Preliminary Screening Tips for Q's
Somebody throws a Q ticker out there. How do you know if it's any good? Does it have a shot? Are they capable of making that 200-300 percent run?
How can you tell? How do you know?
The following are a few observations gleaned from playing most of the big Q's since 2008.
ANY decent Q should have:
1. An active reasonably current website.
2. A product or service they perform.
3. Recent news.
4. Ongoing trading activity
*5. Insider Holdings
*6. Current SEC filings
One should also be wary of private equity that continues to use some variation of the formerly public company's name.
Fleetwood (FLTWQ) is an example of that. Private equity essentially took them over and own the rights to the Fleetwood brand name.
They still generate news, but it's not regarding the formerly public company. Based on remaining assets, old Fleetwood lacks capacity to manufacture a tent LoL!
There are exceptions when patents, law suits, and intellectual property are involved. Sometimes too, a phoenix rises from the remaining assets of a gutted company, but those are rare. Worth looking for, but rare.
The six points above will distinguish an active reasonably viable Q from the dormant shells just waiting for cancellation.
Q's with a pre bankruptcy share price of $6 or less seem particularly vulnerable to private equity take over. Those tentacles can reach considerably higher however. The observation above is not scientific but observed often enough since 2008 to be noteworthy.
Survival of the commons is paramount for the long term Q play, but doesn't matter for the bounce and out.
The Bounce and Out consists of playing the death drop. When Chapter 11 is first announced, it's gonna lose 90 - 95% of it's value in one day maybe two. It will over shoot the drop and overshoot the ensuing rebound. Time it right, and it's the easiest 200-300 per cent you will ever make. Best time to get your "free shares" for later. To do that you have to sell enough to get your initial investment (+ profit) out.
Play the DIP If you miss the Bounce and Out you can still play the announcement of DIP (Debtor in Possession) Financing. The stock frequently experiences a 40 - 60% bump on public announcement that DIP financing has been realized. Let it stabilize after the death drop and seek a good entry point. Again, don't forget to get your "free shares" if you are gonna play the for home run. To get the freebies, you have to sell some (dammit).
The bounce and out depends on timing it right. Doesn't matter if the commons survive or not.
The Home Run. Survival of the commons is of paramount importance. Expect delays. Nothing happens on time. Don't expect justice from the courts. The commons (somehow) survive in the reorganized company. 4 digit appreciation from initial Chapter 11 prices is possible for those who timed it right and hung onto their shares. Doubles, triples, quads are commonplace. 10 - 20 baggers possible.
The Turd. Turds are dormant thinly traded Q's that are awaiting cancellation. These dormant shells are frequently "hijacked" by an individual or small group. Strategic trades give those "early birds" cheap shares and drives the ask up to stratospheric percentages. Frequently accompanied by hype.
These are to be avoided. Any hype is artificial. By the time you get there, it's already to late. Early birds use latecomers to cash out. Latecomers inevitably become bag holders.
You can lose money on any Q, but it's those dormant shells that are the most dangerous.
Timing is everything with these things. When you invest in a Q stock you are investing in a distressed stock. The riskiest of the risky. Where there is the greatest risk there lies also the greatest potential rewards. Never invest more than you can afford to loose.
There's not that many opportunities to realize 4 digit appreciation out there. Q's are one of the few vehicles that can do it.
Original 9-3-10 draft.
* 5 + 6 above are posted by HDOGTX additions to the original 4 prerequisites is Posted by The Cork
