One of the key factors behind picking winning microcap value stocks is identifying dislocations between company performance and market perception.
An easy way to find candidates for these dislocations is to use your favourite stock screener to search for companies that have been profitable over the past year while underperforming in terms of share price, suggesting potential undervaluation.
Using The Globe and Mail’s stock screener, I set parameters for price-to-earnings from 0.1 to 10, market capitalization to C$1 billion and under, and 52-week stock performance beginning from -90 per cent, and generated a list of 161 companies that have achieved the attractive feat of making money while suffering a severe drop in share price. Here are three stocks from the list that I found to be particularly compelling:
Titan Medical
Titan Medical, market capitalization C$6.86 million, is a medical technology company holding a patent portfolio related to enhancing robotic assisted surgery.
The company is working towards completing a merger agreement with Conavi Medical, which designs, manufactures, and markets imaging technologies to guide minimally invasive cardiovascular procedures. Conavi’s patented Novasight Hybrid System is the first to combine intravascular ultrasound and optical coherence tomography to enable simultaneous and co-registered imaging of coronary arteries.
Titan made US$6.95 million in net income in 2023, marking its first profitable year over the past five. Despite producing more cash than it spent, Titan Medical (TSX:TMD) has given back 73.91 per cent year-over-year.
Canacol Energy
Our next microcap value stock pick, Canacol Energy, market capitalization C$156.57 million, is a Colombian natural gas exploration and production company sitting on a generational resource.
The company holds 295 billion cubic feet equivalent (bcfe) of 1P gas reserves valued at US$776 million in the ground, and 607 bcfe of 2P reserves valued at US$1.3 billion in the ground, in addition to more than 20.5 trillion in unrisked prospective resources.
Management’s extraction strategy has raked in cash over the past five years, generating US$86.24 million in net income in 2023, US$147.27 million in 2022, US$15.18 million in 2021, and US$34.25 million in 2019, with a lone blip of -US$4.74 million in 2020 attributable to the COVID pandemic. Despite the company’s distinguished financial performance, Canacol stock (TSX:CNE) has given back 55.69 per cent year-over-year, and 77.39 per cent since 2019.
CanadaBis Capital
Our final microcap value stock pick is CanadaBis Capital, market capitalization C$11.75 million, a vertically integrated cannabis company focused on large-scale growth from cultivation to retail. The company offers exposure to:
- Stigma Grow, a subsidiary that operates a 66,000 square-foot cultivation and processing facility in Red Deer, Alberta
- Full Spectrum Labs, a cannabis extraction, product development and R&D company working to capitalize on the legal extracts market
- INDICAtive Collection, a cannabis retail boutique located in Red Deer
This diversified cannabis company posted C$4.4 million in net income in fiscal 2023, C$0.61 million in fiscal 2022, and C$0.71 million and C$0.11 million in Q1 and Q2 of fiscal 2024, respectively, in addition to having grown revenue by more than five times from C$4.43 million in 2020 to C$22.22 million in 2023. Paying no mind to these consistent cash-flowing operations, the market has punished CanadaBis stock (TSXV:CANB) and its shareholders with a 59.52 per cent loss year-over-year, and an 81.52 per cent loss since 2019.
Parting proviso
Before you invest in one of the picks above, or into other stocks that catch your fancy from the screener, make sure to run them through your personal due diligence process to ensure they align with your financial goals, risk tolerance and current financial situation.
While recent profitability and a discounted stock price make for an enticing green flag towards a prospective allocation, the combination alone isn’t sufficient to merit an investment.
Join the discussion: Find out what everybody’s saying about these potential microcap value stocks on the Titan Medical, Canacol Energy and CanadaBis Capital Bullboards, and check out the rest of Stockhouse’s stock forums and message boards.
The material provided in this article is for information only and should not be treated as investment advice. For full disclaimer information, please click here.
