Ryan Irvine spoke in a Friday evening session on "Do it Yourself Stock Investment". Ryan Irvine is the President of Keystone. Part of this session had Aaron Dunn as the speaker. Their site is www.keystocks.com. I went because Keystone has given good talks in past Money Shows. It was a long session so I have broken my report into four parts. This is the second part.
This company looks at small cap growth stocks. For Canadian stocks that is less than $500M and for the US that is less than $5B. Small cap stocks are not necessarily high risk. You can get higher returns from small caps stocks over the longer term. Smaller companies can be more rewarding. They like small caps that are trading at or near P/B Ratio of 1.00. They like especially small cap value stocks.
In 2006 Warren Buffet said that if had a $1M he would invest in smaller companies. He would make a higher return on a $1M company than on a $1B company. But you have to turn over lots of stocks to find the gems to invest in. Small caps lack coverage so you can find bargains. You should buy before the big institutions can by a stock. Big institutions have restrictions on what they can buy. Smaller cap have higher growth prospects. It is easier to go from $0.5M to $1M than from $0.5B to $1B.
Small caps can have higher insider ownership. Many large cap stocks started as small caps. Just investing in one recommendation can be bad as the recommendation can be wrong. Investing in a few small cap recommendations is better.
What you should look for is first a strong balance sheet with lack debt and positive working capital. Next you should look for positive cash flow and earnings growing over time. This is necessary for long term growth. Next you should look for sustainable growth. You can look for alterative valuations. The potential for dividends and dividend growth are good.
Another thing you want is a management team with significant share ownership. You want them to be in a business that can be understood. You would want the company to operate in a safe jurisdiction. You want a company with a positive industry outlook and a niche outlook. Lastly you want a company with a strong track record that meets or exceed their objectives.
A recommendation is Sylogist Ltd (TSX-SYZ, OTC-SYZLF). It has a published mission. It does critical software. Some 62% of their revenue is subscription based. It has zero debt and a strong balance sheet. It has a strong track record in revenue and EBITDA growth and dividend payments. There was a pause in growth in 2017 and you should buy for what it will do in 2018.
If growth is not on a per share basis it does you no good. What you want is growth at a reasonable price. The target for this company is a stock price of $12.15 to $12.45. The company is reinvesting for organic growth.
The next company that they recommended was Photon Control Inc (TSX-PHO, OTC- POCEF). This is on TSX-V. It designs and manufactures optical sensors to original equipment manufacturers (OEMs). Theirs are the sensors for the internet of things in toaster, shoes etc. They have growth in revenue and profit. Their net income peaked in 2015 and they have currency issues and onetime expenses costs because litigation.
Some 25% of their market cap is in cash. They have a large order backlog. They have doubled their manufacturing facility and they are no longer cheap. The trailing P/E Ratio is 20, but if you take out cash it is 16.
Hammond Power Solution Inc. (TSX-HPS.A, OTC-HMDPF) is another recommendation. It was recently recommended. They have been in business for around 100 years. They are a transformer manufacturer. Their quarter two 2017 is strong. Their net earnings jumped. They sell to the resources sector. They built up too fast and the resources sector tanked. Now they are coming back. There is an uptick in business and in the resources sector.
They are now a growth company that is tracking at a discount. There will be driving growth going forward. They will have old growth from resources and new growth from renewables.
On my other blog I wrote today about Trigon Metals Inc. (TSX-TM, OTC-PNTZF)... learn more. Next, I will write about Canadian Pacific Railway (TSX-CP, NYSE-CP)... learn more on Monday, October 23, 2017 around 9 am.
Also, on my book blog I have put a review of the book Maximum Canada by Doug Saunders learn more...
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
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