Zhang and Reorg were throwing out another reasonable guess on a distressed company, similar to the speculation on TWOU. Except this rumor had too much visibility and such a market impact that it prompted a response from the company that was targeted. Reorg then scrambled to change the story that it's all creditors talking among themselves to take the heat off the possibility that the firm put out fake news. However, Zhang's tweet is still there in its original form.

Disclosure: I have purchased some call options on BHC expecting the stock price to rise back to $7.50 shortly.

 

Visionstate: Wait until August

I have written extensively about Visionstate (VIS) in the past, citing a $0.20 price target. I want to update my target, but there are two things I need from the company before that happens. First, an accurate fully diluted share count once this current (and hopefully final) round of financing closes. Second, an updated financial forecast. Until those two things happen, consider this an interim update.

A $0.20 target still seems apt. That would lead to somewhere between a $50 to $100 million market cap, assuming all warrants are exercised. With $5 million in net income projected in a reasonable timeframe, say by the end of 2027. This target will be highly dependent on market sentiment. If the TSXV continues to be in the dumps, VIS will struggle to achieve $0.10. If it goes on a super bull run like in 2020-21 or during the crypto and cannabis craze, VIS has the ingredients and foundation to hit $0.50 or higher.

My investing history could be summed up with a few home runs, some singles and doubles and a whole lot of strikeouts. That's the nature of penny stock investing. You're not looking for a high batting average. The one stock that could be considered my grand slam is Tenet Fintech (PKK). Whatever you want to say about the fumble at the one yard line that led to a 99 yard touchdown the other way since 2021, I called this stock perfectly. Owning a pile of shares at $0.02 ($0.40 split-adjusted) with a $0.20 to $0.50 target ($4 to $10 split-adjusted) and sticking to my guns and selling at those prices. My VIS position is PKK-like, indicating the level of confidence I have with this stock. 

Visionstate was brought to my attention by Cathy Hume in 2021. I had previously known the name and based on what I heard from others, had mixed feelings about it and its CEO John Putters. What convinced me to invest was the hiring of Shannon Moore. My instinct has so far been correct, as you can take a look at the financials before she was hired and since, and see the sudden upward trajectory in revenue and reduction in net loss. Before her, VIS was wandering the desert with Bunzl. The new contract in place was the catalyst for the company to finally gain some traction in the market with WANDA. Considering where AI, cleaning robotics and big data is headed, commercial property cleaning protocols post-COVID and the desire to offset inflationary impacts with efficiencies, Visionstate developing an aggressive go-to market strategy led by Shannon came at the right time.

While I had mixed feelings about John Putters, I liked that he was able to recognize a weakness of his and plug it with Shannon. But having talked quite extensively with him over the past year, I realize that I have underestimated him. He knows a lot about the state of small business, particularly in Alberta. His ties to Hockey Canada and similar types of charities could prove to be valuable connections for Visionstate in the future. He also knows a lot more about AI and advancing technologies than I initially thought. A year ago I met a man who I consider to be the smartest person I have ever known in terms of understanding and building internet-based technology in a Web3 environment. When he talks about his business model, most people don't get it. His feedback to me about John is that he definitely understands it more than most after I made the introduction.

John has taken some heat with respect to his family ties to Sol Spaces. As a shareholder of VIS and after John has explained the thought process behind Sol Spaces, I strongly support this initiative. In fact, I am exploring ways to collaborate with Sol Spaces. Nothing concrete has been achieved yet. But I like the business and what it's trying to do. Canada is a big country with a lot of space. There is no reason for people to be living on the streets, neither to the detriment of their own well being nor as nuisances or threats to the larger community. We need creative and cost effective ways to help change struggling people's mindsets and economic situation. The government is clearly out of ideas, so this lands on the shoulders of free enterprise and small business (hopefully with some government dollars backing good businesses). Giving people free drugs beside schools certainly hasn't been working. I think Sol Spaces will be a success. Not only do I support this business, I encourage Visionstate to garner a majority stake so that its financials can be reported under the VIS umbrella and it can take credit for the social good Sol Spaces does. 

Visionstate has been shown to be truthful about its financial state over the past year. The latest investor presentation (it makes reference to a December 2023 date, but I think they just forgot to update the webpage header to July 2024) discloses $42,000 in monthly revenue and $50,000 in monthly expenses, for an $8,000 monthly burn rate. Late last year, the company claimed a $35,000 monthly burn rate while six months ago that was down to $20,000. The financials reported for those time frames tracked to those numbers. So there is reason to believe that the $8,000 a month burn rate is accurate. The company is quickly headed towards profitability. Once it does attain profitability, the nature of its SAAS model will ensure that profitability grows unless the company chooses to increase its spending. In a recent interview John made reference to funding growth as opposed to funding losses. So I think spending will increase from internal cash flows, but the goal is to avoid showing net losses once profitability has been achieved. 

