August 22nd, 2022 | 13:28 CEST
Gambler stocks are back: Bed Bath + Beyond, Tocvan Ventures, Steinhoff
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"[...] We knew the world was rapidly electrifying and urbanising and needing significant amounts of copper to do so. [...]" Nick Mather, CEO, SolGold PLC
Bed Bath & Beyond: Who is Jake Freeman?
Bed Bath & Beyond's stock has risen 440% in just a few weeks. The beneficiary was student Jake Freeman. In early summer, he borrowed about USD 25 million from friends and family and put all his eggs in one basket: Bed Bath & Beyond. In hedge fund style, Freeman gave the Company a few tips along the way with his investment: The retailer of household articles and bathroom accessories should lower its cash burn rate and raise capital. Accompanied by a real hype in the online forum of Reddit around the share, the price went steadily upwards. Arguably, some hedge funds also joined Freeman and ensured that short sellers had to close their positions at a loss. That drove the share price up even further.
In the meantime, the shares of Bed Bath & Beyond are well off their highs again - between Wednesday and Friday last week, the value lost almost two-thirds. While the stock is likely to remain volatile, it is equally unpredictable. Freeman and his cohorts' involvement has done nothing to change the fundamental problems surrounding Bed Bath & Beyond. The 20-year-old, who announced a few years ago that he wanted to become President of the United States, merely triggered a hype at the right time that has taken on a life of its own. As is so often the case with a hype without substance, investment is like a game of musical chairs: the last investors usually come away empty-handed.
Tocvan Ventures: Mini market capitalization and operational progress
The chance of snagging a coveted seat on a chair is high at Tocvan Ventures. On the one hand, there are not that many players running around the chair circle yet, and the Company has potential despite its low valuation of around CAD 21 million. Tocvan operates two prospective precious metals projects in the Mexican state of Sonora. While Pilar faces a resource estimate followed by test production, El Picacho is at an earlier stage. Nevertheless, the project is interesting because it is located close to the San Francisco mine, meaning it can quickly make associations with investors. Both projects could go into production using the heap leach process. This process is considered inexpensive and predestined for smaller projects.
The state of Sonora is considered a mining region and is also comparatively safe and stable: "The longer we operate in Sonora, the happier we are about it! Around 40% of Mexico's gold is mined in Sonora. Companies on site include Fresnillo, Agnico-Eagle, Argonaut and Osisko. Accordingly, there are many specialists on site, and also the authorities are used to dealing with the interests and concerns of the extractive industry," says Brodie Sutherland, CEO of Tocvan Ventures, in an interview in the summer. Tocvan's stock is currently trading near its low for the year - just last week it was announced that gold mineralization had been discovered at the Pilar project some 600m from the Main Zone. While this raises hope that the project is much larger than thought, it has left the market indifferent so far. Should interest in gold grow again, which is not unlikely given inflation and crises, Tocvan could become a gambler's stock with substance.
Steinhoff: After the wrangling is before the wrangling
Many supporters of Steinhoff also described the South African furniture manufacturer's stock as a gambler's share with substance. But even though the Company has an operating business and some lucrative investments, the existing substance must be in doubt. The reason: The Company is groaning under high debts and related interest payments.
These result from shareholder claims due to an accounting scandal dating back years.
In February, a settlement was reached after a long period of wrangling. But as predicted at the time, this settlement was more of a process than a bang, and the share is still suffering today. Steinhoff is a gambler's stock, with too many factors at play. It is unpredictable.
With gambler stocks, it makes sense to invest early. That requires courage and foresight. Although investors who jump on moving trains are confident that "something is happening" with their share, the ride can end abruptly. Those who have invested too much quickly find themselves out of pocket due to a lack of liquidity - just like the late buyers of Bed Bath & Beyond. It makes more sense to select small caps that have recently been heavily sold out but still show fundamental potential, such as Tocvan Ventures. Those who invest with a sense of proportion, follow the companies critically and have a little patience can profit almost as much as the gamblers from the Reddit forums.
Conflict of interest
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