The China Connection - Pay attention to the details (RVX.TO / CREG / ACST)

Regardless of your opinions of U.S. President Donald Trump, his recent trip to China has coincided with some North American companies releasing news with a connection to the world's most populated country and fasted growing economy. 

I'm going to focus on three such companies: 

1. Acasti Pharma which trades on the Nasdaq with the symbol ACST.  
2. China Recycled Energy also on the Nasdaq with the symbol CREG. 
3. Resverlogix trades on Canada's TSX with the symbol RVX and as RVXCF in the U.S.

Acasti Pharma

They put out news on November 20th announcing a non-binding term sheet with a leading China based pharmaceutical company.  That news sparked a huge rally for ACST which previously had been trading around the $1.30 area on very thin volume, often less than 20,000 shares a day. 

After the news hit volumes exploded with over 20 million shares trading hands the day the news came out.  And the PPS exploded higher as well, reaching a peak of $3.36 inter-day.  Things have cooled off considerably since then however and the PPS has fallen all the way back to $1.64 with volumes having dropped to less than 1 million per day,  most recently falling below 200,000 trading.

While the news seems to have sparked a huge wave of excitement, in the days following I consider it probable that investors paid closer attention to the details.  This is a "non-binding" term sheet, which means it might not even come to fruition.  And the "leading" China "based" pharmaceutical company isn't even named.  

I'm always suspicious of the word "leading", because there are all manner of penny stock companies who refer to themselves as being a "leader" despite the fact that they're only able to stay in business by promoting their company and dumping freshly printed shares into the market.

In a nutshell they signed a deal that may not happen with a company that isn't even named.  I suspect that if the unnamed company hadn't been from China that the market probably would have yawned.

China Recycled Energy Corp

This one was absolutely crazy.  Their stock went from down around $1.20 to over $9 in a two day period that saw over 50 million shares trading.  The reason?  News was released on November 9th about China Energy Investment Corp signing an MOU to invest over $80 billion in projects in West Virginia.

In this case I believe investors got confused, and while thinking they were buying shares of China Energy Investment Corp, they instead bought shares in a completely different company with a similar name.  Think of it as one of those look alike doppelgangers who shows up at a Rock Concert and gets mobbed by people mistaking them for the real deal.  

And as probably should be expected CREG has cooled off considerably from that $9 peak and is currently trading around $3.  

Both ACST and CREG spiked big but pulled back. In both cases I believe a perceived connection to China helped spark a feeding frenzy.   But both cooled off, CREG because the news that sparked the interest was about a different company.  And Acasti because  a "maybe" deal with an unnamed company isn't exactly money in the bank.

Resverlogix

Resverlogix however is a different story.  They too announced a deal with a Chinese based pharmaceutical company, but it wasn't a "maybe" deal but rather one that was finalized.  Regulatory approval was given for an $87 million (CDN) investment in this small Calgary Biotech.  And it wasn't with an unnamed company, but with Shenzhen Hepalink, the world's largest producer of Herpain Sodium, a blood thinner.

As with ACST and CREG shares of RVX climbed sharply on the news.  But unlike those other two the gains didn't vanish, in fact the stock kept climbing right into Friday's closing bell.  The $2.20 closing price is the highest RVX's shares have been in the past 6 months.  And comparative volumes were much lighter, instead of 20+ million as seen with ACST and CREG, RVX by contrast didn't even reach 1 million on any single day.

Beacon Securities analyst David Kideckel's buy recommendation and 12 month price target of $8.55 from November 15 was repeated in a story put out by StreetWiseReports.  It highlighted how Dr. Kideckel referred to Resverlogix as one of Canada's most undervalued and impressive Biotechs.

http://www.thelifesciencesreport.com/article/2017/12/06/coverage-initiated-on-one-of-the-most-undervalued-biotech-companies-in-canada.html

Conclusion

The take away is fairly simple here.  Paying attention to the details often pays dividends down the road.  While its easy to get caught up in the excitement of a stock making unbelievable gains, its probably worth while to take the time to do the required research....to make sure the excitement is based on solid facts, and that you're sure of what the facts are.  

Full disclosure, I have no position in Acasti and no intention of opening one, long or short, anytime in the foreseeable future.  I do own some shares of CREG, however I sold off over two thirds of the shares I was holding before the PPS exploded and then pulled back.  

In Resverlogix I have what I consider to be a significant position and I added more share purchase warrants last week.