Markets Equity markets maintained a bullish tone although were fairly quiet this week as the US markets closed for the Thanksgiving holiday. The DOW was higher by 1.3%, Nasdaq gained 0.9% and the TSX saw a drop of 0.4% as lower energy stocks weighed heavily on that exchange.
Nasdaq has been leading this latest charge and is now back testing its 52 week highs again. |
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Financials Investors continue to watch economic data to try and understand where we likely are in the interest rate tightening cycle and while most treasury yields were slightly higher for the week it looks like the trend is heading lower. |
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Bond yields in Canada continue in lock-step with their US equivalents and ended the week up slightly higher than where they started. |
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Economic data in Canada seems a bit weaker than US data and several influential analysts/economists are beginning to expect that the Bank of Canada will act quicker than the Fed in lowering interest rates. If this happens we can expect weakening Canadian/US dollar exchange rates. |
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Commodities Energy prices continue to be volatile. WTI oil closed the week at roughly $75. Down again, but the swings we’ve seen lately have been a bit crazy, almost 10% swings within 48 hour periods. How oil traders and investors can maintain their sanity in this volatility is something to wonder. Actually not that much different to microcap investing…. |
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The postponement of OPEC’s members meeting sent the market into a bit of spin as it seems investors are looking to OPEC to put a floor on the market and steady prices. They’ll just have to wait a bit longer.
Natural gas had a somewhat boring week compared to oil. Typically volatile natty gas was slightly lower for the week and is now back trading around the $3 level, down almost 30% from the beginning of the month. |
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We saw a bit of an uptick in drill rig activity in the past week with Baker Hughes reporting that there were 4 more rigs active in the US and one additional rig active this week in Canada.
Gold looks more and more likely to be testing its highs at some point soon. Economic uncertainty and a likely move to lower rates should encourage the gold bulls and we can expect a lot of noise if and when gold breaks to new highs in US dollars knowing that gold has been performing quite well in most other world currencies. |
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Stocks The continued bullish tone in equities produced near new yearly highs in both the DOW and Nasdaq indexes. |
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The TSX however, is trying to keep pace but has a bit more to go to reach its highs. Financials and energy stocks are the laggards helping to slow the Canadian indexes recently. |
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That overall bullish tone helped some of the smaller stocks perform nicely this week as well. A few of our favorites were hitting new 52 week highs.
Vitalhub (VHI.T) continued trading higher. |
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As did Cipher Pharmaceuticals (CPH.T). |
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Both these companies now trade above $150 million market cap rocketing up 40% and 36% respectively in the past few weeks. Both have added roughly $50 million in market capitalization and their trading volume and price action seems to indicate that at least some institutional capital is coming to play, perhaps indicating that money is starting to come down market into some of the larger microcaps in our Canadian universe.
And perhaps that capital is starting to create a bit of a domino effect in that several smaller market cap companies are seeing similar action. BeWhere Holdings (BEW.V) has increased as much as 50% in the past month. |
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The other strong performer this past week again was Cematrix (CVX.V). Shares in Cematrix hit a new 52 week high and are up over 70% since announcing their strong Q3 results. |
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We are seeing good, strong follow through on a number of these profitable and growing companies indicating good capital is actively paying up for some of these names. The strength in the follow through, instead of the typical spike and pullback, is indicating to me that the supply/demand dynamic with many of these types of companies (profitable, growing nanocaps) now heavily favors current owners. Many of these companies have very tightened share floats and any increase in buying demand can see outsized moves in share price. Do not be surprised to see very strong moves and do not be quick to take profits in this environment.
According to the IFIC there were 3409 mutual funds and 1056 ETFs in Canada in 2022. Very little of this capital makes has made its way into Canadian micro and nano cap companies in a number of years. Sooner or later, they do and usually when these companies become big enough. Historically they don’t tend to look at companies until they are somewhere between $100-$250 million in market cap. This is the big edge we have as retail investors in micro and nanocaps. We can buy much earlier than they can.
A few other companies that reported financials worth looking at this past week include Grey Wolf Animal Health (WOLF.V). Revenues were higher by 12.4%, ebitda was up 25.8% and earnings saw a significant improvement from a loss last year of $1,143k to a profit of $282k this year. |
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Tornado Global Hydrovacs (TGH.V) saw revenues increase 75.9% and income before tax grew 33.9%. |
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And Current Water Technologies (WATR.V) saw an increase in revenues of 19.2% and earnings went from a loss of $255k to a profit of $668k. |
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As I noted a couple of weeks ago that we may have seen a significant change in market sentiment that is much more bullish, I’m seeing signs that the smaller stocks are seeing a more bullish tone too. It’s no where near frothy enough to be worried, I think it’s the opposite, I think it’s a signal that we may be at the front edge of a new wave of investor interest in our little part of the market.
We are well set up for a face ripping rally in these types of stocks and it will only take a small amount of the capital, that has been staying on the sidelines or up market due to liquidity concerns, comes down market microcaps could explode higher. The nice thing is so many are dirt cheap that we don’t have to take outsized risks to get this potential upside.
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