If this doesn't scare you, you are an idiot.

 

NIKOLA STONK!!!!!!!!!

How to (legally) evade capital gains tax on stock

This doesn't work. 

Method:

Essentially, the profits made on your margin account can be funneled into your TFSA. See below for explanation.

THIS ONLY WORKS ON MARGIN ACCOUNT, NOT CASH ACCOUNT, BECAUSE IT REQUIRES SHORTING (momentarily.)

Very simple concept, I will use example:

If you make a (realized) profit on $AAPL in your margin account of $5000, normally 50% of $5000 is taxable at your marginal tax rate. This strategy will reduce your taxable capital gains to zero.

These are the four steps to pay 0 tax on your $5000:

Find a very illiquid stock that has very little volume (eg. CNSX: SQUID)

eg. Currently for SQUID, the Bid is $0.315 and the Ask is $0.55.

1) In your TFSA, put limit buy at $0.35. 

2) In your margin account, put limit sell at $0.35. 

Essentially you are selling stock to yourself. You shorted with your margin, and went long in your TFSA.

WAIT 30 DAYS. Otherwise wash sale rule applies and tax deduction doesn't apply.

3) In your margin account, put limit buy for $0.50. 

4) In your TFSA, put limit sell for $0.50. 

Done. Now you don't have to pay tax.

What does this mean? What did we do?

Essentially in your margin account you bought shares for $0.50 and sold for $0.35, taking a 

net loss of $0.15/share. 

In your TFSA, you bought at $0.35 and sold for $0.50, taking a net gain of $0.15/share. 

Do this with however many shares you need to offset your capital gains in your margin account.

Then the $5000 that you technically lost, can be deducted from the capital gains for $5000 that you got from apple. No tax paid. (all the profits funneled into TFSA)

Risks: Someone might come in and sell at your bid, or buy at your ask. You don't want anyone interfering with your trade while you're doing it, that's why you must do it quickly, and only works on illiquid stocks that trade rarely (low/no volume) (eg. SQUID).

Even if the stock price moves up or down in the 30 days that you're waiting, as long as there is a bid ask spread, you can sell back to yourself and cover your short position. No loss.

The only cost of this method is $40 in commissions, because there are four trades ($10/trade.) Or would you rather pay thousands in taxes? And also the interest rate on the short position that you will be holding for one month. 

Another risk: Risk of short squeeze, if the stock price starts to violently go up, sell back to yourself and close your short position so that you don't have to buy back unfavorably. Try with another stock. Usually shouldn't happen to illiquid stocks with no volume. 

Reason you need a margin account, is because you cannot short in TFSA.

Why you can't be screening for stonks.

Disclosure:

I don't use screens, I read sedar everyday bro (everyday bro). I read for earnings report, that way within three months I am aware of every single company that exists in the Canadian exchanges, that's a lot of work. Some people may not have time. 

Start:

A lot of great companies before they get bid up spend lots of money on research and development and sales and marketing. These are not true costs and are more of an asset**, they artificially reduce operating earnings, making the valuation look bad. But it can't be further from the truth. That's why screens are useless and you must look in the filings directly. Many companies make so much money relative to market cap, but spend everything on R&D and S&M that there's nothing leftover for net income, but the revenue next year is even higher, surges. These are the companies I look for, these are the companies whose stonk prices will surge. What you want to buy is these companies before the market realizes how much money they make and before they show up on screens, the operating earnings are artificially reduced by R&D and S&M, that's why you must read the actual filings (earnings report), not just generic websites financial statements. 

I will show you an example, Vigil Health Solutions ($VGL.V), $6.5 MM market cap, $700K annual net income, $3MM net income without R&D and S&M. This is a growth company, growing heavily. I will make a video about it. Disclosure: I am long. I am ballz deep. I am still buying this is gonna take a huge percentage of my portfolio. I am going to be buying a lot, please don't buy before me, I will say it in the video also. 

