CBA Florida Inc. (fka CBAI)

[sfraven1466]

A counter to your 75% failure rate/misconception of R/S's, for the sake of a R/S


http://www.caseyresearch.com/displayCddPrint.php?id=417

While there are any number of instances that might make a good trading opportunity, like if a biotech company has a new drug that’s about to (hopefully) clear Phase III trials or have its NDA (new drug application) accepted, one way that shows particular promise in our eyes and seems less risky than others is identifying companies that are ripe targets for being uplisted to the NASDAQ in the near future.

An uplisting is the process of moving a stock to trade on a higher exchange. In this case, we’re concerned with companies currently trading over-the-counter (OTC) that may soon get uplisted to the NASDAQ. We’re concerned with such companies because prior to uplisting they will generally take some very recognizable steps to meet exchange criteria, and once they are uplisted, their stock price often jumps considerably and quickly.

So first let’s look at the steps companies take prior to uplisting, and then we’ll show some recent examples of gains that could have been made with this strategy and examine why it is that stocks often pop following an uplisting.

The exchange criteria issuers need to satisfy that is most visible to outsiders like us are stock-price thresholds and corporate governance requirements.

The NASDAQ requires a minimum share price of $4, so OTC companies trying to uplist will often undergo a reverse split in order to meet the minimum stock price level. When it comes to corporate governance requirements, two obvious tip-offs are restructuring the board of directors to have a majority of independent directors and creating the necessary board committees required by the exchange. Thus, the three main steps to look for that indicate a company may be positioning itself for an uplisting are:

1. Undergoing a reverse split to meet the minimum share price criteria of the exchange ($4 for NASDAQ).
2. Restructuring the board of directors such that a majority of directors are independent.
3. Creating the required board committees (audit, compensation, and nominations committee).
Now that we know the steps to search for, let’s look at some recent examples of the gains that could have been booked with this strategy.

RINO International (RINO) uplisted to the NASDAQ in July 2009 and initially saw its price jump 12% from $9.10 to over $10.19 the day the uplisting was announced. Since uplisting, the stock closed as high as $34.25 in November 2009 – more than 275% above its pre-NASDAQ price.

Deer Consumer Products (DEER) saw its stock trade up over 50% in one week following the announcement it was approved for listing on the NASDAQ. And it’s currently trading about 70% above its split adjusted pre-NASDAQ price.

China Bio Energy (CBEH) was trading at $5 in July 2009 and then jumped 10% on the day of its NASDAQ approval. It now trades at $11.37 – more than 125% above its pre-NASDAQ price.

L&L Energy (LLEN) is up 75% since it was uplisted to the NASDAQ in February, while the NASDAQ overall is only up 15% over the same period.

As you can see by these examples, tracking potential uplisting candidates appears to be well worth the effort. But why? The answer lies in the inflow of new investor demand that often comes with a company being uplisted to a major exchange.

Most institutional investors simply can’t (by charter) or won’t invest in OTC stocks. And since this is the case, research analysts are reluctant to initiate coverage on stocks prior being listed on a major exchange, contributing to the lack of demand for the stock. But as soon as an uplisting occurs, institutional money flows in and drives up price and volume.