I've been following the stock markets since 1969 when I worked as a securities analyst and trader for Charlie Munger and Warren Buffet, and my experience over the past 40 years has given me a pretty good sense of what stocks I should be buying and which ones I should avoid. It's taken a long time, but the grey hairs are finally beginning to pay off.
When I started my career a few years before I went to work for Mr. Munger, I jumped right into the overcrowded trading floor of the stock exchange that was packed with supercharged and aggressive day traders who were all trying to make a quick killing in just a few minutes. Instantly I was attracted to the excitement, the fast pace, and the easy money. I was hypnotized by the streaming ticker tapes and the yelling and screaming to trade stocks that were on the move. It was really easy to get caught up in day trading, especially if you made money on your first try and as luck would have it, I was unfortunate enough to have been quickly spoiled by easy success. Let me explain why.
One day, my mentor who was watching me closely, took me aside and asked me a question that I will never forget. With a serious but wise look on his face, he calmly asked, "Richard, do you want action? ... or do you want profits?" At first, I was confused by his question but thought for a moment and quickly replied, "What do you mean, or ... I want both". Smiling, he laughed and said, "you can't have both. Day trading has never worked out for sustained periods of time and it never will. Sooner or later all day traders go broke. It's just a matter of time."
Well, at that time I was certain that I knew everything about trading that was necessary, so I continued to pursue my path of fast action and hit and miss profits but decades later I learned from hard, painful experiences that he was right! Day trading can be fun, but it can also be painful. Over time, I observed that it was the investors who bought and held for the long term that were the only ones who consistently made the big money ... and kept it! The big question now is, "what stocks do I buy to hold"?
Over the ensuing decades I developed a screen of variables that I like to filter stock selections through before making decisions to buy. First, it's important that the company has something special that the competition lacks. It can be a patent, a new technology, a better way of doing or making something, a better idea, better management, or impeccable timing. Second, I like to use technical analysis to help identify price support and resistance levels and also to predict breakouts for better timing. Third, buying at a low for the year can leverage yields dramatically. Knowing you will most likely not pick the cheapest price to get in, I have found that averaging down is an excellent way to keep reducing your cost and at the same time, increase your position. Fourth, fundamentals are extremely important. Is the company adequately capitalized? Is management strong? Is debt reasonable? Fifth, is the market for their goods or services growing and if so, how quickly? And finally, what dynamics are influencing the price of the stock?
I have been following Ampio Pharmaceuticals (NASDAQ:AMPE) for 2 years now and when I put it through my investment screen, it is clearly a strong buy because it passes every screen with flying colors.
- Ampio Pharmaceuticals is a tiny drug company with a market cap of only 80 million dollars that is trading near its low of about $2.60 per share and has the potential to generate several billions of dollars of revenues annually with their unusually rich pipeline of drugs and breakthrough diagnostic.
- What Ampio has that is very, very rare is 3 drugs, Ampion, Optina and Zertane, with the potential for each one to be a blockbuster drug generating several billions of dollars each year because they appeal to very large numbers of people who really need them.
- Ampion will appeal to millions of arthritis and pain sufferers and because it is so effective and with no visible side effects, it will likely replace the common aspirin, bufferin, Tylenol, Advil and Aleve. Hard to imagine but it's true.
- Optina will appeal to millions of diabetics suffering from macular degeneration and possibly to patients suffering from renal failure.
- Zertane will appeal to tens of millions of people suffering from Premature Ejaculation. Ampio Submits Type B Pre IND Meeting Request to the FDA for Zertane™.
- Ampio has also developed a breakthrough hand-held diagnostic for measuring ORP (Oxygen Reduction Potential) that until now has not been possible with any cost-effective point of care device. Ampio's ORP hand held device will serve as a highly valuable tool to quickly assess a patients' level of health or disease and ability to heal by measuring the ORP in their blood requiring only one drop of blood. Currently blood pressure, heart rate and rhythm, temperature, respiration rate, reflex reactivity, and pupil reactivity are the only basic indicators used to assess a patients' vital signs and the ability to measure ORP would be an immense breakthrough. Ampio's ORP reader can quickly become a universal piece of equipment worldwide. Ampio has filed for a quick approval process of a 510K.
