Smallcap Discoveries: Weekly Update: May 30

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Subject: Smallcap Discoveries: Weekly Update: May 30 - June 3

May 30 - June 3

Market Commentary

This too shall pass...

Most major markets continued their weekly move to the downside. Prior to last week's gains the S&P and Nasdaq had suffered seven consecutive weekly declines. You have to go back to the dot-com bust to see the last time these markets have had that kind of move lower. The DOW finished the holiday shortened week lower by 0.9%. Nasdaq was down 1.0% while the TSX, on the back of more energy sector strength bucked the trend to finish up by 0.2%. Investors continue to be concerned about inflation and the Fed's attempt to crack inflationary pressure by raising interest rates and shrinking their balance sheet by "Quantitative Tightening".

It looks like some cracks may be starting to show. Once high flying companies such as Netflix, Robinhood and Peloton have announced or started job cuts. Even Elon Musk suggested on Thursday that Tesla may look to cut as much as 10% of their workforce

as he has a "super bad feeling" about the economy. More job losses are coming. That's one of the things the Fed needs to see to prevent a cycle of labour inflation that would prolong the inflationary trends.

The other place cracks are showing is in the housing market. US new home sales have dropped to their lowest levels since the beginning of the pandemic. Significantly higher interest rates and resulting higher mortgage rates will do that. A housing slowdown will start to creep into other sectors. We've seen lumber prices drop by over 50% since March. We will likely see drops in demand for other housing inputs which will put a drag on the overall economy. More cracks are coming.

One sector that seems impervious to higher rates for the time being is the energy sector. You're probably getting tired of hearing me say it but this continues to be the one sector that is bucking the general market downtrend. WTI closed the week at $120.26 per barrel and it appears to be well on its way to testing the Ukraine conflict induced price spike of $130. Out of the 23 stocks hitting new 52 week highs on the TSX on Friday, 18 were oil and gas related companies.

Nymex Natural Gas closed the week at $8.54 down $0.19. Natural gas prices in North America have more than doubled in the past year but even with these multi year high prices they seem dirt when compared to prices in Asia and Europe. Asian and European natural gas is currently running at over $30 versus roughly $8.50 in the US (even cheaper in Canada). With the increase in liquefied natural gas capability many are forecasting prices to surge as the arbitrage of selling cheaper North American gas makes it to higher priced markets takes effect.

At current energy prices, let alone any forecasted higher prices, North American producers continue to generate great gobs of cash. And some of that cash continues to go into the ground as we saw another sharp increase in drill rig activity especially in Canada as companies are anxious to get crews and equipment back into the fields. https://rigcount.bakerhughes.com/

Longer term, the impact of such a significant difference in energy prices is likely to impact globalization. So many industries have relocated around the world to take advantage of cheap labour. Will the same start to happen to take advantage of cheap energy? Electricity and natural gas intensive industries are already suffering mightily in Europe as high energy prices have started to shut down some operations. Will the advent of further automation and cheaper North American energy prices shift industries away from the current cheap labour markets? It will be something to watch over the coming years and decades.

I've stopped trying to call a bottom in the life science sector. The sector, measured by the XBI ETF, has retraced itself to where it was roughly 5 years ago. One thing that I believe will help start to lift the sector is buyouts. Many larger life science companies are likely combing through the carnage in hopes to pick up some gems at cheap prices. With so many companies trading off 50% or more from last year's levels and a number of others trading below their cash value it's to be expected that we will see a number of takeover transactions.

Well this past week we saw a sizable one. Bristol Myers Squibb will be acquiring Turning Point Therapeutics, a company specializing in precision oncology, for total consideration of approximately $4.1 billion. https://news.bms.com/news/details/2022/Bristol-Myers-Squibb-to-Acquire-Turning-Point-Therapeutics-a-Leading-Precision-Oncology-Company/default.aspx

The all cash offer is at a premium of 122% to the previous day's closing price.

This is one of the things we need to see more of to give investors confidence to tread back into the sector. Those that were brave enough to be buyers of TPTX the last few few weeks are undoubtedly very happy to pocket this kind of windfall, especially in light of the current market.

