By Kris Sayce, editor, Casey Daily Dispatch
It’s one of the biggest gains in Casey Research history.
And it took just 16 months to play out.
Here’s the good news.
It wasn’t from crypto… NFTs… obscure collectables… or even from a well-timed options play.
It was a gain every stock investor could make from their plain vanilla brokerage account – no special permissions required.
An incredible outcome.
So how did it happen? Details below…
If this is your first time reading the Dispatch, welcome. If you’ve been here before, welcome back.
At the Dispatch we have two goals:
To introduce you to the most important investing themes of the day, and
To show you how to profit from them.
We do this by showcasing ideas from our cast of in-house investing experts, Dave Forest and John Pangere. And from the founder of our business, Doug Casey.
Today, let’s talk about that incredible return. It’s still an active and open position in one of Dave Forest’s portfolios.
Shortly, we’ll show you how he did it… and how he plans to do it again, and again, and again…
Invest Less for a Bigger Gain
It’s all to do with one of the best (perhaps, the best) investing assets you can get – warrants.
But while they’re the best, they’re also one of the least known and even less understood assets around.
So what are warrants all about?
Here’s the two-minute pitch…
Companies issue warrants as an incentive to investors. In the past couple of years, most of the warrants issued are a result of SPAC listings.
(SPAC is an acronym for Special Purpose Acquisition Company. We won’t go into the details here. Just know that it’s an alternative and cheaper way for a private company to list on an exchange, compared to a regular initial public offering – IPO.)
They’re an incentive because investors may perceive the companies in question as higher risk. A company that lists via SPAC is likely to be smaller and less well-known than the blockbuster IPOs that make all the headlines.
And so, because of that extra perceived risk, the company will issue warrants alongside the shares.
Here’s the thing. The warrants most often trade at a much lower price than the associated stock. That means you can buy more of them… if you wish. Or even better, you can actually invest less… but have the chance to make a bigger gain than if you bought the stock.
If that sounds confusing, here’s an example. It really is quite straightforward.
Turn $750 Into More Than 13 Grand
We’ll use the example of Dave’s best-performing warrants pick right now. That’s the one we mentioned at the top of this letter, which is up 1,762%.
It’s the Custom Truck One Source warrant (CTOS.WS). Note that while this is still an open position, we’re comfortable revealing it to you because it’s trading well above the recommended buy-up-to price.
If you had followed Dave’s advice back in July 2020, you could have bought that warrant for just 14 cents. A tiny amount.
Or you could have played it differently. You could have paid $4.07. That’s a big difference – 14 cents compared to $4.
But here’s the bigger difference. If you had held through yesterday, you would have gotten a nice return from both… but one would have been much better than the other.
Yesterday, the Custom Truck One Source (CTOS) stock closed at $8.46. So between July last year and yesterday, you could have doubled your money.
A $5,000 investment then, would be worth $10,350 today.
That’s a 107% return. It’s a great result for most investors…
Now compare that to the warrant. We’ve already told you the percentage return, 1,762%. That’s because the warrant price increased from 14 cents in July 2020 to $2.52 at yesterday’s close.
You see the difference. Rather than investing $5,000 in a small-cap stock (CTOS has a market capitalization just over $2 billion), you could have risked a much smaller amount.
Let’s say, just $500. That amount with a 1,762% gain would now be worth $9,310. A slightly larger stake, say $750… would now be worth $13,965.
A smaller stake, with a bigger return. That’s the beauty of warrants.
Now, there are risks with warrants. One of those is that unlike stocks, warrants have an expiry date. But Dave and his team factor that into their picks.
Anomaly Found, Price Gains Follow
Typically, they look for a warrant that has three to five years until expiration. They want to make sure the story has plenty of time to play out.
This isn’t pure speculation. Dave and his team aren’t just looking for tiny plays, hoping they go up a lot.
Dave and his team do full analysis on the underlying stock. They make sure they’re recommending a sound business with strong growth. When they confirm that, then they make the recommendation.
The final thing they look for is an anomaly in the price. Remember we said that most investors know nothing about warrants. That goes for the pros, too.
Because of that, there can be a disconnect between the stock price and the warrant price. What do we mean by that? Well, while Dave is only interested in the price gain of the warrant, there is one extra feature with warrants.
It’s that the warrant owner can convert the warrant into stock at a certain ratio, providing the stock hits a specific price level (known as the strike price).
The closer the stock is to the strike price, the higher the price of the warrant. But sometimes, the market price is out of whack, because most investors don’t even realize the warrants exist… which can mean the warrant price gets “left behind” until someone does notice.
That someone is Dave and his senior analyst, John Pangere. They make it their job to scour the market, looking for anomalies and mispriced warrants plays.
When they find them, that’s when they issue the recommendation… and soon after, that’s when the market starts to notice what’s going on. The great price action then follows.
It’s a terrific story, and an even better investment opportunity. Casey Research has led the way on warrants, and Dave and his team continue to find more and more of these opportunities every month.
If you haven’t yet added warrants to your portfolio, you should check them out today. It’s too good an opportunity to miss.
Editor, Casey Daily Dispatch
P.S. In October, Dave added a new warrant to the Strategic Trader portfolio. It’s already up 162%, and Dave has issued a profit alert for his subscribers to take half their stake off the table. Sometimes they move that fast.
His latest pick, issued just over a week ago, is still flying under the market’s radar. As we write, it’s down about 9%… which is no big deal. But soon enough, especially considering the industry concerned, this play is likely to take off fast, too. You can find out how to access Dave’s research here.