Markets North American equity markets were mixed this week. The DOW was higher by 0.9%, Nasdaq gained 1.3%, and the TSX was lower by 0.3%. Banking concerns, earnings reports from some of the tech heavyweights and more signs of US economic slowdown made for a somewhat volatile week. |
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World late in the week that another regional bank, First Republic Bank (FRC) was in serious trouble have investors awaiting the open on Monday to see where the market is headed. |
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The US 2-year treasury note yield was slightly lower on the week. |
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In Canada was had the Canada 5 year bond back below 3% again this week. As goes the 5 year bond yield so goes Canadian fixed mortgage rates. |
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Commodities Oil showed more weakness this past week as growing US recession fears weighed on energy. It seems that OPEC+ promised production cuts can’t outweigh a slowing US economy. |
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Gold closed the week under $2000 for the second week in a row. |
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Base metals and especially copper are reacting to global slowdown concerns with copper now testing 4 month lows. |
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Lumber saw another new 52 week low and is now sitting at levels last seen almost 3 years ago. |
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Stocks Stocks hitting new 52 week highs this week from our nanocap and microcap universe include H2O Innovation (HEO.T): |
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Data Communications Management (DCM.T): |
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Firan Technologies (FTG.T): |
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And one of our recent favorites, Canadabis (CANB.V): |
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Shares in Canadabis are up 73% since we highlighted them at the beginning of April and up 147% from their inclusion on our January 2023 edition of the Cheapies with a Chance list.
Inventronics (IVX.V) reported Q1 results, revenues were lower by 12% as it had a tough quarterly comp last year. The company did however announce another special dividend of Cdn$0.12 per common share to be paid in cash on June 7, 2023, to shareholders of record on May 17, 2023. Shares closed down 9% on Friday. |
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Other Stuff Some well known tech companies reported last week including Google (GOOG), Amazon (AMZN), Microsoft (MSFT), Facebook (META). Clearly these companies carry a lot of market weight and with it they get a lot of attention but should we really be paying so much attention to these companies? Why all the excitement? Are they worth all the hype. Let’s look at valuations. Google announced that they grew revenues by 3% over last year and EPS was down 5%. Does a company growing at that rate deserve a 23 times earnings multiple? Amazon was able to grow revenues by 28% and trades at a 58.8 times forward earnings multiple! And Microsoft beat estimates and grew revenues by 7% and sports a 30 PE. Seems high to me especially when compared to so many of the microcaps in our universe that are growing revenues at double digit rates yet trade at single digit PE ratios.
It’s been an ongoing situation for years. Large capital flows looking for liquidity have stayed in liquid large caps. Valuations stay stretched in the big names yet smaller, less liquid stocks trade at almost historically low valuations. It continues to be a different market depending on what end of the pool your swimming in. It’s also why we can see the kind of move we are seeing in companies like DCM.T and KITS.T when just a small amount of that institutional capital comes down market. DCM.T is up roughly 168% in the past 12 months and KITS.T is up 130%. Compare that to shares of Microsoft which are up 8% or Amazon which are down 15% in the same time frame. |
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The amount of time and effort I see smaller retail investor put into trying to determine what will happen to these massive companies that are being followed by literally dozens and dozens of analysts and institutional managers continues to confound me. If they spent some of their effort in looking at some of the smaller lesser known companies that have low or no institutional and analyst following they’d likely be much better off. It’s how Warren Buffett and Joel Greenblatt cut their teeth and made their early fortunes.
The relative values of small caps vs large caps is back to almost historical lows. The last time we saw such a large discount was just before one of the biggest bull moves in microcaps in recent memory. |
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So often we complicate our investing process. The goal should be to find mispriced assets and you tend to find the most mispricing where the majority of investors won’t or don’t want to look. Right now I’m finding this mispricing in the smaller stocks. I’ll continue to hunt where I can clearly see value.
To your wealth, Paul and Trevor |