There will be more. Which one will be next? That may be the $4.1 billion question....

To your wealth,

Paul and Trevor.

Buys and Sells This Week

Bought HQD.T at $7.98

Smallcap Discoveries

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Namesilo Technologies (CSE: URL) Price - $0.17 Market Cap - $16M

NameSilo Technologies Corp. Announces Q1 2022 Results
Revenue of $10.7M
Gross profit of $2.22M
Operating income of $758K
Adj. EBITDA of $1.03M
Net income of $330K
Press Release https://tinyurl.com/3xzhprz6

Renoworks Software (TSX.V: RW) Price - $0.295 Market Cap - $12M

RENOWORKS ANNOUNCES FIRST QUARTER 2022 FINANCIAL RESULTS
Revenue of $1.31M
Gross profit of $823K
Adj. EBITDA loss of ($263K)
Net loss of ($332K)
Press Release https://tinyurl.com/3wn5nhn5

Atlas Engineered Products (TSX.V: AEP) Price - $0.52 Market Cap - $31M

Automatic Securities Disposition Plan Established by Atlas Engineered Products CEO
Press Release https://tinyurl.com/4ch53k45

iFabric (TSX: IFA) Price - $2.00 Market Cap - $59M

iFabric Announces License Agreement With Roots Corporation
Press Release https://tinyurl.com/37vs972y

Vitality Products (TSX.V: VPI) Price - $0.05 Market Cap - $2M

VITALITY ANNOUNCES FOURTH QUARTER AND YEAR END RESULTS
Q4 Revenue of $241K
Q4 Net loss of ($127K)
FY Revenue of $860K
FY Net loss of ($616K)
Press Release https://tinyurl.com/rd3cabf8

Geodrill Limited (TSX.V: GEO) Price - $2.45 Market Cap - $115M

GEODRILL ANNOUNCES RENEWAL OF NORMAL COURSE ISSUER BID
Press Release https://tinyurl.com/5n7mbsht

Smallcap Discoveries

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Direct Communication Solutions (CSE: DCSI) Price - $0.80 Market Cap - $13M

DCS Reports Strong Q1 Revenues and Earnings
Revenue of $7.79M USD
Gross profit of $2.4M USD
Net income of $682K USD
Press Release https://tinyurl.com/mv4mkhjy

Medicure (TSX.V: MPH) Price - $1.33 Market Cap - $14M

MEDICURE REPORTS FINANCIAL RESULTS FOR QUARTER ENDED MARCH 31, 2022 AND APPOINTMENT OF HAARIS UDDIN AS CHIEF FINANCIAL OFFICER
Revenue of $5.7M
Gross profit of $4.02M
Adj. EBITDA of $1.2M
Net income of $482K
Press Release https://tinyurl.com/53m8y6n3

Snipp Interactive (TSX.V: SPN) Price - $0.15 Market Cap - $42M

Snipp Interactive Reports Record Financial Results for Q1 2022
Revenue of $4.2M
EBITDA of $300K
Net income of $25K
Press Release https://tinyurl.com/bdff2vjj

CardioComm Solutions (TSX.V: EKG) Price - $X Market Cap - $X

Q1 Financials
Revenue of $328K
Gross profit of $247K
Net income of $62K

Gatekeeper Systems (TSX.V: GSI) Price - $0.02 Market Cap - $3M

Gatekeeper Enters Master Services Agreement with National Express, Operator of over 20,000 School Buses
Press Release https://tinyurl.com/3jzh7azj

Zoomd Technologies (TSX.V: ZOMD) Price - $0.43 Market Cap - $41M

Zoomd Reports 1Q2022 Financial Results, with a strong revenue increase of 140% YoY.
Revenue of $16.25M
Gross profit of $4.8M
Operating income of $932K
Adj. EBITDA of $1.9M
Net income of $821K
Press Release https://tinyurl.com/8ffxyhuz

D-Box Technologies (TSX: DBO) Price - $0.12 Market Cap - $27M