Smallcap Discoveries: Weekly Update: August 8

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Subject: Smallcap Discoveries: Weekly Update: August 8 - 12

August 8 - 12

Market Commentary

Less Macro, More Micro

From this week on I’ll spend a little less time on the macro picture and focus a bit more on the micro picture, meaning more on individual stocks. Plus, it’s the last few weeks of summer and I need to spend a little less time in front of the computer

Markets

Markets a had a good, solid week. Lower than expected inflation data and continued better then expected corporate earnings kept the “risk on” mood intact. The DOW was up by 2.9%, Nasdaq was higher by 3.1% and the TSX was up 2.8%. Nasdaq is up 23.5% since reaching its year low only 2 months ago.

Energy

The energy complex had one of its better weeks in quite a while. WTI oil closed the week back above $90 and settled in at $91.88 on Friday. Natural gas had a strong week and closed at $8.78. Gasoline had a good week as well closing back above $3.00 for the first time in almost 2 weeks ending the week at $3.04 per gallon.

We saw another small drop in the number of North American land-based drill rigs in action this week. The Baker Hughes data reported a drop of 3 rigs and the land-based rig count currently stands at 763 in the US and 201 rigs active in Canada. Energy service companies continue to report very strong increases in year over year revenues and earnings. Enterprise Group (E.T) reported a 64% increase in revenues while CES Energy (CEU.T) reported a 71% increase in revenues. We await financial results from Bri-Chem (BRY.T) in the coming weeks.

Commodities

Further weakness in the US dollar allowed most commodities to strengthen. The CRB commodities index was up by 3.6% for the week.

Gold continued to trade above $1800 and closed at its highest level in almost 2 months.

Lumber had a very strong week gaining over 22% and briefly traded back above $600 before closing at $588.70 per thousand board feet.

Stocks

Equities have seen a very nice move off the June lows and markets are starting to feel a bit stretched lately. Nasdaq relative strength index (RSI) has gained almost 40 basis points since the June low and is starting to look fairly overbought. Caution is somewhat warranted in the short term if you are looking to establish long positions. While I have been quite bullish these last few weeks, I’ll be waiting for dips in some of my more liquid favorites and taking small starter positions in anything new. I may look to hedge my portfolio with a little bit of Nasdaq 2X bear etf (HQD.T) if we see anymore strength to start the week.

I’m encouraged by the strength we are seeing in the housing and construction etf (ITB). The break and holding above $62 is encouraging. Many of the constituents have beaten earnings estimates recently and has encouraged capital flows into this very beaten down sector.

I continue to see very extreme lows in terms of valuations in the home builders and suppliers and believe that any significant change in housing sentiment could cause a slingshot effect to some of the smaller names that have barely bounced along with the bigger players. Companies in the sector are reporting strong results and while guidance is somewhat cautious most numbers are still beating consensus estimates. Beazer Homes (BZH-Q) for example continues to climb and is now up 59% since its June low on the back of their recent quarterly report. So many stocks in this sector were pricing in an Armageddon style crash.

As expected, the life science etf (XBI) has found and settled into a new trading range. We continue to see good strength in the space and the Nasdaq new 52-week high list continues to be dominated by life science stocks.

And a few life science names on the Canadian side of the border have started to pop up the new 52 week high list including one of our recent favorites Ceapro, CZO.V. The company issued two news releases this week and the stock closed at $0.76 up 33% from our initial highlight price.

Also making the Canadian life science new high list this week were Knight Therapeutics (GUD.T) and Bellus Health (BLU.T)

And it looks like ImmunoPrecise Antibodies (IPA.V) finally decided to join the party. The stock had a very strong week (up 35%) along with several other antibody discovery platform stocks such as Abcellera (ABCL-Q) (up 21%) and ABSCI Corp. (ABSI-Q) (up 29%). Let’s see if the momentum can continue into next week.

The other sectors showing strength apart from health care/life science are specialty transportation, electronic equipment and electrical components.

Geodrill (GEO.T) announced impressive financials as well this week. Revenues were higher by 28% and earnings were up by 49%.

And “Cheapies with a Chance” list standout Inventronics (IVX.V) reported very impressive results after the market close on Friday. Revenues leaped by 52% and earnings were higher by 83%. The stock closed on Friday at $1.99 and trades at a trailing 12-month PE ratio of only 3.65 times.

It was a very busy week for earnings and we have 2 more weeks to go before the end of this quarters reporting. So far, we’ve been pleasantly surprised with a number of good reports.

CANSLIM Select Pick

This week’s pick has had an explosive move off much stronger than consensus earning estimates. I’ll be entering a very small starter position on Monday and will be looking to add to my position if/when it shows a sizable dip.

Catalyst Pharmaceuticals – (CPRX-Q)

Closing Price: $13.90

Catalyst Pharmaceuticals is a commercial-stage biopharmaceutical company focused on in-licensing, developing, and commercializing novel medicines for patients living with rare diseases. With exceptional patient focus, Catalyst is committed to developing a robust pipeline of cutting-edge, best-in-class medicines for rare diseases. Catalyst's New Drug Application for FIRDAPSE (amifampridine) Tablets 10 mg for the treatment of adults with Lambert-Eaton myasthenic syndrome ("LEMS") was approved in 2018 by the U.S. Food & Drug Administration ("FDA"), and FIRDAPSE is commercially available in the United States as a treatment for adults with LEMS. Further, Canada's national healthcare regulatory agency, Health Canada, has approved the use of FIRDAPSE for the treatment of adult patients in Canada with LEMS.

Website: https://catalystpharma.com/

Sector: Life Science – Pharmaceuticals

Last quarter revenue growth: 57.7%

TTM revenue growth: 34.5%

Last quarter EPS growth: $0.21 vs $0.12

Ownership: 7.55% (per Yahoo Finance)

Institutional Ownership: 77.8% (per Yahoo Finance)

Recommended Reading

I’m currently reading “The Psychology of Money” by Morgan Housel. When I first heard about this book, I expected it to be about investors’ habits and the mental gymnastics that investors typically deal with. What I found was quite different. The author dives into subjects that are much deeper than money and finance and looks at how we have established so many beliefs and habits around money. I’m a big fan of books and articles that bring new perspectives to established ideals. This book will make you think differently about money and investing. I highly recommend this book.

To your wealth,

Paul and Trevor

Buys and Sells This Week