One weakness that Visionstate has shown so far is an inability to successfully promote the stock to the right people. Stockhouse and other similar garbage platforms have been proven to not work as the mostly 2 cent stock price for the better part of two years tells us. Visionstate needs to be seen by the right people. Investors like asset managers who understand technology and business models that make money, but tend to invest in companies that have larger market caps. Visionstate also needs to start appealing to young, tech-savvy and entrepreneurial people who are more likely to invest in crypto tokens than they are in stocks. I believe the man I mentioned above can assist with that, though that is an initiative for further down the road. 

Who is this man I am talking about? His name right now isn't important. You can't find much about him if you look him up. He's a ghost online, but the right people know who he is. This is why I scoff at moronic drivel from people who profess to do due diligence on a stock, but that research is limited to a company's website, or lack thereof. The best people in the world don't seek a lot of fame or a big online profile. A lack of a functional website doesn't mean a thing, unless the website is directly tied to the company's business model or is client-facing. People like Elon Musk, Donald Trump, Warren Buffett, Mark Cuban, Michael Bloomberg and George Soros aren't the best of what the world has to offer. I hope I mentioned enough names across the political spectrum so that people know that's not a political statement. 

This leads me into my next comment. I can have whatever target I want on a stock, but the reality is that a penny stock is worth exactly how much some rich person is willing to pay for it. A man named Charles Monte Goble has been investing heavily into VIS. According to the circular, he has 40 million shares along with 18 million warrants. Excluding the impact of the warrants, he has kept just under a 20% ownership stake. Visionstate's AGM is being held on July 31 so that disinterested shareholders can approve of him becoming a control person and therefore no longer being bound by this 20% ownership limit. I have obviously voted in favour of this motion and encourage every other shareholder to do the same. 

I'm sure when people read the name Charles Monte Goble, they will ask "who?". And that is exactly what we want in an investor. He has a minimal online footprint. Monte was introduced to me by Cathy Hume, and we have had several conversations over the last year or so. With him willing to forego some privacy in order to facilitate owning a greater stake in this company, I feel comfortable briefly giving my opinion about the man. Monte is a small business owner in Ontario who has garnered wealth by being successful and productive for the economy, i.e. not Sheldon Inwentash type of activities. He is exactly the type of man that the Trudeau government wants to drive out of the country through asinine tax policies and the pursuit of unproductive GDP growth through mass immigration of unskilled labour and propping up of the real estate feudal system. Despite that, Monte stays in Canada and continues to heavily invest in Canadian companies like Visionstate. I know that he invests in other companies from Cathy Hume's basket of clients. But to my knowledge, VIS is the only one that he is willing to invest to such a large extent that he needs to forego some of his privacy in AGM documents and become a control person. That is a very bullish sign for the rest of us shareholders. 

The info circular states that VIS has closed on 9 million of the 25 million units in the current private placement. With Monte having purchased 2 million of those units. It doesn't directly allude to him buying any more, but if you read between the lines, it becomes clear that he will: 

"The Board of Directors of the Corporation has carefully reviewed the Private Placement and the resulting potential creation of a new Control Person, as well as all other relevant matters, and has unanimously resolved that completion of the Private Placement and the issuance of the Units pursuant to the Private Placement has been and continues to be in the best interests of the Corporation and its shareholders.

Accordingly, upon closing of the Private Placement, Goble will become a new "Control Person" (as defined under the policies of the TSXV) of the Corporation which requires disinterested Shareholder approval."

If the placement is contingent upon him becoming a control person, that means he must be purchasing more of the remaining 16 million units and going beyond the 20% limit. Despite those 16 million units being "open", VIS has stated that the placement has been accounted for. My guess is that Monte will be taking the rest of the placement. If there were other buyers, VIS would have closed that portion of the financing prior to the AGM as it did with the 9 million units.

In addition to that, becoming a control person and no longer being bound by a 20% upper limit means that he can buy shares on the open market. I have no evidence that he will, but considering that he has done so in the past, it remains a distinct possibility. $100,000 to $200,000 worth of open market buying likely takes this stock to $0.05, tripling the value of his current batch of 40 million shares from $0.015. So let's just say he has incentive to make sure the stock price moves up. It will also help ensure that his and everyone else's warrants become in the money. Exercising these warrants will provide a cash injection that can be used to fund for further growth rather than opening another private placement.

It is my opinion that VIS will have a quiet next couple of weeks until Monte secures control person status. The window of opportunity to buy shares at 2 cents before he is able to ravage the ask is closing. August will likely be a quiet month as it generally is for the Canadian penny stock industry. But Visionstate's next set of financials for June quarter end will be due by the end of the month. It will likely build on the last two quarters of reduced net losses and improved financial state. 

Then we head into September with:

1. An exciting AI/big data story with a high margin business model that has a valuable and lucrative relationship with one of the largest and longest running commercial cleaning companies in the world.

2. Evidence that it is gaining traction with the ability to attain profitability and cash flow positive results basically at any time going forward.

