ChinaNet Online Holdings (CNET) saw gains as big as 917% last Thursday after announcing a partnership with blockchain developer Wuxi Jingtum Network Technology.
From a closing price of $1.17 on Wednesday, CNET traded as high as $11.90 on Thursday (a 917% gain), then slid to $9.34 by the closing bell, a net 24-hour gain of 698%.
Unlike other companies capitalizing on blockchain we’ve covered in ADAPT Weekly, ChinaNet and Jingtum are both real companies, if small.
Moves in stock prices, like the one in ChinaNet, are the types of moves that will put stocks on the radar of the managers of our new Crypto-Boom model. Stocks like this one will be added to the model’s universe.
Investors who are interested in buying into stocks like this should consider the risks and gain a solid understanding of how a company like this is suddenly in high demand. How does this suddenly become a “Crypto-Boom” stock?
According to a press release, Jingtum built the first commercial blockchain application in China and is the only Chinese company to pilot a large-scale crypto application in cooperation with local government.
ChinaNet is an online marketing, advertising, and data analysis platform that lists IKEA, Pizza Hut, Carrefour, and Haagen-Dazs among its customers in the Chinese market.
The two companies hope to use blockchain technology to create “a new business ecosystem based on algorithmic trust.”
ChinaNet’s 2017 Q3 report showed a 49.9% increase in search engine marketing and data service revenue, driven by a new artificial intelligence system that delivered higher ROI to its clients.
This certainly puts the company on our watch list.
But is it a buy?
No, it’s not. Not yet.
Let me explain…
In our Crypto Model, we are looking primarily at three types of companies:
- Companies with direct exposure to cryptocurrencies, like Overstock.com (OSTK), which holds Bitcoin, and HIVE Blockchain (CVE:HIVE, OTC:PRELF), which mines Ether.
- Known companies heavily involved in blockchain technology, like Nvidia (NVDA), which makes the chips necessary for cryptocurrency and blockchain transactions, and Alibaba (BABA), which uses blockchain to secure supply chains and health data.
- Companies that have changed their names and pivoted their business models to cryptocurrency and blockchain from something else… like fruit juice, in the case of Future Fintech Group (FTFT), or athletic bras, in the case of the Crypto Company (CRCW).
We will also be investing in currently existing and soon-to-be-launched ETFs (exchange traded funds) that own cryptocurrency.
What we’ve noticed is, when a company adds “crypto”or “blockchain” to its name, or makes any sort of announcement regarding cryptocurrencies or blockchain, the stock shoots up. Just like ChinaNet last week. And just like Kodak (KODK), which announced its own cryptocoin and jumped 53% Wednesday.
But for these companies new to the technology, the upward run is followed immediately by a pullback. Some of these pullbacks would provide buying opportunities for us (on behalf of our clients) and others should be ignored completely.
Take Net Element International (NETE). On December 20, the mobile payment company announced its intentions to start a new unit dedicated to bringing blockchain solutions to the payment services industry.
Its stock more than doubled premarket. And it traded as much as 310% higher than its close the day before.
Investor sentiment cooled off in the days following, and NETE has yet to start a new uptrend to meet and surpass its Dec. 20 high.
We’re not ruling out KODK, NETE, or CNET. But we wouldn’t put them in our Crypto Model until they have recovered from their pullbacks and established a firm upward trend.
On the other hand, there are companies like Xunlei (XNET), a Chinese online service provider. On October 12, it announced a cryptocurrency project.
XNET rose more than 450% until late November. Then it lost more than half its gains — and with no negative market news fueling the dive.
But now it’s trending upward again. Morgan Stanley has taken in excess of a 5% stake in the company. Institutional investors are putting skin in the game.
This is what we like to see. The stock hasn’t fully recovered, but if it does, it will likely take its place in our Crypto Model.
The goal of our Crypto Model is to provide our clients access to any upward gains from the crypto boom, based on RS investing.
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