Also another example: AirIQ ($IQ.V), I am not long, I don't like the CEO he has no skin in the game and looks like doesn't give a shit. I might go long, if it's cheap enough. 

**The reason this is an asset is because SG&A is more of a cost, but R&D and S&M are assets because these are things that increase future earnings.

Margin is bad! Don't use it!

Debt is good as long as the ROI is higher than the interest costs. Real estate and businesses use it. 

HOWEVER, margin is bad!

A broker can recall his margin anytime (literally, no reason necessary) and screw you. If you don't put the cash upfront, you will get margin called and automatically liquidated at a loss. 

Often times, lack of liquidity and margin calls is what causes a market crash. Don't be apart of it. Instead,  use debt that cannot be recalled, like a line of credit (personal, or secured.)

This is what I do (not yet, because no one is willing to give me loan.)

Another spinoff: Organon and Co. from Merck pharmaceuticals. Teaser.

Originally posted on reddit

https://www.reddit.com/r/MicrocapVillage/comments/n9ryl0/another_spinoff_organon_and_co_from_merck/

Spinoff date: 2021 Q2.

This can be a potentially good spinoff. **Notice: the company has not spun off yet.

The company is great, I don't know if we can get it at a cheap valuation. I don't know if there is going to be too much forced selling because the market cap won't be too low.

Read form 10-12B.

This company is being spun off from Merck & Co. pharmaceutical company. They are spinning off their women's division.

Business description from 10-12b:

The Organon Products segment is engaged in developing and delivering innovative health solutions through its portfolio of prescription therapies within women’s health, biosimilars, and established brands (Organon Products). The Company sells these products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers such as health maintenance organizations, pharmacy benefit managers and other institutions. The Company expects to operate six manufacturing facilities in Belgium, Brazil, Indonesia, Mexico, the Netherlands and the United Kingdom (UK).

The Organon Products segment portfolio includes:

• Women’s Health: the Company has innovative contraception and fertility brands, such as Nexplanon/Implanon, a long-acting reversible contraceptive, a class of contraceptives which are recognized as the most effective type of hormonal contraception available to patients with a lower long-term average cost.

• Biosimilars: the Company’s current portfolio spans immunology and oncology treatments. All five of the biosimilars in Organon’s portfolio have launched in certain countries globally, including two biosimilars in the United States.

• Established Brands: the Company has a portfolio of established brands, which generally are beyond market exclusivity, including leading brands in cardiovascular, respiratory, dermatology and non-opioid pain management.

Financials, only: I encourage you to look at it before I talk about it.

Income Statement.

Balance Sheet.

Cash flow statement.

Summary

1) Income statement:

You will notice that revenues are declining. I am very surprised, almost laughing, at why they would want to give the impression that this is a declining revenue business. This makes me want to buy the stonk more. What will be most telling is if insiders buy stonk (open market transactions.)

Normalized operating income (not net income) is $2600MM.

2) Balance sheet:

$10B in assets, of which $5B is goodwill (50%). No cash. Current assets is higher than current liabilities. Total liabilities is $4.5B. Kind of a lot, but I am pretty sure they can pay it off. In fact Debt/EBIT = 2. They can pay it off in two years. That is cheap!

I have no problem with goodwill, as long as it has earnings power!

3) Cash flow statement:

There is very little depreciation and amortization and capex, so I am going to ignore it. We can just focus on EBIT for now.

BUT. They have a lot of goodwill to write off. That is good.

Valuation:

I like cheap things. But because it is a pharmaceutical company and they have pricing power (moat), I can pay up. I am willing to pay for P/E = 8, no more. I am ignoring debt because it's so small and they can pay it off in two years. Therefore I want this stock to be 2600*8 = $21B market cap.

You see how big this company is? There isn't going to be much forced selling.

As usual we will be keeping our eyes on insider buying and how much management owns.

Notice:

You will realize I never do comparable analysis. Comparable analysis is gay. I don't care what the fool next to me is willing to pay for this business. When I buy stonk, I imagine that I buy the entire business (private equity.)

