Are shares of Lithium X Energy "Jumping the Shark"? (LIX.V - LIXXF)

For those unfamiliar with the term "Jumping The Shark" it comes from a TV show called "Happy Days" that aired between 1974 and 1984.  Even if you're under 40 you've probably at least heard of it.

The most popular character on the show was 'The Fonz', a tough guy mechanic with a soft heart and a way with the ladies.  All he had to do was snap his fingers and girls came running.  When he wanted to play a song on the Juke Box he just gave it a rap with a closed fist.  Here's a YouTube video which shows why Fonzie was so cool:

Happy Days was a top rated show.  The most watched episode involved the Fonz jumping garbage cans with his motorcycle.  Nothing lasts forever and after a few seasons ratings started falling.  So the producers decided to try the same ploy again, but instead of jumping garbage cans with his motorcycle, this time Fonzie jumped a shark on waterskis while on vacation in California.

While the show got a temporary boost it didn't last.  Ratings continued falling and the show was eventually cancelled.  And from that time forward the term "Jumping The Shark" has come to signify a last ditch effort that ultimately fails.

So why do I ask if Lithium X Energy is "Jumping The Shark"?

I have started getting email blasts from "The Outsider Club" that are touting an investment in Lithium X (LIX.V or LIXXF OTC).  The author is Nick Hodge and here's what it says about Lithium X at the end of the latest email:  

• It’s gone up several thousand percent in the past six months. And I think it can do it again. It’s putting a project into production in South America, owns the largest lithium land package in Nevada, and has the best management and board I can find in the space.
• It also still trades with a tiny market cap of $100 million.
• If you’d like to see my full report on the lithium sector, what to avoid, and all the details on my tiny top pick… just click this link.
• Call it like you see it,                                                                                                                Nick Hodge

Call it like I see it?  Okay....I will.

Firstly LIX is not up several thousand percent in the past 6 months, that's a falsehood right off the bat Mr. Hodge.  Lithium X put out a PR announcing the commencement of trading of LIX on the Canadian Venture Exchange on November 30th 2015.  The stock initially raised at 15 cents and opened at double that, 30 cents.

For those lucky enough to get in on the initial 15 cent raise that equals an eye popping gain of over 1,300% by my calculations...That's incredible, so why overstate things? It did not go up "several thousand percent"???   Right off the bat that might be enough to send potential investors running if Mr. Hodge's email is their first introduction to this company.  Who would listen to a guy so lacking in basic math skills.

And secondly, while its great to say it could go up several percent more....responsible market professionals do not ignore the risks, and the fact is that LIX investors buying at current levels could also lose some or all of their investment.  I'm not saying LIX will fall signficcantly, merely that it could.

Then there's the bit about putting a project "into production" in South America.  Uhm, not exactly. As per a Press Release put out by the company on July 20th, the company doesn't even have construction permits for pilot ponding facilities.  In fact investors are still waiting for an updated resource estimate on that proposed mine.  Production, if it comes, is still years away.

I don't want to go on too much about email blasting stock promotional outfits, they are what they are. If you're sufficiently intrigued you can research this Outsider Group outfit yourself and see if you can find some penny stock they promoted that actually went on to deliver long term shareholder value....If you do leave a comment, I haven't been able to find one yet.  

That's not to say companies promoted by Outsider Club haven't gone on wild rides.

Stellar Biotechnologies is probably as good an example as any of the penny stocks this Outsider Group has promoted.  SBOT saw its PPS pumped up to a split adjusted (a 1:10 consolidation)  $20+ per share from just $2 - $5 and now its back down under $3....that's 20-50 cents pumped to $2+ adjusting for the reverse split.

Besides, there are other promotional efforts being employed to attract investors to risk money on LIX.V or LIXXF OTC.  Oilprice.com is also playing up the Tesla angle, suggesting that the nascent electric car company is scrambling to lock up as much of the Lithium supply as possible.

Whether its oilprice.com or outsiderclub or any other promotional outfit I strongly suggest reading the disclaimer statements, usually there's a link at the very bottom of the web page.

Now regular readers (the huge multitude of devoted Avoid The Bag fans, both of them) know that I view some promotion as being part and parcel of development stage companies, it comes with the territory.  Cash strapped prospective businesses need to raise capital to execute a business plan. There are a number of options of course, they can raise money privately, attempt to secure bank loans or seek out so called "Angel Investors".

And then of course there's the public markets, and it can be hard for a small company long on dreams but short on capital to get noticed.  So some promotion is to be expected.  

So do I think Lithium X is "jumping the shark"?  I do.

Beyond the promotional effort and email blasting Lithium X is also popping up on Google Ads on a lot of sites I visit.  I assume its because of all the searching for stories on both investing and Lithium that I do. The ads take you Lithium X's website and a recent Press Release. 

For me its that old line about a market needing buyers and sellers  The stock market is ultimately a zero sum game, buyers get shares and sellers get cash.  When I see a lot of activity designed to entice people to buy shares I have to ask myself who the sellers are....and if maybe they're the smart ones.

Call it the canary in the coal mine, or the shoeshine boy analogy.  When I start seeing a stock getting promoted and profiled almost EVERYWHERE....my Spidey Sense starts tingling.  JFK's father Joe was lucky to get out the stock market before the big crash....When asked about it later he claimed he knew it was time to cash out when a kid shining his shoes started suggesting to buy certain stocks.  

