Pardon My French: A Word Or Two About Andrew Left, Citron Research, And Plug Power

13 Mar


“Les doutes sont fâcheux plus que toute autre chose.”

(“Doubts are more cruel than the worst of truths.”)


According to wikipedia Andrew Edward Left is an activist short seller, author and editor of Citron Research, formerly Mr. Left is obviously clever enough to have translated the name of his research report into French. If I may, I would like to continue in this vein (for fun) and refer to Mr. Left interchangeably as Monsieur Gauche. Tuesday, M. Gauche‘s Citron put out a report on Plug Power in which it took issue with the high-flying fuel cell company and sought to point out its many faults. We did not ask for this report, so why did it issue? Well, M. Gauche is a short seller so incidental to the public service he performed by issuing his report, he stands to make money if the stock of Plug Power drops, which it sure did. He chose the moment of a recent high to issue a report that he hoped would slam Plug’s stock price and he succeeded.

Interestingly, Jim Cramer’s post market commentary Tuesday on CNBC cited the need for fuel cell stocks to be brought lower in order for the market to advance. I had no idea that the fuel cell industry was so closely aligned with the overall market’s ability to advance and I doubt many other investors did either. What is notable is that bringing the fuel cell industry low brings America low since we are a leader in the technology. Advancement and adoption of this technology may do as much to avert future loss of blood and treasure on battlefields of oil producing nations as it does to advance energy needs and productivity both here and abroad. Mr. Left makes his money destroying value and there is little evidence to refute that. According to his website and other sources, he and his Citron have taken aim at various companies that were involved in outright frauds and so on. Mr. Left may be commended for any efforts in that regard but he deserves no medals or honors because these efforts are central to his trading strategy and have presumably enriched him and those who may act in concert with him.

In order to succeed, M. Gauche does not have to be accurate. He just needs to effectively sow the seeds of doubt for a certain period of time: the time between opening a short position and covering it at a lower price. We will call this the “Period of Doubt.” He does this masterfully. Let’s take a look at the seeds of doubt sown in Tuesday’s Citron (we are not going to refer to it as a report):

First syllogism: Andy Marsh gets his guidance wrong on occasion, ergo he is a liar. Really? I’d say Mr. Marsh (ok, I guess I’ll have to call him “M. Marais“) is an enthusiastic (maybe a bit overly enthusiastic) CEO. If I’m picking a CEO, I pick the optimistic guy all day long over Eeyore the Donkey. Plug is still in its infancy and it is not always possible to get a clear picture of when things will break decisively in its favor but it sure looks like that process is underway. I am going to give M. Marais credit for that and also give him some latitude on guidance. We will all have a chance to look at this company perform and see who is right over the next 18 months.

Second syllogism: Ballard Power Systems sells fuel stacks to Plug so this must mean Plug has no IP and no real value of its own. This is like saying Apple has no value because somebody else makes the chips in their products. We like Ballard and we have nothing against Canadians (except in Olympic ice hockey), but this seems like a red herring to us. Plug is selling entire solutions, has its own patent portfolio and certainly lots of know-how. It is also a sale-oriented organization, for a change. Pointing out Plug’s own risk factors regarding not being able to rely on technology to compete is pretty easy to do. Check the 10-K or prospectus for any tech company and there will be loads of risks cited about not being able to rely on IP, IP litigation risks, etc. Not that persuasive when viewed in isolation.

Third syllogism: Plug can only sell its products because there are tax incentives for fuel cells. Existing incentives expire at the end of 2016. At that time it is likely that Plug will have booked the $350M (including sales and service) in revenue for 2017 that Cowen and Company analyst Rob Stone has predicted. The reason Congress sets sunset guidelines on things like incentives is that incentives by their very nature are intended to induce adoption. As industry needs change in coming years there is little doubt we will see new bills offered to address them. That is simply how it works.

