Benjamin Borden's "Best Canadian Stocks"

I’ve been asked by one of my loyal readers to review Isotechnika (ISA.TO) and Kingsway Financial (KFS.TO) to get my quick take on things. I decided to post these reviews here so that my other three readers can benefit as well.

Isotechnika is a small pharma startup out of Edmonton, Alberta, Canada. It one day hopes to sell massive amounts of immunosuppressive “therapies” to those with autoimmune disorders, and also to those who have recently had organ transplants in order to help prevent rejection of their new equipment. Overall good intentions.

Looking at the chart we also see some good intentions: a rising 200 day moving average accompanied by decent volume spikes.

However looking at their current financials makes me queasy (and perhaps in need of some therapy?) Since inception they have managed to burn through some $200 million of shareholder equity. And they continue to burn. All those expensive PhDs require labs, equipment, staff and fine cigars after all. They are on pace to make a paltry amount of revenue this year which will probably evaporate in light of expenses. Cash in the bank only sits at around $5 million so I sense another round of share issuance coming, with perhaps a reverse split. Sure there is always hope that massive sales are just around the corner. But isn’t this the case with all penny stocks?

If you were so inclined to chase this one (I am not), I would place a buy stop at $0.43 to catch a potential breakout above the previous high. I would also keep a hair trigger on the stop loss once I did buy in. In my opinion this is not a buy and hold – rather it’s a lottery ticket.

Kingsway Financial Services (KFS.TO) is a different animal altogether. Based out of Missasauga, Ontario, Canada, the company’s business is primarily auto insurance and it has real “meat and potatoes” revenues.

But a quick glance at the chart gets me as exited as the thought of eating a slice of white bread with a glass of water. I see a dropping 200 day moving average with weak price action – the latter having the appearance of some large shareholder selling hard into rallies.

A quick check into the financials reveals some corroborating unpleasantness: falling revenues, falling assets, and falling shareholder equity.

In fairness the drop seems to have stabilized as of late, and the chart does reflect this. You can see that higher lows have been consistently made since December 2009 and this is an encouraging sign.

However I would take a wait and see attitude with this one. I would wait for the price action to stabilize above a rising (or at least flat) 200 day moving average. Sure I might miss the exact bottom, but there would still be more than enough upside from this point onward to make me happy. I am not comfortable taking the risk now that they keep on losing money all the way to bankruptcy court. It has happened before you know.

Hope this helps loyal reader!

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