Again, this is just scratching the surface. We need to identify what drugs they have and identify their useful lifespan (patents, competitors, application, etc...). Financial analysis is not enough. We need to read the entire form 10-12B. Put your comments/thoughts below.

Teaser: $OPXS Optex Systems Holdings, Inc. Cheap microcap.

Originally posted on reddit

https://www.reddit.com/r/MicrocapVillage/comments/n9ogvy/teaser_opxs_optex_systems_holdings_inc_cheap/

Disclosure: I do not hold a position in OPXS.

Name: Optex Systems Holdings (OTC)

Ticker: OPXS

As of March 28, 2021 10Q:

Market Cap: $13MM

Cash: $4MM

Current Assets: $15MM

Total Liabilities: $7.3MM

Net Cash: $4MM

Enterprise Value: $9MM

Revenues: Stabilized at $20-24MM. Growth?

EBIT = $3MM normalized.

EV/EBIT = 9/3 = 3

Business:

Optex Systems Holdings, Inc. (the “Company”) manufactures optical sighting systems and assemblies for the U.S. Department of Defense, foreign military applications and commercial markets. Its products are installed on a variety of U.S. military land vehicles, such as the Abrams and Bradley fighting vehicles, light armored and advanced security vehicles, and have been selected for installation on the Stryker family of vehicles. The Company also manufactures and delivers numerous periscope configurations, rifle and surveillance sights and night vision optical assemblies. Optex Systems Holdings’ products consist primarily of build to customer print products that are delivered both directly to the military and to other defense prime contractors or commercial customers. The Company’s consolidated revenues are derived from the U.S. government, 25%, three major U.S. defense contractors, 31%, 13% and 9%, one commercial customer 5%, and all other customers, 17%. Approximately 89% of the total company revenue is generated from domestic customers and 11% is derived from foreign customers.

Gross margins: 23% normalized (improving.)

Operating margins: 10% normalized.

Comments:

I am really surprised that their gross margins are gradually improving. Maybe they are selling different products?

Risk:

There is government risk in case government doesn't buy.

Remember, this is only a quik pick, no deep dive.

I might go long, if I find the opportunity compelling. It's cheap. Gotta read the latest 10Q and latest 10K.

How do I know this name:

Gate City Capital Management is long. It's a small hedge fund with AUM $20MM that invests in microcap names with concentrated holdings.

Spinoff not to buy: N-Able Inc. Teaser.

Originally posted on reddit 

https://www.reddit.com/r/MicrocapVillage/comments/n9f2v9/spinoff_not_to_buy_nable_inc_teaser/

"Not all spinoffs are good spinoffs"

- Sun Tzu

Since I illustrated two great (potential) spinoffs, this is one that I would not buy.

**Please note this spinoff has not yet spun off.

Business description from 10-12b:

We are a leading global provider of cloud-based software solutions for managed service providers, or MSPs, enabling them to support digital transformation and growth within small and medium-sized enterprises, or SMEs, which we define as those enterprises having less than 1,000 employees. We partner with over 25,000 IT service providers, which we refer to as our MSP partners, empowering them to deliver best-in-class managed services in a scalable and repeatable way. These MSP partners rely on our platform to deploy, manage and secure the IT environments of over 500,000 SMEs around the world. Through our multi-dimensional land and expand model and global presence, we are able to drive strong recurring revenue growth, profitability and retention.

Let's jump to the financials, that's all I am doing:

Balance Sheet.

Income Statement.

Cash flow statement.

Summary:

1) Balance sheet:

They have $1B in assets, of which $874MM is goodwill, and $448MM in total liabilities, $380MM of debt. Ok maybe the acquired company has earnings power?

2) Income statement:

$300MM revenue, growing revenue from 2018. 77% gross margin, 10% operating margin. $30MM normalized operating income. What I really hate is that they have $30MM interest expensive, effectively wiping out all earnings. Of course, some of their operating expenses are depreciation and amortization, so they are cash flow positive. And when they write down the goodwill, that will help them not pay taxes for a while.