- Since 2 of Ampio's drugs, Optina and Zertane, are repurposed drugs, meaning that they were already approved by the FDA for higher doses than what they currently seek approval for, the likelihood for fast approval based on safety issues is high and not nearly as risky as a new drug because their safety has already been proven in prior trials.
- Ampio's new wonder drug, Ampion, is naturally produced by the human body and is a proprietary amino acid component of HSA (Human Serum Albumin). HSA has already been approved by the FDA, therefore Ampion is expected to receive a relatively fast approval. In fact, the FDA and Ampio management have recently met this month and decided on a plan for Ampio's path to approval.
- Efficacy is already proving to be amazingly high for all 3 drugs. Read the string of past press releases and this short video to see just how amazingly effective Ampion is. This video, all by itself, is so powerful that it is enough to spark a stampede of millions of patients seeking relief from their pain not to mention large numbers of investors who will see the opportunity of a lifetime to score big. And then add big pharma's immense appetite for products like these to and what do you have?
- A new drug normally requires between 500 million and 2 billion dollars to develop and up to 10 years to gain FDA approval, but this little giant slayer has the ability to gain FDA approval for not only 1, but 3 blockbuster drugs within far less time, far less money and with much less risk. It is possible to see some of their drugs being sold worldwide in less than 2 years and not 10.
- Management is strong and has demonstrated the ability to execute the development and approval process for an unprecedented pipeline of drugs and diagnostics in a very short time and for a minimal budget. It is extremely difficult to imagine a tiny little company like Ampio developing and owning 4 blockbuster products that are on the verge of exploding.
- Management's plan to license their drugs to different companies in different countries is smart and out of the box thinking because these foreign companies will best understand how to gain the quickest regulatory approvals in their respective countries and generate larger revenues and earlier.
- The price of Ampio Pharmaceuticals shares have been depressed by short seller pools of money that take advantage of stocks like Ampio that have little following on Wall Street because they have not been vetted by mainstream underwriters. The reason AMPE has not been vetted by mainstream Wall Street underwriters is simply that Ampio made a decision to access the public markets through the acquisition of an existing publicly traded company that was virtually an empty shell with no operations and no liabilities. That saved AMPE a lot of time and money and it seemed like a smart move at the time but the downside was that the mainstream underwriters were not part of the vetting process and consequently will not acknowledge Ampio until they see something happen like a meteoric rise in the share price or a major deal, both of which are on the verge of happening.
- Ampio is positioned for a steady stream of positive news releases relating to how well their drugs work, FDA and other government approvals, licensing deals and to profitable revenues, all of which will not go unnoticed by Wall Street as it is today.
- As soon as positive news begins to unfold, buyers will emerge from cyberspace sending share prices higher and the short sellers will be forced to cover their short position sending shares even higher yet and then move on to easier pickings.
- Technical chart patterns for the past 6 months reveal that AMPE is completing a quadruple bottom in the $2 to $3 range. As the stock approaches $2.50, selling dries up and the price firms followed buy short lived buying sprees. This next bounce off $2.50 - $2.60 appears to be one that could be far more powerful than recent bounces because the shorts are dangerously close to losing enough liquidity to cover their positions and there is very little stock offered for sale until the $6 to $8 level. The big driver will be an unexpected breakthrough news release.
- The biggest overnight surprise could easily come from a major institutional investor discovering this outstanding opportunity or from a major pharma company with a big appetite and an even bigger checkbook seeing an amazing opportunity to control a huge pipeline of drugs for a small amount of money. A big pharma player could easily offer $10 or $20 a share in cash and a large number in their shares sending AMPE to well over $50 in the not too distant future.
- Think about these numbers: For the past 6 months AMPE has traded an average of around 100,000 shares per day that translates to a rough total of about 13,000,000 shares. The short positions for that period were under 5 million shares. That means that if the shorts already covered their positions, (and I do not believe they have. I think they are still short) there were about 8 million shares that were purchased and held. Remember, for every share trading, there is a buyer and a seller. This means that some buyer or buyers are quietly buying AMPE and socking it away. A lot of it too because AMPE only has about 30 million shares outstanding. It could even be a large pharmaceutical company quietly trying to build an ownership position. At these prices, it won't take much money to send this stock flying.
There is risk involved in any investment and that certainly applies to AMPE as well as General Motors. The risk to reward ratio is very favorable. I believe now is the perfect time to begin acquiring shares of Ampio Pharmaceuticals while they are cheap.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.