Saturday, December 31, 2016

3 Small-Cap Stocks With 10-Bagger Potential In 2017

The dream of each investor to score 10-baggers, i.e. stocks that go up tenfold. There is certainly a myth surrounding 10-baggers, but, unfortunately, also a fraudulent perception as the topic is abused by many fraudulent websites offering pseudo-advice on it.
In this article, we look at 3 small-cap stocks with 10-bagger potential in 2017 and later. Our selection is, as always, based on decent research, long term analysis, and company fundamentals. We give also one bonus stock tip, which is likely to become a multi-bagger (maybe not a 10-bagger).
In general, 10-baggers are found in very volatile sectors, primarily technology and commodities (miners). We believe technology companies will outperform other market segments in 2017, because the dominant trend currently favors risk-taking and is neutral at best for commodities. This is also in line with Forbes’ thoughts on the matter as their recent article featured only small-cap stocks with 10-bagger potential.

Energous Corp. (symbol WATT) potential 10-bagger in 2017

We have featured Energous Corp many times, as we consider it a fantastic story. Their technology enables users of electronic devices to charge wirelessly. Recent speculation on a potential cooperation with Apple took the share price many multiples higher.
Why do we believe this small-cap stock has 10-bagger potential in 2017? Because, according to their plan, they would be break-even in the second half of 2017. It remains to be seen whether that will happen or not, but, in case the company holds its promise, this stock will go much higher next year.

Edgewater Wireless (symbol YFI.V) small-cap stock with 10-bagger potential as of 2017

The last 18 months have been extremely exciting for Edgewater Wireless. The company is trading in Toronto on the Junior Exchange. It has a market cap of $49M, so it basically ranks as a nano-cap. Its technology solves the problem of high density wi-fi access. On a lot of public places, the wi-fi speed is not good at all. Edgewater Wireless solves that problem adding bandwidth and capacity to wi-fi access points.
The company does not have sufficient revenue at this point. It was rewarded with sponsoring by the UpRamp Fiterator Program. In that program, only 4 tech providers are opened the door to the world of cable and telco providers, as a way to accelerate the usage of innovative technologies. That program is likely to accelerate the rollout of Edgewater’s technology and sales channel(s), a trend which we expect to start in 2017.
Buy this company on significant dips.

Biotime (symbol BTX) 10-bagger potential between 2017 and 2020

The biotech company Biotime offer solutions for an incredibly fast growing market: facial aesthetics. This market is set to triple in the coming 3 years. Next to that, Biotime uses stem cells to generate regenerative medicine solutions.
The company sits on strong growth trends, which makes it eligible to become a 10-bagger in the years to come. With a market cap of only $350M, no debts, and a good cash position, there is tremendous room for growth. We believe it is a matter of time until this company goes many multiples higher. The biggest risk we see is that their products cannot meet the minimum requirements within the context of the regulatory framework.

BONUS: Mitek Systems (symbol MITK) multi-bagger

As a bonus, we add Mitek to the above list. However, we believe its growth will be a bit more steady than the other stocks in this article, so we would categorize it as a multi-bagger rather than a 10-bagger.
Mitek is active in the incredibly prosperous domain of mobile commerce and mobile identity. It is already the market leader in its segment. We believe the company has multi-bagger potential because the mobile trends are only know accelerating. Mitek has its technology adopted by top Fortune 500 companies. We believe this to have first mover advantages on which they can leverage as the mobile market continues to grow.
Moreover, Mitek’s technology is scalable. As more customers adopt their technology, revenue and profits will increase disproportionately.

The Ten Best Performing Canadian Junior Tech Stocks of 2016

The eyes of speculative investors were not set on technology stocks in 2016, because marijuana stocks stole their gaze. Still, a list of the top performing junior techs stacks up quite well. The reason? A once paltry selection of stocks has rounded out quite nicely in the past few years.
The IPO drought that has stricken the big board hasn’t stopped a bunch of new companies from staking their claim on the junior exchange.
The October appointment of Brady Fletcher, a banker with a B.Sc. in Computer Engineering who is well known in innovation circles, to head the TSX Venture Exchange, suggests this trend may continue.
So here is our annual countdown of the top ten TSXV Tech stocks. The list comes with a few caveats: we don’t include stocks that began the year under ten cents, ones that had a change of business during the year (i.e. RTO), or those that do not have a full year of trading under their belt. All technology stocks trading on the TSX Venture Exchange are eligible.  (more)

Monday, December 26, 2016

US Weekly Economic Calendar

time (et)

report period ACTUAL forecast previous
  None scheduled
Christmas holiday celebrated

9 am Case-Shiller home price index Oct.   -- 5.5%
10 am Consumer confidence Dec,   109.5 107.1
10 am Pending home sales index Nov.
-- 0.1%
8:30 am Weekly jobless claims 12/24
268,000 275,000
8:30 am Advance trade in goods Nov.
-$62.5bln '-$62.0 bln
9:45 am Chicago PMI Dec.   -- 57.6

Saturday, December 24, 2016

Tracking The Dogs Of The Dow

I’m quite surprised that I’ve never mentioned the Dogs of the Dow here given that it is probably the single best known investing strategy around. Basically it works as a kind of value screen whereby you take the top ten stocks in the Dow Jones Industrial Average ranked by dividend yield (highest yield first) and rebalance them. That’s essentially it. Every year you eliminate those stocks from your portfolio that are no longer in the top ten and promote those that are.

