Usually, at this time of year for my column I make a request to Santa about what we would like to see for the markets next year. But for Santa this year we have only one request: please make the carnage stop. The relentless drop in the market, the pervasive pessimism, the dreams of investors getting crushed, the angst of investors (probably) selling at the wrong time; please Santa, make it all end.
With that out of the way, it’s time for some random, unsolicited advice to a few companies and to investors in general. Here goes:
Shopify (SHOP on TSX)
SHOP sold new shares at US$154 this week. Smart institutions with teams of analysts ponied up hundreds of millions of dollars for new stock. Today’s price: US $133. It is a solid company, with lots of cash, that has very high growth. You, as an investor with no dedicated research department, sitting at home in your pyjamas, can now buy SHOP shares at a 14 per cent discount to what the ‘smart money’ paid, just a few days ago. Of course, SHOP shares can still go down. But if you buy this week at least you can avoid saying the ‘big money’ has an advantage over the little guys. That’s worth something.
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Alcanna Inc. (CLIQ on TSX)
How can you NOT make money selling booze and pot? Alcanna played a big Scrooge to investors this month by cancelling its dividend. The company says it wants to spend money on growth initiatives, instead. Sure, we can buy that argument. But really, Alcanna, did you have to cancel your dividend in the middle of a market meltdown? In the middle of tax-loss season? Just weeks before Christmas? It’s not like the company’s balance sheet is stretched: After Aurora (ACB on TSX) bought CLIQ shares at $15 (now $4.25) earlier this year the company’s financial position is quite strong. Surely the company could have waited to 2019 before making its dividend adjustment.
Parex Resources (PXT on TSX)
What’s that, we are actually going to recommend an energy stock, in print? Parex had put itself up for sale earlier this year, when the stock was near $30 (now $14.50). This week, it took itself off the market. This disappointed some, but what’s the big deal? The company is debt-free (how many energy companies can say that?), and has $350 million in net cash. It has good assets, solid management and steady cash flow. It trades at four times’ earnings. And, for those sick of the Canadian oil sector, its production is in Colombia. With its stock price nearly half what it was, it’s no surprise management declined to sell. It plans to buy back stock and get back to business. One could do much worse within the sector than owning Parex.
Beleave Inc. (BE on CSE)
Beleave is a small cannabis company. In November, it split its stock, seven-for-one. Most investors like stock splits. But this one was highly unusual. Instead of wanting a higher stock price, Beleave wanted a penny stock for some reason. The stock, in the $1.50 range before, was taken down to $0.22 with the split. Sure, trading liquidity improved, but practically every other company in the world does not want a penny stock, but Beleave did. How’d this work out? Well, the stock is now nine cents per share, down 75 per cent on the year. We are not sure who was advising the company on this one, but common sense would have been better here.
Guess what gets hit hard in a stock market reversal? That’s right: new, small, unproven companies with next-to-no revenue. We are talking bitcoin and cannabis here, for those who had too much eggnog last night. When giant, income-paying stocks like Brookfield Infrastructure (BIP.UN on TSX) are down 17 per cent this year, do you really expect your micro-cap bitcoin or pot company to be an outperformer? Take a look at some bitcoin sector returns: Hive Technology (HIVE on TSXV), down 91 per cent this year. Overstock (OSTK on Nasdaq) down 79 per cent; Riot Blockchain (RIOT on Nasdaq), down 93 per cent. It’s over, people. Or cannabis: Aphria Inc. (APHA on TSX), down 61 per cent; or Namaste Technologies (N on TSXV) down 65 per cent this year. Sure, there is a business in marijuana. But common sense says small, high risk, no dividend, expensive companies are not going to do very well in a panicked stock market.
Peter Hodson, CFA, is Founder and Head of Research of 5i Research Inc., an independent research network providing conflict-free advice to individual investors (http://www.5iresearch.ca).