At a price-to-sales ratio consistent with emerging energy technology the recent PLUG run-up may seem like child’s play at the end of 2016. That’s the point of the Citron though, it is intended that one’s head be swimming in doute. (Was I really born in the US on the day my Mom said? Maybe my passport is a forgery and I was born in Africa along with our President?) Now that I start doubting, maybe I better sell my house today in case the market crashes when our paralyzed Congress acts to eliminate the mortgage interest deduction (which of course they have failed to do for the past 40 years). Will eliminating tax incentives for clean energy be the first thing Congress does this session? Hmm, I guess we’ll see.

Bold unsupported valuation assertion: The recent purchase of shares in the Cowen offering is not indicative of the true Plug value (pay no attention to the man behind the curtain). M. Gauche’s methodology for determining price: take the prices of three stock offerings, which pre-date the announcement of the recent Walmart deal, and divide by three. Ever heard of this methodology? Me neither. That is kind of like an NBA star determining the average likely future height of his three kids by taking the average height of his kids two years ago when they were 3, 6 and 9. Probably better to just take a look at how tall Mom and Dad are and then hazard a guess about how tall the kids will be when they grow up. Sticking with the NBA analogy, I think that the “pick three and divide by three” valuation method using old data is kind of like trying to figure out whether an NBA star is valuable based on his high school career. Would you pay $1,000,000 for the marketing rights to a tenth grader who was cut from his high school varsity team? Me neither. What if I told you this tenth grader was Michael Jordan who was cut from his varsity team as a sophomore? Why should I care what Plug stock sold for before they turned the corner? Answer: I don’t.

M. Gauche gets it right a lot. He also gets it “wrong.” (So do I.) But he does create a Period of Doubt. The most apt comparison to Plug may be that of Tesla Motors, another company involved in ground breaking innovation. Tesla was “citroned” in August of last year, hiccuped all of about a minute and is now trading 50% higher.

TSLA Chart

So, for those of you who haven’t already headed for the sortie based on M. Gauche‘s recent seeds of doubt, ask yourself why you invested in Plug and if you think M. Gauche‘s valuation of Plug was meant for your benefit or his. Another article I read on this very point is instructive. My group is still long and quite frankly viewing Plug and others as being at the very start of an upward trajectory. BTW, if you want to accuse us of having a long-biased objective and agenda, let me beat you to it: yes, we are always long, never short. We talk about companies we like and where we see upside. We don’t want to destroy value. Not a nice thing to do in our view, even if profitable for some. Pretty sure America was not built by short sellers. For the record, we like PLUG, BLDP and FCEL at these levels.

These are our views only. We have based certain of these views on publicly available information which we have not independently verified in each case. As always, do your own diligence and do not rely on us for trading advice.

PLUG, FCEL, HYSR, CHTP, IGXT: Fuel Cell Technology & More

6 Mar

A quick recap of some of the stocks we pointed out a while back and some additional thoughts:

PLUG Power (PLUG): Everyone is talking about this company now so we don’t have a lot more to add. We originally said this was a stock that could jump considerably at any time (that turns out to have been an understatement) and that we were planning to trade around a core position throughout the year. We think that remains a great option. If you bought PLUG when we first mentioned it you are looking at gains in the 65% range at today’s prices. There is still room for growth here so staying patient is not a bad move. We note an upcoming investor call scheduled for 3/13/2014 which should be very informative. We also understand that news of an additional deal is expected near term. We have also been following Fuel Cell (FCEL) and think that it too has great potential and may even have a little further to run in the very near term than PLUG. 

