Smallcap Discoveries: Weekly Update: April 3

- Tweet0
- 0
- Pin It 0
- 0
- Subscribe to RSS
Subscribe

Subject: Smallcap Discoveries: Weekly Update: April 3 - 7

April 3 - 7

Market Commentary

Markets

Happy Easter!

Equity markets ended mixed on the Easter holiday shortened week. The DOW was higher by 0.6% while Nasdaq fell 1.1% and the TSX ended up 0.5%.

The release of the March US jobs report showing a slowdown in hiring which, while going in the direction the Fed likely wants to see, some speculate that it’s not slowing enough to encourage the Fed to stop raising rates and chances still exist that we see another rate hike next month. 236,000 jobs were added in March according to data from the Bureau of Labor Statistics and unemployment fell to 3.5%.

US labor markets remain tight and continue to indicate that the US economy is strong and keeping inflation higher than the Fed is happy with. This coming Wednesday we’ll get the CPI report which likely helps the Fed determine its next course of action.

Commodities

Gold finally broke and held above US$2000. The current environment for gold is about as good as it gets, and I’d expect gold and silver to continue to do well. Weakness in the US dollar, banking concerns, central banks increasing their purchases of gold, and the likely pause or drop in global interest rates sets precious metals up for continued strength.

Energy

The announcement from OPEC+ to curtail production allowed WTI oil to break above and hold $80 closing the week at $80.46 per barrel. OPEC+ has more power and influence over oil prices now that the US has spent a good portion of its strategic petroleum reserve trying to keep prices in check. It will be interesting to see how the two groups battle each other over prices.

Natural gas prices continue to trade near multi year lows and briefly fell below the $2 level before closing the week at $2.01.

According to Baker Hughes drilling rig data there were 16 less drills turning last week, a drop of 4 rigs in the US and 12 in Canada.

Financials

The US dollar index spent part of the week back below the 102 level closing the week 102.1.

US Treasury yields were lower for most of the week but bounced on Friday due to jobs data that had some investors believing that maybe the US Fed isn’t quite done raising rates.

In Canada the 5 year bond yield spiked lower mid week and closed down below 3% closing at 2.89%. We’ve started to see Canadian mortgage rates at the major banks follow bond yields lower.

Stocks

There continues to feel like there is a dark cloud over the equity markets. So much talk of being in a bear market and how rough the markets have been lately. Nasdaq is down 11% in the past 12 months and down 25% from its all time high. The DOW is down 3.5% in the past 12 months and down only 9.4% from its all time high. Hardly a bear market.

But look at some of the old popular highflyers that everyone piled in to and it’s a different story. Tesla (TSLA) for example, is down 55% from its high. FaceBook (META) is down 44% and the tech heavy ARK Innovation fund is down 75%. The stock market really is made up of a lot of different stocks.

In micro and nanocap land it’s the same. The TSX Venture exchange has fallen significantly more than its larger cousins, down 39% from its 2021 high. While in general small stocks have suffered quite a bit over the past 2 years, certain kinds of stocks have performed well and some cases, extremely well. Speculative, money losing companies have had a hard time, yet profitable, growing companies have bucked that trend. We continue to see some familiar names hitting new multi year and all time highs.

Companies like GeoDrill (GEO.T), Data Communications Management (DCM.T) (check out our latest SCD interview), McCoy Global (MCB.T), Titanium Transportation (TTNM.T) and even little Total Telcom (TTZ.V) have all reached new multi year or all time highs this past week.

For over a year we’ve been pretty vocal about how strong the opportunities that were present and how it was the best microcap/nanocap buying opportunity we’ve seen in almost a decade. While some of our favorite and watch list stocks are a bit pricier than late last year there are still opportunities that we find too hard to ignore.

Several weeks ago, we jumped on Total Telcom (TTZ.V) which has popped nicely but we believe has plenty of upside still from current levels. We’ll be doing a site visit in a couple of weeks and look forward to reporting back. In the meantime, we are waiting for a pullback to add to our position.

