Markets Markets rallied strongly to start the first week of the year. Traditionally, as goes the first week so goes the year for equities. The DOW was higher by 1.5%, Nasdaq was up 1.0% and the TSX gained 2.2%. US labour stats showed a better than expected growth in jobs, however investors seemed to be moved by the weaker wage growth and used that to pour into equities on Friday. |
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The DOW rallied 2.1% on Friday alone and is down 5.8% over the past 12 months. Nasdaq’s Friday rally was even stronger, climbing by 2.6%. This move however still leaves Nasdaq down roughly 27.6% over the past 12 months, highlighting how many of the once high-flying big tech stocks have dragged down returns. |
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Companies such as Tesla (TSLA) and Amazon (AMZN) continue to test new yearly lows and their heavy weighting in the Nasdaq index has an oversized effect on its performance and overshadows other up-and-coming strong performers hitting multi-year highs in share price, many of which we have highlighted in our Canslim Contenders. |
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This condition continues to benefit the stock picker who ignores the noise of the indexes and overall commentary and focuses on strong fundamental performers.
Energy It was another extremely volatile week for oil prices. WTI oil started the week above $80 but finished the week down almost 10% closing the week at $73.72. Ongoing concerns around Chinese economic “re-opening” and word that some OPEC producers are over producing are weighing on prices. |
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Seasonally warmer weather has had a big impact on natural gas prices both in North America and in Europe, where several months ago there was big fear that European gas supplies would be at catastrophically low levels. Heating demand has been low enough to cause natural gas futures prices to drop to 17-month lows in North America. European natural gas prices dropped to levels last seen just before Russia’s invasion of Ukraine.
Holiday season is over and drilling rig activity resumed from the drop-off in Canada due to the Christmas break. According to Baker Hughes Canadian drillers activated 105 rigs while there was a drop of 7 rigs in the US.
Commodities The US dollar index began rallying early in the week breaking above $105 for the first time in several weeks but, on the back of the weaker wage growth data, gave back its gains and settled back below $104 |
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Precious metals had one of their strongest weeks in quite some time. |
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Weakness in the US dollar and ongoing global economic uncertainty are bringing life back into gold and silver. Major gold producers such as Barrick Gold (ABX.T) and Newmont Gold (NGT.T) are seeing renewed investor interest and have been good performers, reaching year lows in late summer/early fall. |
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“Dr Copper” closed strong on the week along with equity markets. Copper likely moves in parallel to the risk trade, and any hint of lower rates or an opening up of the Chinese economy will pressure copper higher along with other industrial metals. |
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Stocks While so much attention continues to be on the Teslas and Amazons of the world, many under followed smaller companies continue to show strong fundamental growth and break through to new highs in price. New high lists are still dominated by smaller, fundamentally strong companies, many in sectors that continue to lean more to the “boring” description. Think insurance, industrials, and big pharma companies such as heavy machinery maker Caterpillar, food giant ConAgra and big pharma, Merck. All-State Corp., Aflac, Chubb, Progressive and then Travelers in insurance and Takeda and Novo Nordisk in pharmaceuticals. Tech is almost nowhere to be seen.
And our universe of microcap and nanocap stocks are seeing a growing list of new 52-week highs. Recent microcap 52-week highs in Canada include: QIPT.V, ZDC.V, GRIN.C, CNO.V, SEB.V (takeover announced), IBT.V, CANB.V, TTZ.V, AEP.V, DRX.T, FBF.V.
It’s interesting to note that a few cannabis stocks have started showing up on the list just as we started to notice the better fundamental performance from a few names. We recently highlighted GRIN and CANB and both subsequently hit new 52-week highs. |
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The big, more popular names in the group like Tilray Brands (TLRY.T), Canopy Growth (WEED.T), Cronos Group (CRON.T) and Aurora Cannabis (ACB.T) continue to struggle. Another example of bubble stocks having to let out a lot of air before they come close to common fundamental value. Meanwhile, the lesser-known names, which didn’t see the same hype, had already come down to decent valuations. |
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The same thing applies to many other sectors, as it does with different market caps within the sectors.
Smart Employee Benefits (SEB.V) was this week’s takeover announcement. Smart Employee is to be acquired by Co-operators for $89 million. The purchase price represents a 76.5-per-cent premium to the closing price of Smart Employee common shares on Dec. 30. |
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It seems every week we are seeing another microcap announcing a takeover or strategic review. We’ve mentioned a number of others in the recent past, and believe we will continue to see more if valuations don’t adjust higher to levels at least similar to private equity transactions.
Other Stuff I’m noticing a better tone to the sub $100 million market cap sector over the past week. Small stocks are moving higher on good news, especially financials. We saw Firan Technologies (FTG.T) move higher on the news that they will be acquiring a company. |
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We’ve seen a number of new names down market, hitting, or matching, 52-week highs. Fundamentally solid companies are “catching a bid”. Volumes are increasing, albeit still nothing like the good old days, but it’s an indication that a bit of confidence is coming back to the market and investors are starting to deploy more capital into some of the smaller names. It could also be a sign of some of that cash from other microcap takeovers that are moving around. Whatever it is, it’s adding a little zip to the nanocaps and making for some nice moves. Some stocks are moving quite quickly. The key of course is to try to be ahead of this.
Trevor and I had an update call with Ceapro (CZO.V) CEO Gilles Gagnon. The stock had been dropping over the past few weeks, and we are having trouble understanding why, so we tried to get a sense of whether we were missing anything. |
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I came away from the call very comfortable that the weakness was likely a result of some year-end selling and not related to the business. The company has a number of potential catalysts ahead and the core business should continue to perform well and with a little luck could see a healthy increase over time. I still believe that the company is currently mispriced to the downside when we factor in the solid core business and the strong upside potential of its new products and the new PGX production facility that should be in operation sometime in early 2024. I’ll be looking to add to my position in the low 60s if it continues to trade there.
The other stock I’ve been keen on lately and one that we highlighted in the “Cheapies with a Chance” and the potential takeover candidates list is Crescita (CTX.V). The stock saw unusually higher volume this past week and broke above $0.70. A possible indication that someone else sees value here. I’ve yet to start a position in the stock and feel it may start to go somewhere soon.
It’s starting to feel like a few of our favorite names are getting a bit harder to buy. As I said earlier, many are catching a bid and popping much easier than they were late last year. It’s hard to tell if this will accelerate or if it’s a Santa rally that could fizzle out in a few weeks. There are still plenty of bargains, but we need to pick our spots. We don’t need to own all of them we just need a small handful of winners to be successful. Nevertheless, it’s important to be decisive when we find something compelling, but disciplined as well. To your wealth, Paul and Trevor |
