Investors often overlook warrants as an investment vehicle. But warrants can offer leverage, especially in stocks without options, that you can’t get otherwise.
These small-cap warrants could offer up big returns if the companies execute their plans. Taking a small position is one of the best way to ensure you monitor these high potential warrants.
Purple Innovations, Inc. (NASDAQ: PRPL) is a unique mattress maker founded by two brothers. One is an aerospace materials engineer, and the other a manufacturing and design expert. The Pearce brothers originally made cushioning for wheelchairs. They have grown the company over many years to make several “cushion” related items, and have recently moved into manufacturing mattresses.
Their company was purchased by a special purpose acquisition company (or SPAC) in early 2018, providing a cash infusion to the company. This made warrants available on the company, under the symbol “PRPLW,” for the first time. The warrants are exercisable at $11.50 per share.
The stock has struggled this year in adjusting to the new business structure. But, the company has recently signed deals with Mattress Firm to offer mattresses in retail stores. Moving from a mail order company to selling their product in retail locations should provide a stock boost.
The company has grown earnings this year 141% and has increased quarterly year-over-year revenue by over 100%. Investors can pick up the warrant before the market realizes the value being built in the company.
Recent market struggles have many analysts anticipating a move from growth to value in the second half of the year. This rotation, combined with increasing interest rates, makes the warrants of National Holdings Corporation (NASDAQ: NHLD) a buy.
National Holdings spiked earlier in the year to around $5 as news of the Fed raising interest rates more aggressively permeated the markets. The stock has since drifted down close to $3. The warrants trade under the symbol “NHLDW,” are exercisable at $3.25, and expire in January 2022.
With the warrants trading at just $1, a move back to $5 in the common would have the warrants doubling. The company has grown earnings per share 324% this year, and even now trades below book value of $3.69 a share. As always, investors should use limit orders in the thinly traded securities to build a position.
Motif Bio Plc (NASDAQ: MTFB) is an American Depository Receipt (ADR) that trades on the Nasdaq market. The company is working on “antibiotics to treat patients with serious or life-threatening infections caused by multi-drug resistant bacteria.” Because of the nature of their product it is receiving priority review by the FDA.
The company has applied for marketing approval for clinical trials, and expects a response from the FDA to come any day. Motif warrants trade under the symbol “MTFBW,” are exercisable at $8.03, and expire in November 2021.
Over the last year the warrants have traded down from the $6 range to their current $2.50. While more risky than the other two warrants mentioned here, the risk / reward profile is greater. This is exactly the type of warrant trade that can result in large gains if the company receives good news from the FDA. Again, only limit orders should be employed here.
All three of these warrants, Purple, National Holdings, and Motif, have their own value and risk profiles that make them good investments for the right portfolio. Pick the one that fits your goals and add a leveraged boost to your returns.
Disclaimer: The author and Spotlight Growth has no positions in any of the stocks mentioned in this article. Nor does either party currently have any relationship, or any other conflicts of interest, with any of the companies mentioned in this article. This content is meant for informational and entertainment purposes only and should not be meant as a recommendation to buy or sell any securities. Please visit a licensed financial representative to determine what investments are right for you.
Article By: Steven Adams