IMVT - Chris DeMuth Sure Likes Uranium And SHF Holdings + 3 Litigation Ideas

2024-01-09 09:00:00 ET

Summary

• Chris DeMuth Jr. discusses his position in uranium and his belief that nuclear energy will play a significant role in the future of energy production.
• He also updates us on SHF Holdings, a fintech company serving the cannabis industry, and predicts its growth potential in the coming years.
• 3 litigation ideas for the year: Liquidia, Roivant, and Burford Capital; potential outcomes and value propositions.

Listen above or on the go via Apple Podcasts or Spotify .

Chris DeMuth Jr. is still really bullish on the commodity uranium (0:56) and cannabis fintech company SHF Holdings (5:24). He also shares 3 new litigation ideas for investors (8:50).

Transcript

Daniel Snyder: Hey everyone, welcome back to Investing Experts Podcast. I'm Daniel Snyder. We're here on Seeking Alpha. We appreciate you tuning in. We love that you come back episode after episode.

Now we have one of my personal favorite investing group leaders here with us today, Chris DeMuth Jr. He runs Sifting the World . If you haven't checked it out already, I highly encourage you to do so. This guy focuses on arbitrage and litigation, and he is a master at what he does.

Chris, I can't thank you enough for the time today. We got to dive into three new litigation ideas, but we want to do a recap of some of the calls from the last podcast we did with you in September of last year.

But first things first, why not just say Happy New Year to everybody, right? And we hope everybody has a great investing year ahead.

So Chris, let's dive on in. I want to kick things off. Uranium. Last time we talked, you were talking about it. You mentioned you had a position in the Sprott Physical Uranium Trust units ( SRUUF ). Do you still have those? Are you still favoring uranium at this time?

Chris DeMuth Jr: We do. Happy New Year. Great to be here, Daniel. It's a significant position. It is my only kind of direct commodity position. I just don't have uranium. We own some uranium equities, but it just hasn't been a sector where I've been able to fall in love with many of the companies and management teams.

But we sure like the commodity. I would say that even since we last spoke, things further tilt towards a kind of consensus that the kind of -- right of center, kind of more free market, more capitalist-oriented, more pro-energy side, is really being joined by more and more left of center governments in Europe and across the world, willing to look at nuclear and reclassifying nuclear energy as clean energy, which of course it is, clean energy, cleanest and safest.

And I mean, there are individual hydroelectric projects, especially in the less developed world that have had far more deaths than the entire history of the nuclear industry. It's safe, it's clean. And that consensus where greater energy production is needed is really going to drive this.

Something that I like that some of my friends have noted, but it is kind of my jam, is I'm very interested in massive scale mismatches where somebody can enrich me at a scale that matters a lot to me, but it doesn't matter that much to them. It's not a huge deal. And the uranium input in the utilities is just not that big a price. It can be 2x, 3x, 4x, 5x from here without getting anybody fired.

And so, that I think is an interesting part of the opportunity. I think it's going to be a big part of our energy future. I think that alternative intermittent energy is faddish. It is occasionally useful some of the time, some of the places, but it's never going to be this big part of our energy needs, which are going to be filled by petrochemicals and by nuclear.

That coal, that that is probably where the environmentalists have more progress to make on lessening its environmental impact, if they're willing to go with nuclear. But if they say only intermittent energy is just unserious, that just kind of excludes them from a serious part of the conversation.

DS : Now, there seems to be a lot of fear around nuclear energy for a large cohort of people, whether it's approximation near localities, or the idea that if we ever go to war, somebody might focus on targeting those specific infrastructure.

Do you think that's warranted, or is that kind of just the trade-off of if we're going to lower our energy , coal dependence and try to reduce the energy costs here for Americans, is that just kind of the trade-off that we need to accept? Any thoughts?

CD : Yeah, I mean, I really believe in the Tom Sowell view that there are no solutions, only trade-offs. So I think it's a legitimate concern, but it's largely emotional. I mean, it is safe, it is clean, and hardening our infrastructure against enemies is an important deep topic. It's one that I think nuclear opponents raise cynically and inconsistently.