3) Cash flow statement:

Normalized **owner's earnings is $30MM.

**Owner's earnings = net income + depreciation & amortization - capex.

Therefore I will not be pursuing any more research on this name. They have high debt, and lots of goodwill, of which doesn't have high earnings power.

--> If insiders buy stonk, I will revisit this name with new eyes.

All I am looking at is financials, nothing forward looking. Please provide your commentary, for those of you that know anything about the business.

But knowing the market, this spinoff is the one going to perform the most, as the market has a fetish for money losing stonks.

----------------------------- SEPARATE

There's another spinoff called Jackson Financial, spinoff from Prudential Financial. I don't understand anything about insurance, so I am not going to touch it.

Spinoff stock, not microcap! Teaser: DTE Midstream Inc spinoff. Insane forced selling.

Originally posted on reddit 

https://www.reddit.com/r/MicrocapVillage/comments/n9bmt6/spinoff_stock_not_microcap_teaser_dte_midstream/ 

They just released their form 10-12B on May 7th 2021. This stonk has not yet gone public**

I am going to invest, if cheap enough. The form 10-12B is 400 pages. I need to read all of it.

Why it's important:

This stock is being spun off (via distribution) from DTE Energy, an S&P 500 company. 17% of shares are owned by passive ETF's, many of whom will have to sell because it is not in their mandate to hold the stonk. And who knows how many mutual funds/other investment vehicles will leave the stock because it is not in their mandates. This spinoff stock is going to be very small market cap, as seen in the financials.

Business Description:

They are engaged in the transmission of natural gas received from Appalachian shale gas supplies to markets in the United States (US) Midwest, including Ohio, Michigan and Illinois, as well as Ontario, Canada.

I had a quik look at their financials. I encourage you to take a look before I talk about it.

Income Statement.

Cash flow statement.

Balance Sheet.

1) Income statement:

Normalized revenue: $300MM

Normalized operating income: $70MM

Net income: same, no debt.

We have to see what take or pay contracts they have and if there is going to be continuous demand in this pipeline/any competitors from different areas.

2) Balance sheet:

This is what I love. No liabilities. They have $2600MM in PPE and no liabilities. Look for yourself. Usually midstream companies have lots of debts.

3) Cash flow statement:

Connecting to income statement, they make approximately $100MM in FCF. HOWEVER, we must look future development to see how much capex is going to be in the future/if they are building more/ need to maintain. Honestly, I am ok with just maintenance capex, as long as this stonk is cheap enough.

--------

Some things to consider:

They use $2600MM in assets to generate $100MM in earnings (roughly.)

That's 4% net margins on this business. Which is perfectly fine as long as the take or pay contracts are defined. Revenue is guaranteed. As long as the stonk is trading cheap enough.

Valuation:

I want this stock to be <400 million market cap. I would love to buy it cheaper than P/E = 4. But I must look at the form 10-12B to look at the take or pay contracts and the risks associated with this company and it's competitors. Because this is a midstream company, >85% of earnings goes towards dividends! I love it.

I am excited because there is going to be lots of forced selling. Keep your eye on it! I don't know when it's going public.

My investment process

1) Make sure the financials look good, cheap valuation/high growth rate.

2) Read SeekingAlpha articles, Value investor's club. 

3) Read annual report/MD&A for future outlook.

4) Buy stonk. 

I invest in:

1) Microcaps.

2) Post-reorg equity (forced selling)

3) Spin-off (forced selling)

4) Any undervalued stonk

**I also invest in net-net's with catalyst, but leaning towards not doing it. 

Teaser: I am long Cipher Pharmaceuticals, my biggest holding. EV/EBIT = 2!!!!

Originally posted on reddit: 

https://www.reddit.com/r/MicrocapVillage/comments/n8w473/teaser_i_am_long_cipher_pharmaceuticals_my/

I have been meaning to do a deep dive. I am too lazy. You need to know why I am long the stock.

