Coronavirus Collateral Damage: Which Stocks are now Significantly Undervalued?


#1 Spot: Surge Holdings Inc (OTCQB:SURG).

  • Current Price Per Share: $0.27
  • Valuation Price as of March 15, 2020: $0.78 to $0.82

Some company are flourishing even in these highly volatile market conditions. While the majority of companies within a sector is limiting them selves to their respective markets, some companies such as Surge Holdings Inc (SURG) has begun generating outsized revenue growth and market share in large, underserved markets. The company has even been able to pay off one of their notes before it could ever convert. Previously, investors were taken by surprise when the company announced that it now has an annualized revenue run-rate in excess of $10 million, with rapid growth in Surge Logics sales with an increase of an estimated 1000% in January 2020 Versus the same period as last year. This puts Surge Holdings Inc into a completely difference category in the OTC Markets, and the question now remains, when will they company make their official application to up-list to NASDAQ.

Led by major top-line growth from the ECS acquisition and with meaningful store deployment inflection points around the corner, we have raised our forecasts and price target. These new estimates call for revenue to leap from $29.1M in 2019 to $109.3M in 2020 and $237.8M in 2021, with EPS reaching $0.03 in 2020 and $0.23 in 2021.Our new 2020 target of $3.45 reflects 15x 2021E EPS and 1.5x 2021E sales, and we expect the figure to move higher.

Additional, potential valuation catalysts lie ahead. A major fintech/supply chain peer trades 31x next year’s EPS, indicating the current valuation has a lot of room to move higher. Management plans to up-list SURG to NASDAQ which would also serve as a valuation catalyst.

These new acquisitions represents an enormous amount of potential growth as well as some certain growth.  Trailing revenues of $4.9 million for 3rd Qrt or $19.6 million on an annualized basis are a strong foundation to build upon.

By adding  the ECS post-acquisition, the Company is potentially now trading on a forward annualized top-line of $68 million, which is 4,600% growth in two years from a base that was already well into 7 figures!

Without any projections, the current price is valuated at $0.78+ due to the most basic fundamentals. Based on last numbers coming in, SURG has annualized revenues in excess of $70,000,000. Even at $60,000,000, and a low O/S of 100m, that’s a $0.70 evaluation. This does not even take into account the other sources of revenue that SURG is now reporting.

Runner Up: Fonu2 Inc (OTC:FONU)

Credit: WNW

Let’s get the boring stuff out of the way first. In the OTC markets, there is an estimated 50%+ of issuers that are no longer active with their company. This can be for a variety of reason, most commonly because the company is no longer active and simply fall behind in their business license requirements, and the shell eventually becomes “revoked” by the state filing center. However, the stock will continue to trade. This then opens the door for control of the public issuer to be taken over by a new entity, with one of the aims to act in the best interest of the existing shareholders. This is done by filing a petition with the reporting issuers state court, requesting a new motion to take over control of the abandoned shell.

If no objection is made to the petition, the court will almost always approve the petition at the custodianship hearing which then puts the custodian in control of the shell.  The key point that makes them among the most saought after investments for OTC investors is that custodianship stocks are automatically considered reverse merger candidates.  

Case Studies?

LCTZ – On February 4th they filed an annual report at the Nevada Secretary of State showing new officers in control of the shell, which is from the Custodianship hearing.  

–> Time of filing $0.00975 per share and within 4 days, the price climbed to $0.244 per share for an estimated gain of 2400%.

CNHC had a similar fate going from $.0036 per share to a high of $.0325 per share for an estimated gain of over 800%.

The Stages of the Custodianship Investment:

  1. Custodianship petition is filed with the courts.
  2. Custodianship petition is granted
  3. Reinstated at the Nevada SOS
  4. Custodian is discharged by the courts
  5. Shell –> Reverse Merger

We believe FONU2 can be a significant runner due to its healthy balance sheet in terms of legacy debt and share structure. Within 2 weeks the courts will issue a new custodian, who has confirmed their is already interest parties for reverse merger candidates.