3. An insider with deep pockets who has clearly shown a willingness to support the company through its capital raising process and who has an incentive and demonstrated willingness to buy on the open market. 

4. An ability to leverage the rollup model so that the company can expand into other exciting areas like the Sol Spaces business.

5. The ability to appeal to small cap asset managers who would normally overlook a nanocap like Visionstate, but would see the business model, improving financials and strong backing by a shareholder with deep pockets and make an exception.

Place your bets. I already have. The opportunity to buy shares at 2 cents won't last long. 

Disclosure: I am long VIS.V

Edison Lithium: This has to be the Bottom as the Company Expands its Sodium Claims

Back in October, I stated why I was bullish on Edison Lithium Corp. (EDDY.V) (EDDYF). So far that call hasn't worked out as the stock has nearly halved from $0.20 to $0.11. At a $2 million market cap, this HAS to be the bottom. Its working capital is $1.5 million as of December 31, and this doesn't even take into consideration the $5 million U.S. to be received should the deal to sell the company's interest in its Argentinian subsidiary close. At current exchange rates and shares outstanding, the deal alone is $0.36 per share of pure cash in EDDY's pockets. EDDY recently granted an extension to the buyer to March 31, 2024 for the completion of its due diligence and delivery of a Purchase and Sale Agreement. There has been no word of an update from the company, so the market is currently assigning a very low probability that it goes through. However, when speaking with management, I've been told that things like this move slowly in Argentina due to bureaucratic processes, and they remain optimistic that the deal will move forward.

EDDY is also making progress on its cobalt property spinout. So while the market values both the spinout and sale at next to nothing, people can buy up shares for essentially a free lotto ticket. Then sit and wait. That's part of the problem right now. Retail Canadian investors don't have the ability to lock up their money for an extended period of time, even if the risk-reward is good. They are jumping from one hot stock to another, trying to flip some gains. We see that with the recent mini-revival in the cannabis industry.  But just like how in 2017 the cannabis industry gains flowed to the wider TSXV market, that may eventually happen in 2024. EDDY is at least positioned to give the market some red meat and take a chunk of those momentum dollars. If the deal in Argentina does close, I assume the resulting bump in valuation will bring in a lot of day and momentum traders who will see it trending, read the news, and come to the same estimate I just did above.

While the timing of the spinout and potential acquisition are somewhat out of EDDY's control, at least the company isn't sitting on its hands. It announced today an asset purchase agreement with Globex for Alkaline Disposition A-4593 in Whiteshore Lake. This awkwardly named asset builds on EDDY's salt portfolio in SK, as the company is bullish on its prospects for significant brine deposits. The total cost of this property will be $200,000 in cash, $50,000 in EDDY shares (around 450,000 shares at market prices) and a 2% royalty on gross revenue. So it's not a bank breaker, especially within the context of the potential $5 million U.S. Argentinian sale. 

The company has also been gathering extensive further evidence in support of sodium batteries at its content aggregation website sodiumbatteryhub.com. Early stage exploration companies like EDDY can move like snails. That's just the nature of the business as it takes years to develop a mine. Increased speculation, volatility and stock prices of mineral companies generally come when the price of the underlying metal is hot. We are seeing a bit of that in the gold sector right now. EDDY is not just sitting on its hands like so many TSXV peers, but actually trying to get mining investors excited about the prospects of sodium batteries. I appreciate the effort along with the spinout and asset sale. EDDY is doing what it can to enhance shareholder value while not spending a lot of money to do so. Hopefully it continues to uniquely position itself to take advantage of an increase in hype of sodium batteries.

I wrote an article on Seeking Alpha called "For The Electric Vehicle Industry, The Future Is Sodium". This outlines my bullishness on the sodium battery and why I think EDDY is smartly positioning itself as a thought leader. Unfortunately, the stock price is not reflective of that and the general market either doesn't know or doesn't care yet about this story. However, I do see some signs of life. Atlas Salt Inc. (SALT.V) has bounced about 40% from its lows made three months ago. While SALT is not positioning itself as a sodium battery play, it will still be an important bellwether stock for which to judge EDDY. 

I recently talked with someone who is a member of a general public (not an active stock market investor nor battery geek) who mentioned news stories about lithium batteries being expensive to replace once they die in an EV and issues about fire hazards and asked me for my opinion on sodium batteries as I mentioned it before to them.  To me this is a good sign. Average people are getting weary of the EV industry and lithium batteries. Following politics, I know that leaders get voted out, rather than getting voting in. That's human nature. If there is an apathy or cynicism developing around incumbent lithium batteries like there is for Justin Trudeau, then there is an opportunity for something to fill the void. Pierre Poilievre hasn't had to do much or try very hard for his current level of popularity. Sodium batteries have the opportunity to become the Poilievre of the EV industry. And EDDY will be positioned to take advantage of it. 

Disclosure: I am long EDDY stock. I have been compensated to write about EDDY in the form of cash and options.