Last week we mentioned that Canadabis Capital (TSX.V: CANB) reported strong Q2 results and Monday morning I stepped in and started a position. Trevor and I managed to track down management and get some questions answered. For those not familiar with the company I recommend watching the interview we did back about a month ago https://www.youtube.com/watch?v=_fYNwi_FvLw&t=1926s

Canadabis Capital is a vertically integrated Canadian cannabis company focused on achieving large-scale growth, from cultivation to retail, in the fast-emerging global cannabis market. By targeting organic growth opportunities alongside the right-fit partners, the company remains focused on finding and capitalizing on chances to grow, diversify and continue to lead its industry.

Shares of Canadabis closed Friday at $0.155. We’ve been tracking the company closely for several months after it made our 2023 Cheapies with a Chance list, but the last set of numbers were just too strong to ignore and after our talk with management we are moving it into our SCD portfolio and will be looking to significantly add to our position over the coming weeks.

Revenues grew 146% in Q2 over the same quarter last year. Ebitda was higher by 175% and net income was up 373%. This outstanding growth is being driven by product innovation and growing market share of a number of their products. Management believes solid revenue growth is sustainable and going forward are targeting 5-10% sequential quarter growth in revenues. The company has generated 5 consecutive quarters of positive net income. A rarity in the cannabis industry.

A quick check of the investor bulletin boards and checking in with some of investment industry contacts we have we notice that very few people are talking about the company or have even heard of them. This looks like a hidden little gem in a sector that has gone from uber hyped up to quite despised. We love it when investors throw the baby out with the once hyped-up “bubble” bath water.

We also like to see insiders with a significant vested interest in their companies and CANB has that in spades. Insiders own north of 70% and claim friends and family own an additional 10% or so. With such a small float and very little investment community following we have the perfect set up for a major investor discovery situation. With the growth and recent stock performance I doubt the company says under the radar for very long.

If the company can even just maintain current rates of revenue the stock looks very cheap, let alone if it can grow at their targeted rates. At Friday’s closing price of $0.155 we get a trailing 12 month price to earnings ratio of 8.17 and an annualized PE of only 4.1 times. For a company growing at their current rates, this stock looks shockingly cheap to us. We are buyers of CANB.V up to $0.20.

For more of our notes on CANB.V check out the new thread we’ve started in the SCD forum CanadaBis Capital (TSX.V: CANB) - Smallcap Discoveries Forum - SmallCap Discoveries

Other Stuff

This past week I connected with Jennifer Bath, CEO of ImmunoPrecise Antibodies (IPA.Q). The stock has taken a beating lately and I felt it I was overdue for a call. My general takeaway was that the market has gotten for too negative on the company and the recent margin call trading and even insider selling (margin call) drove the stock to a very oversold level. I covered a lot of my discussion and thoughts on our Thursday Free-for-All which you can listen to here: Free-For-All: April 6, 2023 - YouTube

A little while ago we got an update from the guys at Ola Media. The rapidly growing “advertainment platform company generated record quarterly revenues in their last quarter and continue to add more, and larger advertising campaigns. Company keeps growing its platform rapidly in Mexico City and has embarked on expansion plans into two additional cities in Mexico.

We just managed to get the recording so those that couldn’t listen live can view/listen to it here: https://www.youtube.com/watch?v=v9X7W9eR6RE

The company has announced a new pre IPO financing with the target to list on a public exchange sometime in the last half of 2023. For those that would like more information or are interesting in participating feel free to contact Trevor or me and we will put you in contact with a company rep.

We’ve secured a venue and a date for the SmallCap Discoveries Conference and are just waiting for final signing. Mark October 11, 2023, on your calendars. We hope to have final confirmation early this week. We have a very long list of companies we want to see present including most of our favorites. If there is a company you really want to meet let us know and let’s see if we can get them to attend. This conference will be a good one!

To your wealth,

Paul and Trevor

Buys and Sells This Week