Buying This Highly Volatile Name as Rotation Creates Opportunity
A poor market has created an intriguing valuation gap.
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The weak open on Monday morning was an invitation for dip-buyers to go to work. All the major indices are in positive territory after some heavy selling in the premarket. The opening lows are now key support, and traders will be watching that level as a potential bottom.
While there has been some very poor action in the last few sessions, the most important aspect is that it has been rotational. This is not a broad market selloff. There has been deep corrective action in AI-related software and some related areas, as well as a popping of "bubble" action in gold, silver and other commodities. Bitcoin and some of the more speculative names have been hit as well, but much of the market has held up fairly well.
Small-Cap Mispricing
From my perspective, this type of action tends to create some very good opportunities because many secondary stocks are sold regardless of their merits. Most corrections are primarily driven by indices and ETFs. It is top-down action with every stock in the index or ETF under pressure. The good names are thrown out with the bad.
This creates mispricing, especially for smaller, thinner names that lack much institutional support. Investors are more inclined to buy bigger-cap names because they feel they are safer. The reality is that small, thin names are being mispriced to a much greater degree
NeoVolta (NEOV) Strategy
A good example is NeoVolta (NEOV) , a name I discussed on January 22. The stock doubled on news that it is moving into utility-scale production of battery energy storage. Its new joint venture with LONGi and PotisEdge has a revenue potential of $400 million annually, which is massive compared to recent record quarterly revenue of $6.7 million.
The company did a registered direct offering of shares at $4.76 after the news was announced. Due to poor market conditions and a recent 13G filing showing Davidson Kempner reduced its stake to below 5%, the stock hit $4 on Monday morning. That means I am now able to buy at a substantial discount to the institutional investors who participated in the direct offering just a week ago.
I have added shares and plan to add more.
Execution and Catalysts
Nothing has changed with the fundamental story. The company is actively hitting the pavement this week, attending the RE+ Northeast conference in Boston through Thursday. This is exactly where they’ll be pitching the new Utility/C&I strategy to the industry. Following that, they are slated for the Small Cap Growth Virtual Investor Conference on February 5, where they can address the recent capital raise directly with the investment community.
This is just a poor market creating a temporary valuation gap. This is high-risk trading because a stock like this has a very high beta, meaning it is highly volatile. However, if you dig into the story and understand the fundamentals, the valuation looks quite attractive.
There are many other names out there like this. For example, Xeris (XERS) and Roku (ROKU) are both under pressure for reasons unrelated to their operations. I’ll be hunting for more and will keep you posted.
At the time of publication, DePorre was long NEOV, XERS and ROKU.