On a related note there is a tiny company out in Santa Barbara, Hypersolar Inc. (HYSR), that we think bears keeping a close eye on and that seems to have caught some investors’ attention over the past many days. As the market turns to the rapid adoption of Hydrogen powered fuel for fuel cell technology this little company, in a partnership with University of California at Santa Barbara (UCSB), is working on what just might be the holy grail in this space: a technology to produce renewable hydrogen using sunlight and water in a process akin to photosynthesis. Hypersolar seems to have had more than one breakthrough in its efforts thus far and at a market cap of just $10M there is little doubt that considerable interest exists on the part of numerous companies operating or investing in this space in what Hypersolar is working on. We have opened up a first position in HYSR but note that it is a penny stock in the truest sense of the word, currently trading at about .04. Normally these type of companies scare us but we like their cornerstone relationship with UCSB and the technology is  clearly quite promising. We applaud the fact that they had enough foresight to have been working on this for years – the timing could not be better. Definitely a stock to watch this year as the hydrogen fuel cell power space expands. 

Chelsea Therapeutics (CHTP) – Like most investors here, we are anxiously awaiting news of either a partnership or perhaps even a buyout. The stock is currently trading at levels we saw just prior to approval so frankly we don’t see a lot of downside here. Instead, we think an upside move is quite probable. 

IntelGenx (IGXT) – This stock has been very strong in the aftermath of what was a reasonably positive CRL from the FDA on their Migraine film. News came Monday that they had submitted a response to that CRL so we now await the FDA and the determination of the classification of that response (two or six months). Recently we also learned of the positive bioeqivalence results of IGXT’s pilot study on their Erectile Dysfunction film. As we have said before we think this will be an outstanding year for IntelGenx with the potential for exponential growth. 

As always do your own due diligence and/or consult with a trusted financial adviser before investing in these or any other securities. 


26 Feb


Good morning. A few short notes about companies we have discussed recently at length. Sometimes there is time sensitivity with these equities so if we see that we will mention it but nonetheless we fully expect people will do what they do on their own time. If any of these stocks interests you I would encourage you to dig a little deeper. In general we’re not going to recommend a stock that is just going to pop and then flatline (we can’t prevent it if that happens but we surely don’t look for that). I don’t play that game and I assume many if not most of you don’t like to play that game either. That is why you won’t see us mentioning a gold mine or oil field discovery in an area no one has ever heard of and that Google can’t even locate on a map. That is not to say that these stocks, or any stock for that matter, won’t trade in a range because they will. If you have a short term mentality then you will surely respond accordingly. So here are some things we see on the horizon.

PLUG Power (PLUG): CEO Andy Marsh will host a conference call on March 13, 2014 where he has promised to guide for all 2014 quarters including ebitda projections. There is no question that the activity and orders for this company have heated up considerably. In short, this is simply not the same company of even six months ago. Much of that has to do with the adoption of hydrogen fueled power by some of the biggest companies on the globe. The other part has to do with PLUG making their services one stop shopping. No one wants to deal with five vendors to get and service power options. When we first mentioned PLUG the stock was trading in the $3.35 range. It traded as high as $4.90 within the past couple of months and we expect that we may see new 2014 highs set in fairly short order. While I don’t want to oversell PLUG I can say that I feel that a completely repurposed valuation is taking place. PLUG recently completed an Asian sales trip for which the market has not yet received an update. Additionally, according to Mr. Marsh we expect one other major turnkey announcement by the end of this quarter. I do believe there is some time sensitivity to this one as it will come as no surprise to wake up one morning to news which might allow this to get away from you.

Chelsea Therapeutics (CHTP)- As we expected, Chelsea received FDA approval for its NOH drug Northera. Had you decided to sell on the news from when we first mentioned it you would have made 60% or better. If you held some or all of your shares then you are waiting for news of a partnership announcement or perhaps a buyout. Shares pulled back yesterday on a Seeking Alpha article which seemed to dim prospects of market penetration, adoption by the medical community and so on. People need to understand that there is no other option for this condition and there is no limitation of prescription which is what was feared, not by us but from numerous quarters spreading FUD. One strategy I see is that of averaging down or adding if you held or opening a new position if you sold. I see a partner or a buyout in the future and I take some of the analyst opinions that I have read in that vein as instructive. While some have complained about what they consider to be lack of communication from the company, I am actually heartened by it in this age of over-communication. There is no need for hand holding here folks. I assume (and yes it is an assumption) that CHTP management is in serious discussions regarding its next steps and has been well before they gained FDA approval for Northera. The stock is now trading at pre-approval levels so we consider it to be a pretty strong buy. Like PLUG, there is time sensitivity here as we think that news of a partnership or buyout may be imminent.

