Markets North American equity markets put in a mixed performance last week with the DOW and TSX higher while Nasdaq extended its four week downtrend losing 1.9% for the week taking it down 5.6% since its mid-July 52 week highs. The DOW was higher by 0.6% while the TSX climbed 0.8%. |
|
With little in the way of US economic data this coming week markets will watch for earnings reports and geopolitics to try and find direction.
Financials Another relatively quiet week for the US dollar index with the US only slightly stronger against a basket of global currencies. |
|
Treasury yields continue to stay in a tight range near multi year highs. Without much new economic data on the table for the next few weeks rates are likely to stay in this tight range for now. |
|
|
Commodities A tight range in the US dollar means a tight range in precious metals. Gold was lower by roughly 1% for the week closing at US$1945.70 per ounce. |
|
Oil prices have maintained strength into the end of the week closing at $83.05. WTI oil briefly tapped $85 per barrel this week, the highest level since November 2022. Various demand forecasts are predicting an increase in oil demand in the coming year and expectations of tight supplies. OPEC is predicting an increase of 2.25 million barrels per day in global demand next year driven by firming economic growth. |
|
Natural gas on the other hand continues to struggle. While well off it’s recent lows natural gas trades under $3, a far cry off from it’s year ago levels of $10. |
|
The lower North American natural gas prices are what is driving the softening demand for drilling rigs in North America which is in stark contrast to the demand internationally. Energy service companies that service the North American market need to see a healthier gas price to see utilization rates get back to levels that they were seeing this time last year. According to Baker Hughes the US saw a drop of 5 active drill rigs while Canada saw an additional 2 rigs in operation this past week.
Stocks With the tech heavy Nasdaq market having considerably outpaced the more industrial heavy DOW year to date the past few weeks has seen a bit of reversal of fortunes. Nasdaq is down over 5% in the past 18 trading days while the DOW is up almost 1% in that time. Are we starting to see a move back to more defensive value style stocks? Or at least, a bit of a reversion to the mean? The current tighter interest rate environment leads me to think that value will win versus growth investments for the next little while. |
|
Meanwhile in micro and nanocap land profitable and growing companies are getting noticed and seeing some decent investor interest. Hammond Manufacturing (HMM.a.T) continued to hit new all time highs on the back of its recent earnings report. The stock closed at $7.89, up 91.5% since we included it on takeover candidates list on Dec 28, 2022. |
|
On Friday shares in energy services company, McCoy Global (MCB.V), jumped 10.6% after announcing a 25.6% increase in Q2 revenues, a 27.3% increase in net earnings, a 75.3% increase in booked backlog and declared a $0.01 per share quarterly dividend. |
|
Health and Human services software provider, VitalHub Corp. (VHI.T) saw its shares pop 6.4% after it announced Q2 results. According to Dan Matlow, Chief Executive Officer of Vitalhub. "Both positive organic growth and accretive revenue from acquisitions completed in previous quarters contributed to the Q2 2023 revenue increase.” Revenues increased 38%, net income increased 733% and adjusted ebitda was higher by 59%. |
|
And one of the companies we recently interviewed, Decisive Dividend Corp (DE.V), released Q2 results. The acquisition-oriented manufacturing company saw a 32% increase in revenues and a 36% increase in profit. The company recently increased its monthly dividend from $0.03 per share to $0.04. |
|
Not all earnings reports were positive. Geodrill Ltd. (GEO.T) disappointed investors with lower revenues and earnings. Revenues were down 17% but the company maintained profitability and earned $US0.04 per share in the quarter. Greg Borsk, chief financial officer said: “Our financial results were impacted by lower-than-expected results and our decision to withdraw from Burkina Faso, which affected activity and utilization.” |
|
Earning season always brings us some new names to look at and this past week was no exception. A new name that’s popped onto our list is Nova Cannabis (NOVC.V). According to the company, Nova is one of Canada's largest and fastest-growing cannabis retailers with a goal of disrupting the cannabis retail market by offering a wide range of high-quality cannabis products at every-day best value prices. The company reported a revenue increase of 13.7% in Q2 over the same period last year and a profit of $1.0 million versus a loss of $1.4 million in 2022. If the company can maintain this level of profitability it will result in an annualized PE of 6.7 times based on Friday’s closing price of $0.47 per share. |
|
Other Stuff There were two stocks that hit new 52 week highs this past week that perked my interest, Telesat Corp (TSAT.T) and MDA Ltd. (MDA.T). On Friday Telesat Corp. announced the awarding of a satellite manufacturing contract to MDA Ltd. Valued at approximately $2.1 billion, the contract is the largest in MDA's history, and includes the design, manufacture, assembly, and test of 198 satellites with options for Telesat to purchase up to 100 additional satellites.
This got me thinking. There are a lot of satellites up in orbit around this planet. More are being added all the time. Elon Musk has Starlink. Jeff Bezos is launching the Kuiper Satellite network. And there are many others.
According to Wikipedia “As of May 2023, Starlink consists of over 4,000 mass-produced small satellites in low Earth orbit (LEO). In total nearly 12,000 satellites are planned to be deployed, with a possible later extension to 42,000.” Bezos’ Kuiper network is expected to start with 3200 satellites.
The technology to send satellites into space and the satellites themselves is evolving so fast and improving the effectiveness of satellite communications that communication costs are rapidly becoming on par with ground based communications. These types of technological leaps drive wonderful new business opportunities. New products and services will develop because the changing cost base of these systems. We are already seeing this apply to small companies like Total Telcom (TTZ.V)* or a larger company like STMicroelectronics (STM.Q) one of the component manufactures for the Starlinks satellite receiving dishes. My point here is that many companies will be able to take advantage of these new opportunities. |
|
On a grander scale, think of technological advancements like the telephone, the computer, or the internet. It’s these types of paradigm shifts in industries that drive brand new business and investment opportunities and so often it’s small companies that recognize and seize these opportunities. That one of the great things about microcaps, so often they exist to take advantage of these new technologies. And if you can spot them early you can ride this new wave of growth before the general public can spot the trend. It’s just one more reason to keep an eye on the obscure little companies that are busy developing new products and services to meet these opportunities. Maybe it’s time that us microcap investor look to the skies for some new investing ideas.
And in other news….. Trevor and I aren’t just sitting back and complaining about the new SEDAR+ reporting system, we’ve deciding to take our complaining to a whole new level. We (mostly Trevor) sent a letter to the operators of SEDAR+ voicing our concerns and offering to help them with user feedback. The local media picked up on it and quoted Trevor in an article. If you are interested you can read it here: https://biv.com/article/2023/08/chaos-vancouver-investors-slam-canadas-new-company-filing-system-sedar
If they manage to fix the site and address some of the complaints, we and many others have made, I’ll sleep a little better at night knowing that Trevor and I (mostly Trevor) had a hand in getting it there. Let’s wait and see what we get.
*Paul Andreola is a director of Total Telcom (TTZ.V)
This Week I’m Reading: Richer, Wiser, Happier – William Green – How the World’s Greatest Investors Win in Markets and Life – Another good book of interviews with some of the world’s best known investors. It’s amazing how many of the great investors share similar traits and methodologies when comes to investing. To your wealth, Paul and Trevor |