The concept behind the strategy is that from time to time certain stocks within the index will fall out of favour with investors for various reasons. It could be as a response to a black swan kind of event that hits a company’s stock price hard over a short length of time, or it could be that you enter a downward leg in the business cycle which affects underlying earnings. Either way the point is that the high dividend yield tends to reflect cheaper value, and cheaper value in turn signals higher forward returns.

It’s exactly the same effect that made Royal Dutch Shell the only oil stock to make the list of twenty top performing original S&P 500 members (although most of the oil majors have delivered great long-term returns). Same deal with the returns of the tobacco stocks, and in particular Philip Morris – the single best performing original S&P 500 stock. The only difference with the Dogs of the Dow is that it’s been converted into a kind of automated strategy – limited to an index of thirty of the stodgiest of stodgy blue chip stocks.

Let’s take a look at the performance of the screen since the turn of the century. This gives us a couple of market cycles to look at – namely the dot-com crash and global financial crisis of 2007-2009 – which makes it a pretty decent time-frame for gauging long-term returns. Imagine you open a separate brokerage account just for the purposes of investing in the Dogs of the Dow stocks. At the start of the first calendar year you deposit $100,000 and place automated buy orders for the ten highest yielding shares in the Dow Jones Industrial Average in equal amounts.
  • Doing so would have seen you pick up $10,000 blocks in Philip Morris, J.P. Morgan, General Motors, Caterpillar, Eastman Kodak, Exxon Mobil, 3M Company, AT&T, DuPont and International Paper.
Your average dividend yield for this miniature blue chip portfolio would have been 3% on day one. Just check out some of the names that you were investing in at the beginning of the first year though. Eastman Kodak for example would’ve gone bankrupt in 2012. Chemical company DuPont has seen its stock price go virtually nowhere between the late 1990s and the present day. Iconic American car manufacturer General Motors would also end up in bankruptcy during the turmoil of the global financial crisis. Indeed ordinarily you’d probably never consider long-term investments in the auto manufacturers because they’re so cyclical and actually pretty unprofitable.

The point is though that the Dogs of the Dow is not a buy-and-hold strategy. It’s more like a value index fund. Indeed if you were to go back a little bit further you’d find that between 1997 and 1998 around 25% of your portfolio would’ve been in the various oil majors – Exxon, Chevron and Texaco – which were on discount due to the oil price slump of the late 1990s. When the oil price was booming in 2005-2006, along with stock prices of the oil majors, none of them would’ve made the list.

Let’s say you manage to stick to the strategy perfectly. At the start of each year you pull up a list of the Dow 30 stocks and rank them in order of dividend yield. Those stocks in your portfolio which no longer make the top ten are sold on the first trading day of the year regardless of whether they are currently in profit or loss. At the same time any new entrants into the top ten are purchased in the usual $10,000 blocks. In addition all dividends received must be reinvested back into the portfolio.

Had you done that then the $100,000 starting capital would currently be worth about $320,000. On an annualised basis that comes to average compounded returns of 7.2% per year. In comparison an investment in the benchmark Dow Jones Industrial Average would have generated average compounded returns of 5.2% per-year. Over a sixteen and a half year stretch that extra 2% per-year adds up to around $87,500 in additional returns assuming starting capital of $100,000.
The key is that you maintain the discipline to stick to these strategies over long time frames; something that is easier said than done in practice. During those sixteen years there were stretches such as 2006 to 2009 in which the strategy would’ve underperformed relative to the benchmark.
Let’s take a look over a longer time period. After all only going back to 2000 probably isn’t enough to draw any reasonable conclusions. According to data provided by Jeremy Siegel in his book – Stocks For The Long Run – the Dow 10 strategy as he calls it generated geometric returns of 12.6% per-year between 1957 and 2012. In comparison the Dow Jones Industrial Average delivered 10.9% compounded per year over the same time frame. That 1.7% difference looks small when expressed as an annual figure, but compounded over a fifty-five year time frame it adds up to an absolutely huge $387,000 on an initial total investment of just $1,000.

The interesting thing about Siegel’s study is that he also compared the S&P 500 stocks on a similar basis. The S&P 10 as he calls them – those being the ten highest yielding stocks from the largest one hundred companies in the S&P 500 universe – generated compounded returns of 14.1% a year between 1957 and 2012. In comparison the benchmark S&P 500 delivered annualised geometric returns of 10.1% over the same period.

The usual caveat applies here in that there’s no guarantee that future returns will match the historical performance. What it does show though is that even the most basic value strategies have the potential to deliver great returns if you’re prepared to stick to them, whilst at the same time perhaps taking some of the emotion out of traditional buy-and-hold strategies.

Finally for those who are interested I’ve attached a list of the current Dogs of the Dow and their respective dividend yields:
The Dogs Of The Dow 2016