There's a lot about our grid that could be hardened more, but nuclear plants are actually probably some of the safest and some of the best defended already. It's the same word as nuclear bomb. It's not as if there's going to be a mushroom cloud over one of these even in a disaster. But I think that connection has this emotional pull that is hard to avoid.

DS : Now moving on to what we spoke about last time as well, SHF Holdings ( SHFS ). This was of course, a fintech company serving the cannabis space. And I was doing a little research. I think the last time we spoke, there were 23 states that had it legalized. Now we're up to 24. You said last time this would go to 31. Wanted to get your ideas on how that play is working out, because you did say at the time it was your only stock in your individual account. Is that still the case? Or what's the update here?

CD : Yeah. So, that is not the case. I actually have something new personally, and most of my equity exposure is through my fund. This is through my -- the LP. This is personal. So I have one new one to discuss, not quite today, but shortly.

But this is a significant investment of mine. I love this company . I love the management team. It's something that I have a lot of interest in the credit unions and mutuals because of the potential for demutualization. And this is one I bumped into through that topic.

I think the market cap is still under $100 million. I think it's hugely undervalued. They have a neat little niche doing fintech for the cannabis industry. I don't think we're going to get SAFE banking , or SAFEr banking, or cannabis banking rules clarified for a few more years. Ultimately, their exit is going to be a sale to kind of a vanilla company after it's fully nationally legalized and clarified, but they have this big runway for the next few years.

And then their growth opportunity is really in the kind of greater category they find themselves in now where they just don't have that much competition. They have really good contracts, both on the bank side and on the customer side. And I think they fill a need in a big growing industry and that they're willing to do.

I think it's a lot harder when you're diversified before full clarity because you have basically hostages, you have basically so much to lose outside of cannabis that it's very hard to service cannabis. And so I think SHFS is going to grow. I think that they're going to be able to clarify their value proposition. I think they've figured out a lot of this industry. They've cleaned up their balance sheet.

I think it's going to, you know, I think it's trading enough over $1 right now that it kind of cleans up listing requirements, but I think it's going to be much closer to $2 per share by this time next year.

DS : Amazing. Now, I want to take some time and dive into the fresh new ideas. These are three litigation ideas that you have so far for the year. You obviously have more, but thank you for sharing these three with us. I got to say before we kick off. I just love the approach that you have as an investor. I got to say that out loud because we talk about cannabis and some people are not really into it. We talk about Arbs, what you're all about. There's litigation and I don't know, but every time you put out ideas, I just follow it.

And it's just like your right time and time again, whether it was back with Twitter or Activision ( ATVI ). I mean, you follow all these things, you keep an eye on them. And we've had your track record publicly available as well through this content that we create together. So people can go back and look at all the Chris DeMuth Jr. episodes and see exactly what I'm talking about.

So three litigation ideas for this year. Why don't you go ahead and walk us through them?

CD : Sure. I think that this is helpful to think about in terms of a basket. It's helpful to think about in terms of probabilities. And so kind of it's the same category for me.

The first one is one of my largest favorite positions, Liquidia, ticker ( LQDA ). Very large position for me, very, very large for kind of a mostly pre-revenue, mostly more or less one product company.

So a couple of things about it. The management, if anybody is interested, is going to be presenting at the JPMorgan Conference shortly. But I have a pretty good sense of what they're going to say, which is they've had an incredibly long process to get to market. It's coming close to an end.

I believe that we're going to get the final approval from the FDA as soon as this month. And that the final stay, court stay against them going to market shortly thereafter. The final filings in the court case this month, and then the judge will make a decision whenever. But of course, if you're going to lift a stay, you probably wouldn't wait a year to say, yes, you can go now.

It's kind of intrinsic to the subsistence of lifting a stay, which I think is highly likely is that the judge is going to move quickly and they're going to get to market by the beginning part of Q2. Their sales force is all ready. They have a year's supply of products available. And so this is one that I think is a key part of our litigation portfolio.

