For a small-cap value stock to be called the best, it must demonstrate a considerable mismatch between market sentiment and its underlying company’s chances at future success, including how long the good times might last, and exactly how much profit might end up in your pocket.
Unlike broad market index funds, which offer exposure to the global stock market – which would only disappear in your lifetime in the event of a superhero-movie-scale disaster – management teams behind single stocks need to constantly worry about keeping their heads above water, as no brand is immune from competition and evolving consumer tastes. This is where value propositions come in.
A value proposition delineates how a company intends to create positive change in its industry and turn a profit, whether it’s extracting useful metals from the ground, developing gentler, more effective drugs, or introducing higher-efficiency technology into disciplines in need of modernization.
It’s by staying true to its proposition that a company creates optimistic market sentiment and generates shareholder value, though this process often occurs on a delay because of the macroeconomic worries of the day. Sometimes the market is too distracted to notice a company filling, or on the path to filling, an unmet need, causing the stock to swing on either side of fair value, granting investors attractive entry points poised for outsized long-term returns.
Here are three of the best small-cap value stocks to consider under this thesis, each of which is creating value at a different stage of the journey from ideation to cash generation with little to no share-price recognition.
Venture-stage value: Global Compliance Applications
Global Compliance Applications (CSE:APP) designs and develops blockchain and machine-learning technologies that improve business outcomes.
Efixii, its flagship product, is an Ethereum Layer 2 blockchain and Ethereum Virtual Machine programming solution that connects producers, distributors, manufacturers and retailers through a decentralized value chain, enhancing data connectivity and the quality of customer decision-making.
Efixii’s specifications are on par with other leading Layer-2s, such as Polygon, while being cost-effective enough to accommodate businesses of any size that wish to establish the authenticity of their products. Clients can even institute rewards programs to pay customers with cryptocurrency for confirming a product’s value or authenticity.
Global Compliance also offers clearESG, a program that helps clients convey their sustainability goals and progress on the blockchain through a series of merit badges, as well as UPLIFT, a digital-coupon shop for cannabis and CBD products.
By taking advantage of a blockchain’s decentralized nature, which allows it to verify authenticity without the need for a middleman, Global Compliance is differentiating itself in the marketplace from legacy options that rely on trusted parties. In so doing, the company provides exposure to crypto and blockchain-based solutions that add value through services and produce revenue – as opposed to relying on sentiment-based price appreciation by directly owning crypto tokens – charting a course for other companies to connect digital assets with the traditional economy.
Shares of Global Compliance Applications have fallen by 85 per cent since 2019, mostly because of the minimal revenue the company has been able to generate. That said, a management team steeped in decades of technology, Silicon Valley and Fortune 500 experience is broadening the reach of the company’s technology suite amid massive crypto industry growth.
Brad Moore, chief executive officer of Global Compliance Applications, spoke with Stockhouse’s Ryan Dhillon about the company’s new partnership to bring its CBD and cannabis coupons to a wider audience.
Turnaround value: Pampa Metals
Our next pick for best small-cap value stock is Pampa Metals (CSE:PM), a copper and gold explorer developing its 80-per-cent-owned Piuquenes porphyry project in San Juan Province, Argentina.
Since optioning the project in November 2023, Pampa has engaged in ample and economical exploration, posting 130 m at 1.31 per cent copper equivalent in December 2023, followed by the discovery of a new zone of undrilled porphyry-related stockworks coincident with geophysical and geochemical anomalies in January 2024, and the extension of previous high-grade intersections in February 2023.
Despite Pampa shares having given back more than 99 per cent of their value since 2014, this positive news flow is bolstering market sentiment and reversing some of those losses. Since acquiring Piuquenes, the stock has added 750 per cent, and benefits from a floor to add more thanks to numerous targets still to be tested, a tailor-made management team with decades of small-cap and large-cap mining experience, copper‘s essential role in global electrification, and gold hovering near all-time-highs because of geopolitical tensions and expected interest rate cuts as global inflation normalizes.
Joseph van den Elsen, Pampa Metals’ president and chief executive officer, spoke with Stockhouse’s Ryan Dhillon about the company’s fourth announcement of highly prospective results since acquiring Piuquenes, including 304 m at 1.07 per cent copper equivalent.
Balance-sheet value: Silvercorp Metals
Our final small-cap value stock pick for the week is Silvercorp Metals (TSX:SVM), which has earned its “best” designation by establishing a long track record of profitable mineral production. The Canadian company operating profitable mines in China has produced about 100 million ounces of silver and more than 1.3 billion pounds of zinc and lead since inception in 1996, with extensive drilling underway to unlock new mineralization and extend an estimated 15 years of remaining mine life.
Over the past five years, which includes COVID, Silvercorp’s efforts have translated into average annual net income of US$34.3 million, and more than US$87 million in operating cash flow year-over-year. Silvercorp’s dependable cash flow has allowed it to pursue diversification into gold through the acquisition of OreCorp, whose Nyanzaga project in Tanzania is host to a well-delineated mineral reserve of 2.6 million ounces of gold (40.1 million tonnes grading 2.02 grams per tonne of gold).
Unlike Pampa Metals and Global Compliance Applications, which have yet to make money and can only offer qualitative potential, Silvercorp is yielding cold, hard cash and can predict how its assets will perform with a fair degree of certainty, contingent on commodity prices, thanks to more than 2,600 km of drilling since 2014. Any stock that is pulling off this combination of profitability and predictability is an instant buy target, should it be trading at an unreasonable price, and that is certainly the case here with Silvercorp shares closely tracking the silver price since the 2008 financial crisis. This means the company’s operations are not reflected in its stock price, despite their consistent profitability, offering new investors a chance at outsized returns should silver start to rise, which it’s positioned to do.
Lon Shaver, Silvercorp’s president, joined Stockhouse’s Ryan Dhillon to discuss the latest updates about the OreCorp acquisition, and why the company’s offer is superior to a competing bid from Perseus Mining.
Join the discussion: Find out what everybody’s saying about these best-in-class small-cap value stocks on the Silvercorp Metals, Pampa Metals and Global Compliance Applications Bullboards, and check out Stockhouse’s stock forums and message boards.
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