Markets Stock markets continue to defy gravity and are coming off another strong weekly performance. Inflationary pressures in the US and Canada seem to be easing faster than expected giving investors the courage to buy stocks. Nasdaq hit another new 52 week high gaining 3.3% for the week and is now up 42.3% year to date, an outstanding run so far. The DOW closed the week higher by 2.3% and the TSX was up 2.2%. |
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Nasdaq has been reaching new 52 week highs for several weeks now but the DOW has been bouncing back off it’s 52 week high, around 34,600/34,700 level, all year and looks poised for a break above these levels anytime now. |
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Financials We saw a big break down in the US dollar index this past week with the DXY breaking below the 100 level for the first time since April 2022. US CPI for June came in at 4.8% vs an expected 5%, Producer Prices (PPI) came in at 2.4% vs an expected 2.6%. Weaker inflation numbers and the growing possibility that the Fed is at the end of its tightening stance have investors the belief that interest rates in the US may be near their peaks driving demand away from the US dollar. |
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The Canadian dollar was recipient of some buying and we saw the Cad trade at its highest level vs the US dollar in 10 months. |
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And with lower inflationary expectations down go treasury yields. We’ve seen a swing of almost 50 bps on the US 2 year treasury yield. |
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In Canada was saw some weakening in the 5 year bond yield which is a bit of welcome relief for those looking to renew or get a new mortgage as bond yields have fallen from their recent 15 year highs. |
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Commodities A move away from the US dollars combined with weakening treasury yields usually means upward moves in precious metals and that’s exactly what we saw this past week with gold moving in the opposite direction to the US dollar. Gold closed the week right around US1960 per ounce. |
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Base metals have caught a bid and copper has come back to life a bit and is back testing the $4 level again. |
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Oil had one of its best weeks in quite some time with Brent oil trading back above $80 per barrel and WTI oil back above $75. |
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According to Baker Hughes drilling activity slowed in the US by 5 rigs while Canadian activity was up by 12 rigs.
Stocks With Nasdaq hitting new 52 week highs it can be expected that we would see a pickup in individual Nasdaq listed stocks to hit new 52 week highs and that’s exactly what has been happening of late. This past week we saw the largest spike in the number of Nasdaq new highs since November 2021. |
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5.9% of all the Nasdaq listing reached a new 52 week high this past week. |
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Strong technical breadth has returned to the equity markets.
We have yet to see the same breadth in the Canadian markets. It’s a very small number of stocks hitting new highs. Canada does tend to lag the US markets so I won’t be surprised if we start to play catch up as the comparable Canadian companies’ valuations will start to look enticing against the increased valuations down south.
As for our little universe we saw a few of our familiar names break to new highs. Both Total Telcom (TTZ.V) and Char Technologies (YES.V) tapped new 52 week highs on the back of news releases. Total Telcom entered into a non-exclusive, private-label manufacturing and supply agreement with a leading global instrument technology company for their Water-Trax product. Under the terms of the agreement, Total Telcom will supply the partner with its user-branded Water-TraX hardware and software telematics solutions. The partner will then sell these products to its own wide-ranging global customer base. Additional terms of the agreement dictate that Total Telcom will host the website and retain all communication revenues. |
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Last week Char announced their strategic financing and off take agreement with ArcelorMittal Ltd., the world’s largest steel maker, and this week investors moved the stock to its highest level in almost 2 years. |
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Firan Technologies (FTG.T) announced very solid quarterly financials this past week driving their shares to new 52 week highs. Second quarter revenues climbed 52% over last year and bookings climbed 48%. Net earnings jumped from break even to $2.4 million in the quarter. Annualizing Q2 earnings, and using Friday’s closing price of $3.83, we get a price to earnings ratio of 9.6 times. Not bad for a company with this type of growth. |
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The other company on our list making new 52 week highs was AirIQ (IQ.V). The “Internet of Things-based asset management” telematics company saw annual revenues increase by 13% and earnings (excluding one-time tax recovery) jump by 52%. The 2016 “Cheapies with a Chance” list stock trades at roughly 10 times enterprise value to earnings. |
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Other Stuff At least once a year we compile a list of stocks that we like to call “Cheapies with a Chance”. I have been personally doing this since 2012 but officially within SCD since 2016 with a gap missing 2017/2018. When I look back at some of the early lists, I come close to shedding tears. Some of the early names have gone on to achieve spectacular returns. Xpel Technologies (XPEL) was one of the early ones at $0.17!!!! |
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Hamilton Thorne (HTL.V) was another example at $0.12. Even AirIQ (IQ.V) made the list way back in 2016 at $0.09. If you bought and held that $2.7 million market cap company (in 2016) back on that date you would be up a healthy 300%. But that was nothing compared to another 2016 candidate and recent Cheapies inclusion Ibex Technologies (IBT.V). IBT.V was selected in 2016 at $0.11 and if you held it until this week, you would be up a remarkable 1014%.... Yes, an elusive “10 bagger”. |
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The last Cheapies list we compiled was posted on January 4th of 2023. We highlighted 11 companies, 10 that met the bulk of our selection criteria and one that we like to call the long shot (WATR.V). They were some of the smallest, profitable companies we could find. All had a market cap of less than $20 million. To date, of the 11 stocks, 9 are higher and 2 are lower. The average return has been a very decent 46% when we include dividends (thank you Inventronics). |
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Year to date the Cheapies have easily outperformed the TSX Venture exchange (+10.2%) and the Russell 2000 (+9.6%). |
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This year’s list has already provided us 2 multi baggers (TTZ.V and CANB.V). Both are up by over 180% as of Friday’s close and both were stocks that we highlighted and added to the SCD portfolio this year.
It’s amazing what a simple strategy like this can do. It’s also an advantage that smaller retail investors don’t really appreciate they have over the real pros in the business, especially institutional investors. Most of these companies are very tiny, too tiny for bigger investors. Some are very illiquid and tightly held by insiders. The experienced pros can’t invest in these little names. They just don’t move the needle for larger accounts, but they certainly can have amazing effects on smaller accounts.
For many savvy investors, nanocaps are where they will make some life changing investments. For sure you have to be careful and know what you are doing but with the right tools, the right strategy and some patience smaller investors can get this type of outperformance.
As it’s been said before “Microcaps are fine but nanocaps are the ticket to wealth; you just have to be poor enough to buy them.”
This Week I’m Reading: Common Stocks and Uncommon Profits – Philip A. Fisher – Widely respected and admired, Philip Fisher is among the most influential investors of all time. His investment philosophies, introduced almost forty years ago, are not only studied and applied by today's financiers and investors, but are also regarded by many as gospel. One of the classics that covers the real basics of what to look for in stocks that tend to outperform their peers. To your wealth, Paul and Trevor |