The incumbent United Therapeutics (UTHR) has just done everything possible to keep them from market. It's a multi-billion dollar market that their product addresses that they have used our intellectual property, court infrastructure as a defense against an entrance. And they've done it for a long time. They've done it for a company that needed capital. So it has had to go back and done some raises. But if we get to market by April, I don't believe that they need to raise any additional capital. I would happily participate if they did.

And so this is one that is kind of a very important interesting position to me. The shares cost kind of, it bounces around, it's volatile between $12 a share and $13 a share. I think that it is worth high teens. I think that value is going to be unlocked as people like me who are interested in the litigation aspect of it, kind of have been with it for a while, but then it's going to turn to people who are more interested in the kind of normal company trading normally, but the market cap is still under $1 billion.

And this is a market, I mean, they could be making every year more money than their entire market cap recently was. So I just think that that has been completely mispriced because of the very effective delays. A frustrating thing is United Therapeutics' lawyers are going to be congratulated after losing everything in the end because it was just a delay tactic and they were really successful. So it's cynical.

I'd also mentioned United Therapeutics is a public benefits company. So I mean people have had their health and in some cases lives far worse off because the best product hasn't gotten to market because they were protecting a monopoly.

And so that monopoly is about to break probably by April and a share price between $12 and $13, I think it's going to be well above $15 by then. So I think that's a great opportunity, big position of mine, especially given the contents of the company.

DS : Yeah, Liquidia, I was reading and you were talking about the FDA kind of being like a gatekeeper for them and they charge over 100,000 over 350,000 per year because they can - it sounds like they do have that revenue channel set up and I think it's a compelling case.

Now moving on, which one do you want to touch on next, Burford ( BUR ) or Roivant?

CD : Let's go, I can talk about anything you'd like. Roivant ( ROIV ) is the one, just because we kind of, I think makes a little bit of sense as a fellow pharma topic, if that's fine with you. So, Roivant, would that make sense?

DS : Yeah, let's dive on in.

CD : I'm much more comfortable with my Roivant position than Liquidia. I think Liquidia is going to be spectacularly successful, but if I'm wrong on the litigation, boy, am I wrong. There's not a lot of security there. You have to kind of size it for what you're comfortable risking, which in my case would be dramatically bad if I was wrong on the litigation path.

Roivant is a much more relaxing topic for me. I kind of bought it in successive secondaries, my recollection, $5, $7.50. Still just love it here. I just think the price is just wrong. I mean, I think that it costs somewhere around $11 per share.

But we're talking about something that has a pile of cash and a pile of Immunovant, ( IMVT ) equity worth more than that. I think it's reasonably likely IMVT sold this year for a substantial premium to the current market price. So while I sit and wait on what I'm here for at $11 per share, I mean, I think that you get famous last words, but close to a free roll in terms of safety.

What I'm here for, though, is the litigation. They have litigation against Moderna ( MRNA ) and Pfizer ( PFE ). And in the early part of the COVID pandemic, the government basically freed these companies up to move fast and break things. And boy, did they.

And one of the things they were breaking was intellectual property owned by other companies, including one public and one private subsidiary of Roivant. These are two goliaths. I mean, these are huge companies. I think that they are going to settle with Roivant, Roivant's public subsidiary Arbutus, ticker ( ABUS ), which I also have a position in and another private sub, but basically Roivant is the controlling company here.

These guys are so big that you can have some fabulous bonanza outcome for Roivant worth a substantial amount of its market cap. And I don't even know that Moderna or Pfizer trade down that day. And so, it's one more of these kind of scale mismatches where something could be spectacular outcome for me, but not a spectacularly bad outcome for the other guy. Maybe just like, I'm a little nuisance for these massive companies.

And successfully settling IP litigation could be hugely valuable against each other. When Moderna and Pfizer turn against each other, defending their IP on the COVID vaccine, I think the first one to settle, I think, there's really interesting game theory there. So that's going to kind of unfold this year.

