Markets It’s amazing how one stock can hold the attention of so many investors and determine market direction. With Nvidia (NVDA) earnings now behind us and positive, markets are in a bullish mood again. The DOW finished the week higher by 1.3%, Nasdaq climbed 1.4% and the TSX gained 0.7%. |
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With the jump in indexes the Fear and Greed index is back into the extreme greed position. |
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Financials It is becoming more evident that interest rates are a tale of two different countries. US rates continue to stay stubbornly higher as the US economy continues to be more robust than many were expecting while the Canadian economy continues to show signs of slowing. |
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I expect we will see a more pronounced decline in the Canadian dollar especially if we see more evidence of weakness in the economy. |
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Commodities Oil prices took a breather this past week and was slightly weaker by week’s end. Barring any major geopolitical event I think we continue to see WTI oil in a trading range between the low $70’s and high $70’s. |
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Gold firmer as the week progressed. Slight weakness in the US dollar and a bit more positive talk from China regarding their economic stimulation plans pushed gold slightly higher. |
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Grains such as wheat and corn have seen their prices in long term decline since shortly after the start of Ukraine conflict and the fear early on into the conflict was that food shortages would lead to food inflation. Higher grain prices along with higher energy prices were a major concern and helped inflation hit multi decade highs. |
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The steady and significant decline in prices will help keep some food input costs and hopefully help overall inflationary pressures subside. Stocks It seems that right now, it’s all about Nvidia and artificial intelligence, think NVDA and SMCI. Investors and commentators just can’t seem to get enough of this AI hype. |
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Both NVDA and SMCI have seen meteoric share price increases and looked to be priced for perfection. Any signs of weakness and these stocks likely take big haircuts. But in the meantime, everyone wants to state their opinions on these two hyper discussed companies. |
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It’s all very interesting and important technology but we’ve seen this kind of market action many times before. Tulip manias notwithstanding, most asset bubbles tend to form around some promising new technology that can radically transform society. And artificial intelligence certainly promises to be able to radically change how we live.
But remember when it was the internet and how the world would change? The internet did change the world and yet with it came one of the largest bubbles of all times. And how about more recently with even electric vehicles and how that would change things? Electric cars have been a great new technology but shares of Tesla (TSLA) are down 50% from its highs. |
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And Tesla competitor, Rivian Automotive (RIVN) has seen its shares drop 94% from the highs a few years ago. |
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As has “luxury electric car” maker Lucid Group (LCID) whose shares have dropped 95% from their highs. |
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FOMO, or the fear of missing out, can have a powerful effect on investor’s psyche. The adage, “this time is different” is said often during the climb phase but more times than not is proven otherwise in time. I have absolutely no interest in chasing any hyped technology. The concept of buying with an identifiable margin of safety doesn’t seem to come into the discussion with these types of companies in the euphoria stage, the typical refrain seems to be “but this technology will radically change the world”. Yes, it very well might, but as investors we need to remember that price matters.
And picking winners in a top down strategy can be extremely difficult to begin with let alone when prices get as upwardly volatile as we are seeing here.
I find it much easier to pick stocks from a bottom up approach. Which individual companies are performing well and are the priced cheap enough to give us a margin of safety? I don’t mind owning stocks that are in a bull run or even a bubble as long as I bought them long before the euphoria started.
Stocks going up in price shouldn’t scare investors but when everyone is talking about a certain company and it’s accompanied by heavy levels of media coverage and extreme price volatility it’s rare that it all continues. When too many people are on one side of the boat it’s time to consider moving to the other side for fear of tipping, or better yet get off the boat entirely.
I don’t want to be anywhere near that boat…. |
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As for this week’s new 52 week highs, we continue to see some familiar and friendly names. This week we saw Decisive Dividend (DE.T) reach a new 52 week and all time high. |
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ADF Group (DRX.T) and VitalHub (VHI) both reached new 52-week highs as did Firan Technologies (FTG.T) and cannabis producer Grown Rogue (GRIN.C). (We had a great update chat with the CEO of Grown Rogue this past week). All companies that we have highlighted in one format or another over the past 2 years. |
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And it seems the Canadian housing trade is starting to get some momentum with Atlas Engineered Products (AEP.V) reaching another new all time high in share price as well. |
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Good quality, reasonably priced, profitable, and growing small companies continue to shine and still, in my opinion, offer very good upside.
Other Stuff Let’s keep a close watch Kneat.com Inc. (KSI.T). Not because I think it’s a good investment (and it may be), but rather because it could help lead to more institutional capital coming further down market. This company recently did an oversubscribed $20 million bought-deal financing at $3.25. A significantly large financing for a company of this size ($255 million at the financing price). |
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It’s not exactly a microcap but it’s small enough that any institutional support down here is eyebrow raising as even this size company was not getting much institutional love over the past 2 years. Success here, meaning a higher share price, likely encourages more of this type of financing and more interest in this size company and, hopefully smaller ones too. The markets continue to reward small, profitable and growing small and microcap companies and if we start to see small, growing and not yet profitable companies with higher share prices we likely entice a lot more capital into the smaller stocks. So far with KSI.T things are working out, up as much as 18% in just a few weeks. To your wealth, Paul and Trevor |