Do note though....I'm using the present tense with the verb "jumping".  I do believe that there is likely some more upside from current levels for shares of Lithium X Energy.  As with the shark jump on Happy Days, there was a ratings boost that came from putting Fonzie on water-skis and sending him through the air with Jaws waiting if he failed.  

It would have been easier to write something like this after waiting to see if LIX.V - LIXXF trades significantly lower in the coming weeks and months.  Then I could have said...."back then, in the summer....that's when shares of Lithium X "jumped" the shark"....but that's boring and too easy. Trying to predict what's coming is more fun.

Ultimately and longer term I think somewhere around $2.50 to $3.00 will prove to be a high water mark as dilution in my opinion will play a big part in weighing down the share price. 

Longer term though, based on their properties and management experience....I do actually think they have a chance to make a go of things.  In another two or three years, 2018/2019 if they are able to clear the many hurdles they'll undoubtedly face.....then I think they could bring a working mine or mines into actual production.  In the interim though I expect shares of Lithium X whether traded on the Canadian Venture or in the U.S. OTC....in my opinion its going to be a roller coaster ride. 

And if the company does bring a working mine to production, then I think those who've been buying LIX.V (CDN) for $2+ currently, that they might end up being lucky to just break even.  

Good luck

Lithium Americas - The Gordie Howe of Canadian Junior Lithium stocks?

Gordie Howe was my late great mother's favorite hockey player.  She taught me a song about him when I was a kid:

Gordie Howe is the greatest of them all

He can stand, while all the others fall

And when he skates down ice

He shoots he scores

We love Gordie Howe

Sorry I can't convey the tune here.  I guess I could make a video with me singing it, but given that I can't carry a tune in a suitcase, ugh.  This pathetic and miserable  little blog would lose the few followers its gained if I foisted my singing (sic) talents on here.  

Why am I comparing Lithium Americas with the legendary Gordie Howe?  Its the second line of that tune, "He can stand, while all the others fall".

Over the past few months LAC.TO has been having a nice little run, and is currently trading at $1.10 CDN, the highest price it has ever closed at.  That's just 5 cents from its 52 week high reached interday the past two trading sessions.  

That compares very well to a number of other junior Lithium stocks that climbed higher and faster, but that have since fallen back (or down). 

• Lithium X Energy (LIX.V) went to $2.85 in April and has fallen back to $1.70 now.
• Nemaska Lithium (NMX.V) reached a high of $1.97 in May of this year but now sits at $1.29
• Pure Energy (PE.V)  up to $1.15 in April now at .69 cents
• Dajin Resources (DJI.V) 30 cents in April 19 cents now

So why has LAC continued to uptrend while all the other juniors mentioned have pulled back?  

I think the mostly likely culprit is dilution.  

LAC has 295,311,916 shares listed as outstanding as of June 15th. There has been some dilution, but not very much.  In March there were 291,974,008 shares.  The increase to 295,311,916 amounts to 3,337,908 more shares or an increase of just 1.1%

Nemaska by contrast showed 206,715,385 listed as outstanding in March 2016, and now that number has climbed to 236,137,873 for an increase of 29,422,488 shares.  That's an increase of over 14%, or about 1,400% more dilution than what LAC has undergone.  And Nemaska recently announced a proposed offering of between 43,480,000 and 52,174,000 more shares priced at $1.15 expected on July 8th of this year.

It should be noted that, concurrent with this share offering Nemaska has received tentative approval for an uplisting to the TSX, and I do think that will help in attracting investors, possibly even institutions which tend to shy away from the riskier Venture exchange.  

Lithium Energy has seen even greater dilution in percentage terms.  As of March 15th the company had 43,820,732 shares outstanding.  The most recent number, current up to June 15th is 60,538,202 an increase of over 16.7 million or 38%.  

Pure Energy, however, has not seen any dilution over this period, staying at the same 66,2 million from March until the most recently available update to June 15th, so obviously the drop in PE.V is not attributable to the printing of more shares.  Perhaps if some Pure Energy shareholders are reading this they can comment.

Dajin Resources though conforms to the dilution narrative having gone from 118.4 million shares in March to 130.9 currently for an increase of about 10.5% 

There is one notable difference between LAC as compared to NMX, LIX, PE and DJI.  The latter four companies all trade on Canada's Venture exchange while LAC trades on the more regulated big board TSX.  It appears that with NMX joining LAC on Canada's big board exchange, they'll be going from the AHL to the NHL, in keeping with the hockey metaphor.

Here's hoping LAC continues climbing, skating down the ice and scoring for shareholders.  

I should note, there is one Canadian listed Lithium mining company that hasn't pulled back, Orocobre, (ORL.TO).  However unlike LAC and the others mentioned above ORL has actually begun production so I don't consider it a "junior" The PPS sits at $4.75, just off its highest ever close of $4.79 on June 23rd, and its 52 week high (achieved interday on July 4 2016) of $4.87.  

Full disclosure:  I currently own shares in Lithium Americas, hence my opinions are not without bias. I have no position, long or short, in any of the other companies mentioned.  Do note that I do expect to sell some or all of my LAC holdings at some point.  

Speculative stocks like LAC and the others mentioned here comport significant risks.  Everyone has different tolerances for risk and different investment objectives.  The bottom line is to sell for more than what you paid, nobody ever went broke taking profits.  

The comment field is always open, but it is moderated....comments that are abusive, contain blatant pumping or bashing, won't be approved.  Pumping and bashing include statements of opinion expressed as fact, such as "Gonna go much higher" or "Look out below".