IntelGenx (IGXT)-we mentioned this stock just the other day so not much to add other than we are pursuing a strategy of gradually adding (stockpiling might be the best word) to our position here. This is a stock that we can clearly see a 4-5X return on by the end of the year for reasons stated in previous posts. The future for IntelGenx (providing they too don’t get bought out which I wouldn’t make a strong bet against) is extremely bright in our view.

Best of luck in your trading this week – as always do your own due diligence and/or consult with a trusted financial adviser before investing in these or any other securities.

IGXT: All Aboard

24 Feb

This morning brings news of a positive Bioequivalence Study on IntelGenx’s Erectile Dysfunction drug (comparable to Cialis – importantly this is not considered a new drug) for which we expect a 505(b)(2) NDA filing at some point this year. This is the second indication that could well prove to be a blockbuster.

Earlier this month IntelGenx received a complete response letter (CRL) on its dissolvable oral film (Versafilm) for Migraine – not due to safety or because new studies were requested by the FDA but because of marketing and potential third party manufacturing issues. The company had filed an amendment to the application which had reportedly not been reviewed by the Agency at the time of the CRL. IntelGenx has not yet responded to the FDA but it seems better than 50% they will receive a class one response which means it would be re-reviewed in a little as two months (and even class two is only six months). As we said at the time it was as positive as a CRL gets in our view. And now we have this new result of the pilot bioequivalence study on the latest of what could be a long line of popular drug indications delivered by IGXT’s Versafilm method. Trading @ .78 or so this morning we believe this is an ideal entry time and price. The next catalyst is likely to be the response to the FDA on the Migraine drug which could come at any time (the company said weeks in its press release at the time).

We were not expecting this news so soon but now that we have it, it only confirms our opinion that IGXT will be a sleeper Bio of 2014. In six months the mid-$2 level might even seem cheap. To provide a little perspective, if the Migraine and Erectile Dysfunction indications can provide $1b combined in revenue (which is not out of the question) and IGXT receives approximately 25%, that provides an underlying share price for IGXT utilizing a sales multiple of three (and it could be higher) of $10.50 or about 13X today’s price.

We are not guaranteeing anything but we really see nothing but upside for this little company. Please review our previous postings on the subject and as always do your own due diligence and/or consult with a trusted financial adviser before investing in this or any other security.


WDDD: Back On World’s Watch

19 Feb

It has been a long winter for holders of Worlds stock but in just the past 5 sessions the stock is up well over 50% on some pretty decent volume. We have received inquiries (one last night asking why there was so much volume and price appreciation yesterday) about whether this move is somehow related to a decision in the Massachusetts case, perhaps speculation that Judge Caper’s MSJ ruling will favor Worlds. We knew yesterday (from a Pacer filing) that mediation had been agreed to in the case that Activision Publishing had filed against Worlds Inc. and Worlds Online Inc. in California. As we said when that case was filed we never thought it had merit and was done only to apply pressure to Worlds. So the $64,000 question – or perhaps something far more than that – is how does that action in California relate to Massachusetts?

When you combine elements such as the size of the stock appreciation on no news (at least that emerged prior to yesterday) with the move to mediation it does bring about a variety of story-lines that are possible. It seems to some degree simplistic to believe that these events are all independent and the timing is nothing more than coincidence. While they certainly could be I’m not a big believer in coincidence when it comes to these types of investments.

As Always please do your own due diligence or discuss with a trusted financial adviser before investing in this or any other security. 


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