#3: iBio Inc. (IBIO)

Currently the most interest among mid-cap investors, IBIO focuses on developing plant-based biologics manufacturing with a new emphasis on high-quality monoclonal antibodies, vaccines, bioinks, and other proteins.

iBio’s FastPharming Technology has been used to produce antibody candidates for Ebola and Dengue fever viruses, as well as human and animal studies have been completed for vaccine candidates, including yellow fever virus, human papilloma virus, seasonal influenza and avian influenza.

We expect IBIO to release substantial news and updates due to the rapid pace the company has shown with its new offering, and expansion in Coronavirus related R&D. The initial volatility spike is over, due to its numerous halts (from abnormally high volume), and interest in the company to acquire new entities to enhance its second stage R&D expansion into Coronavirus treatments.

#4: Integrated Cannabis Solutions (OTC:IGPK)

Integrated Cannabis Solutions Inc (IGPK) has signaled as they are waiting for their S-1 Registration Statement to go effective, they will be laying the ground work for uplisting to OTCQX, before making the jump to NASDAQ.

Via Companies Social Media Account,

$IGPK is a different entity then $GCGX so most likely OTCQX until they change the rules for US Cannabis companies and give us the same rights as the Canadian companies. Then when they do, $IGPK can easily make the move over to NASDAQ.

Recently, Integrated Cannabis Solutions (OTC:IGPK) announced they have successfully filed their S-1 registration statement with the SEC. This is the most significant milestone for the company to date, as it now paves the way for a significant transaction that has been on the sidelines awaiting the S1 filing.

Now, IGPK will be able to acquire the farm and purchase another 50% of the dispensary in Los Angeles. Additionally $IGPK will be in a position to expand significantly and open up to a larger and stronger shareholder base.

This new development has caused a major shift in the technical layout of the stock, which has been held down due to investors fears that the company would not be able to successfully submit their S1.

Lastly, watch for this market in its entirety: Psychedelic Medicine

A privately held German company called ATAI Life Sciences recently made U.S. headlines when it raised more than $40 million in new financing, valuing itself at $240 million. It’s looking into an initial public offering (IPO) in late 2019 or early 2020. This now has created a new investing craze, similar that of the early years of the Cannabis craze.

The first step is to understand the key players.

While nearly 100 cities are creating legislation to decriminalize psychedelics and multiple US jurisdictions have passed decriminalization, federal changes will be required to open legal markets to the full potential. While investing in the binary risk of regulatory changes is standard in the junior markets, current regulatory controls are preventing early revenues. Many Canadian companies building production and distribution infrastructure offshore in jurisdictions such as Jamaica are operating in a legal grey area. While it is legal in Jamaica, any benefit or advantage given to a Canadian company could be considered a proceed of crime including IP development, capital repatriation and validation of technology offshore. Section 56 exemptions from Health Canada are required for Canadian companies working with psychedelics offshore and companies which are raising investment dollars without a secured Section 56 exemption may be incurring legal risk.

  • Atai Lifesciences – German based, Global psychedelic pharma holding company formed by ultra-high net worth individuals and big pharma, $100M+
  • Compass Pathways – London based psychedelic giant, Atai’s bet on psilocybin as an approved drug for depression, $50M+, IPO 2020
  • Usona Institute – A Wisconsin based non-profit powerhouse competing with Compass Pathways to approve psilocybin for depression.
  • Mind Medicine – Toronto based ibogaine derived addiction drug development company taking their lead candidate 18-MC through the clinical approval process, $15M+, RTO in 2020
  • Eleusis Benefit Corporation – New Orleans based discovery/clinical stage Psychedelic pharma company supported by industry scientists, raising $25M
  • FieldTrip Ventures – Toronto based, Aurora backed magic mushroom research and development company building clinical and production infrastructure, raising $12M+
  • ThinkMyco – Vancouver based holding company developing disruptive mushroom production technology and next generation therapeutics, raising $5M+

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