I will do a comprehensive analysis.

All numbers in CAD.

Share price: $1.46. My cost basis: $1.35. 28,000 shares.

Name: Cipher Pharmaceuticals.

Ticker: CPH.TO

Market Cap: $36 MM

Cash: $9 MM

Current assets (Cash+ receivables): $20 MM

Total Liabilities: $11 MM

Net Cash: $9 MM

Enterprise Value: $26 MM

Normalized EBIT: $12 MM

EV/EBIT = 2. Do I have to scream louder?

This is a turnaround story with two years of consistent earnings. Starting 2018 (three fiscal years) new management with substantial stake has turned the company around. Now it's EV/EBIT = 2. Normalized earnings, ofc. Future earnings look same as before.

Yahoo finance description: https://ca.finance.yahoo.com/quote/CPH.TO/

Cipher Pharmaceuticals Inc. operates as a specialty pharmaceutical company in Canada. Its commercial products include Epuris (CIP-ISOTRETINOIN), a formulation of the active ingredient isotretinoin for use in the treatment of severe acne; Ozenoxacin to treat adult and paediatric patients with impetigo; Actikerall, which is indicated for the treatment of palpable or moderately thick hyperkeratotic actinic keratosis; Vaniqa, a prescription cream that reduces the growth of unwanted facial hair in women; BRINAVESS, a treatment for sinus rhythm in adults; and AGGRASTAT, an intravenous anti-platelet drug. The company's licensed products comprise CIP-Isotretinoin; Lipofen (CIP-Fenofibrate), a formulation of the active ingredient fenofibrate used for the treatment of hyperlipidemia, a cholesterol disorder; and Conzip/Durela (CIP- Tramadol), a formulation of the active ingredient tramadol for the management of moderate to moderately severe pain. Its pipeline products also include Trevyent, a vasodilatory prostacyclin analogue to treat pulmonary arterial hypertension; CF-101 for severe plaque psoriasis and rheumatoid arthritis; MOB-015, a topical formulation of terbinafine for the treatment of onychomycosis; and DTR-001, a tattoo removal cream. Cipher Pharmaceuticals Inc. was founded in 2000 and is headquartered in Oakville, Canada.

Technical analysis: After many years of downward stonk pressure, the sellers are gone, and now only diamond hands are holding. That means 🚀🚀🚀🚀🚀🚀.

Forward guidance:

Numbers in CAD, millions.

	2017	2018	2019	2020	2021	2022
Revenue	40.14	22.75	22.45	21.61	22.92	20.28
Normalized EBIT	25.06	5.72	11.50	12.16	16.47	16.82

In 2018, they implemented cost-cutting as part of turnaround. In the earnings call they said they are looking to acquire positive cash flow drugs. They have partnered with Verity Pharmaceutical is distribute three drugs to the healthcare sector in Canada. Their agreement is a royalty agreement. So it comes to no cost as Cipher Pharmaceuticals, they only get royalties other partner makes a profit. *separate* They have three drugs in their pipeline. *growth*. But I am excluding this in the calculation. This is all bonus, icing on the cake, cherry on top.

These forward estimates are very conservative. Significant insider buying says otherwise.

Insider ownership: 40%. Chairman owns 39%, almost about to die. Rest 1% owned by CEO, CFO, etc..

Insider buying recently:

Courtesy of CEO.ca

Problems:

Obviously there is hair on this stock, but it is overstated, market too pessimistic.

50% of their revenue comes from one product: Absorica.

These guys get licensing royalties from Absorica. It's an Accutane generic (yes the stuff you use on acne.) There are four competitors in this generic fight off. Absorica owns 6% of market share. I don't think it's going to go down. There is not going to be an alternative to absorica, not in the latest studies.

I will do a comprehensive analysis, have to.

Financials from TIKR. https://app.tikr.com/register?ref=9bsel3

Learn all about CPH SEDAR filings https://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00020415.