I think it's largely de-risked just on the Immunovant sale. And then we wait on a, what I think is going to be a win or possible settlement with Moderna and Pfizer. And that's just hugely valuable for Roivant.

DS : So about Roivant, you put on the last little note here for that article and that section specifically, you had mentioned that the founder of the company is actually the U.S. potential elect for Republican. And he had sold a large block of shares when he began his presidential campaign. Does that factor into what might happen with this company, or is that just kind of a sidebar note?

CD : Sort of a sidebar. I mean, the biggest relevance is, I have a significant stake in this and have been buying some in the public market, but mostly in secondaries. And so, it's just been a source of inventory for me to buy as he sold. So that's really the factor. I don't think it's a data point in any way.

I think insider buys are always interesting and insider sales are rarely interesting, because they really just have -- he needs to fund an expensive presidential campaign. He might get elected as President. He is far more likely to be included in a cabinet, any one of which would make it difficult to own individual securities like this.

So, yes, so it's -- he's a fascinating guy. It's a fascinating company. He's done extremely well with it. But it's not a data point on the outcome either way. I think that it's time to sell Immunovant . I think that's going to happen either way. And I think it's time to settle or win litigation against people who stole their intellectual property. And I think that's going to proceed either way. So no, I mean, it's kind of a curious side note.

DS : Insiders sell for any reason and buy for another one. Great reminder there.

CD : Yes, yes.

DS : All right, let's jump into this last one you have for us. Burford, am I saying that right? Capital Limited.

CD : That's how I say it. I don't know. But ticker ( BUR ). I'm a big fan of Argentina's new president. We've owned this one for a while, but he -- a very colorful character has indicated that he very much intends to pay us the money that we are owed in a big litigation - a predecessor of his nationalized slash stole ( YPF ), Argentina's now largely or partially state-owned energy company. I Texas hedged this one. I'm long both YPF and Burford.

And so, I think that his support for acting honorably here and for his country, paying money they owe is a very good sign. The caveat is, he doesn't have a huge amount of power outside his own office. He doesn't have a big party. So he's kind of a minority on the legislative side as a president. But he's a fascinating character, a very good guy; very, very smart.

He's often analogized to Donald Trump, but it's a very imperfect analogy. He's kind of much more of a limited government, free market guy and quite sophisticated. And, again, I think very strong on public policy. So one logical outcome here has not been offered yet, but I think would really fit, is that he could kill two birds with one stone.

He wants to reprivatize YPF, which sounds great to me as a YPF equity holder. And he wants to pay his debts and compensate Burford, which sounds very good to me as a Burford holder. And also we have done litigation financing in the litigation against them.

So why not just sell off or pay Burford with the YPF stake? So you could both get Argentina down when he doesn't want the government owning and controlling this company. And that would kind of reverse the original theft. And so, that's one of many ways that would be kind of rational and serve everybody's interest.

I think the market has kind of just been the whole time has been skeptical of this. It costs between $14 and $15 a share. And there's other very interesting things in their litigation portfolio, but you can get here just on their kind of their standard business plus this one suit.

And so, it's the biggest suit they have. And I think that you can settle this one as well. More likely settle than eventually get paid full price. But I think I'm far more optimistic on their prospects than the market is.

DS : You're definitely staying true to the name Sifting the World , got to say that. Really appreciate it, Chris. Thank you so much for your time today. Thank you for bringing us these three names. We'll watch them going into this year and I can't wait to have you on in our future episodes.

So we can look back and see how they've done. Anything you want to say before we jump off here?

CD : No, I have a couple more we can talk about next time. I have, Esperion was one of my big ideas. But it kind of -- that was settled recently, ( ESPR ). And then I have another one. I'll have a fresh new litigation one for you next time we talk.

So whenever you're available, I would love to come on again. Meanwhile, thank you for your time. Hopefully people are interested in these ideas.

DS : Absolutely. Everyone can't encourage you enough. I mean, Chris is always writing new ideas on Sifting the World. Go check it out here on Seeking Alpha. We thank you everyone for listening today, and we'll see you in the next episode of Investing Experts podcast.

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