Smallcap Discoveries: Weekly Update: January 16

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Subject: Smallcap Discoveries: Weekly Update: January 16 - 20

January 16 - 20

Market Commentary

Markets

Mixed economic data gave investors mixed messages and causing investors to take a more cautious tone by week’s end. Inflation data continues to move in the right direction but now many investors are realizing that this is coming at the cost of a slowing economy, and a slowing economy will mean a slowdown in corporate performance for many companies. We may have reached a point where bad news is bad news.

The Dow ended the week down 2.7% while both the Nasdaq and TSX enjoyed small gains, with Nasdaq closing up 0.5% and the TSX higher by 0.7%.

Equity markets have had a nice move higher since the start of the year. The first few weeks of the year usually indicate the direction of the rest of the year. Nasdaq has climbed 6.4% followed by the TSX up 5.8% and the Dow up 0.7%.

Energy

WTI oil closed above $80 ($81.40) per barrel for the second week in a row. The International Energy Agency (IEA) is forecasting energy demand to grow by 1.9 million barrels in 2023, mostly from China as the country lifts health restrictions as the country is responsible for almost half of the world's demand for oil. Oil prices will be determined by the speed at which China’s economy gets back to normal and of course any weakening in demand due to a potential global economic slowdown.

Natural gas touched new 52-week lows in price as continued warm winter weather in North America is keeping heating demand well below normal levels for this time of year.

The energy services ETF tapped a new multi-year high early in the week before drooping off by week’s end.

There was an addition of 10 net drill rigs to last week’s total as the Canadian energy patch gained back 14 more rigs after the Christmas break while the US rig count dropped by 4. https://rigcount.bakerhughes.com/

The British Columbia government and the Blueberry River Nation struck a historic agreement this week which is expected to provide a stable framework for energy development in the area. A more predictable environment for this energy-rich land should be helpful to energy service companies that service the area and the local indigenous population.

Commodities

The US dollar continued to show signs of weakness and closed just below 102. Ongoing weakness in the US dollar is allowing commodities to move higher. Precious metals once again traded to new monthly highs. Gold briefly traded above $1,975 per ounce early in the week, but closed on Friday at $1927.70.

Copper has continued its solid run, it started early into the new year. Copper has climbed over 13% since the start of the year and is up over 37% since hitting the lows in July 2022.

The weaker US dollar and the “opening up” of the Chinese economy continue to help industrial metals.

The strength in metals has been helping sentiment through out the mining sector. I continue to see an increasing number of miners and explorers on the list of stocks hitting new 52-week highs, including one of our SCD favorites, Geodrill Ltd, (GEO.T). Shares in Geodrill, a hard rock drilling company, reached a new +10 year high this past week. I would expect that this unloved sector could have much more upside as investors gravitate back to the deep value that this sector currently offers.

Stocks

We continue to see a nice number of stocks from our lists hitting new 52-week highs which, while pleasing for my portfolio, makes it a bit harder to add to some of my new favorites. Three of the companies hitting new highs are from our “Cheapies with a Chance” list.

This week’s new highs include Atlas Engineered Products (AEP.V), Biorem Inc (BRM.V), Zedcor Inc (ZDC.V), Supremex Inc. (SXP.T), Ibex Technologies (IBT.V), Decibel Cannabis (DB.V), Titan Logix (TLA.V) and Geodrill Ltd (GEO.T). It’s been a long time since so many small, fundamentally sound companies like these filled the list of 52-week highs, and I believe this will be the case for some time to come.

We saw another take over this past week, although not a microcap by Canadian standards. Magnet Forensics (MAGT.T) is being acquired for $1.8 billion by Thoma Bravo, a well-known software investment firm. While only a 15% premium to the recent trading price and far from its highs, it’s interesting to remember that shareholders of the company will now have a nice cash windfall and some of that cash likely returns back to the stock market.

Other Stuff

It's been a long time since I last posted the stocks I own. I own a bunch of small starter positions, but these are my more material holdings listed according to size in my portfolio.

IPA ImmunoPrecise Antibodies - Life science company - Has a growing contract research organization business, a pipeline of antibody drugs in development and an artificial intelligence segment that is at early stage of commercialization. https://www.ipatherapeutics.com/

URL.C - Namesilo Technology - I'm the CEO (That's all I'll say, lol) It's well covered in the forum, but if anyone wants more information, please feel free to reach out to me.

AEP.V - Atlas Engineered Products - I'm a director of the company. Atlas is acquiring and operating profitable, well-established operations in Canada's truss and engineered products industry. It's also well covered here in the forum, so I won't say anymore. https://www.atlasengineeredproducts.com/

CZO.V - Ceapro Inc. - Solid growing life science company with a novel extraction process. Growing revenues and profits from its core business and has solid optionality from its growing pipeline of drugs and nutraceutical products. https://www.ceapro.com/

BRY.T - Bri-Chem Corp. - Provides specialty chemicals and fluids for the oil and gas drilling industry. Nicely growing and profitable, but could use some strengthening up of its balance sheet. https://brichem.com/

ZDC.V - Zedcor Inc - rapidly growing and profitable provider of security towers and high-resolution, technology-based security cameras, and monitors. https://zedcorsecurity.ca/

IBT.V - Ibex Technologies - manufactures and markets enzymes for biomedical use through its wholly owned subsidiary, IBEX Pharmaceuticals Inc. IBEX Pharmaceuticals also manufactures and markets a series of arthritis assays, which are widely used in osteoarthritis research. Nicely profitable and growing. https://www.ibex.ca/

IVX.V - Inventronics - designs and manufactures enclosures and other products for an array of customers in the telecommunications, cable, power distribution, energy and other industries in North America. Nicely profitable and growing rapidly. Has paid a nice dividend over the past 2 years. https://www.inventronics.com/

Quote of the Week

“It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong.” — George Soros

To your wealth,

Paul and Trevor

Buys and Sells This Week