Warren Isabelle: 2013 Will Be A Stock Picker’s Market

Warren Isabelle is a Managing  Member of Ironwood Investment Management LLC, located in Boston.  Ironwood is a prominent small-cap investor, defining small-cap as below $2.5 billion in market cap.  Prior to forming Ironwood in 1997, Warren was Head of Domestic Equities for Pioneer Capital Growth Fund, Pioneer Small Company Fund and  several institutional portfolios.  Before joining Pioneer in 1984 he was an analyst with Hartford Insurance Company.  He is a bit of a polymath, with a U Mass BS in Chemistry, an MS in Polymer Science and Engineering, and an MBA from Wharton.  He has been the subject of articles in Barron’s, Business Week, Forbes, Fortune and The Wall Street Journal.

I first met Warren at Pioneer in the early 1990s, and had the pleasure of talking to him late last week about his outlook for the year ahead.

WIPhoto

JA:  What are your predictions for 2013 overall, and what kind of market do you think we will be seeing?

WI:  This year my crystal ball is as murky as I have ever known it to be.  The crosswinds that are blowing are not gentle breezes; they are pretty stiff gale winds.  I think we will see some growth spurts in the market this year, and some retreats, but frankly I don’t see a heck of a lot of progress being made this year for the overall market.

Businesses have been on a roll the last four or five years in terms of improving productivity, cutting expenses, improving margins, and so forth.  A lot of companies are making money hand over fist, but until we get some macro issues sorted out, those crosswinds are going to make forward progress difficult.

2013 should be a stock picker’s market.  We will be looking for companies that can maneuver through the times ahead.   The market will have a hard time breaking higher ground, but we are stock pickers and always have been, and if we can continue to do our job well, our investors will be rewarded.  The world is so concerned with the macro issues; it pays dividends for us to pay attention to those.  On the plus side, we do have easy money – the cost of capital just seems to get lower and lower and though the recovery does not seem all that well established, you might say that time tends to heal all wounds.  There are green shoots here and there, and that will continue.  Small caps generally do better in a developing recovery, and we expect that to continue.

On the other hand there are plenty of mines that could explode and cause big problems.  As such, we have to be careful of stock trading liquidity.  One thing that has benefitted us at Ironwood over the last few years is that we have been much more willing and able to maneuver with individual holdings and as a result, our performance has not suffered from liquidity issues as it has in the past.  Before that we used to be dedicated buy-and-hold investors, period.  But since 2008 we believe we have reconsidered on that issue, and we are not afraid to hold cash now if the environment warrants.

JA:  In many recoveries, there are a lot of new companies started by people who either were laid off in the downturn, or who lost faith in the ability of their employers to continue growth.  Are you seeing any of that this time around?

WI:  Here’s my take.  I do a lot of work with the University of Massachusetts, both on the investment side for the Foundation, and on the intellectual property side with the Lowell campus.  I can tell you that the entrepreneurial spirit is as alive as it ever was.  But what has happened is that the traditional venture capital model of relatively long-term funding with an eventual IPO – has been impacted negatively by this ugly downturn.  As a result, many providers of early-stage capital have largely lost patience for long-term investments.  The era of that model being dominant, I think, is over, and that VC model has run its course.  The VC money that is being invested now, and there is less of it, appears to be being put into narrow areas like Software as a Service and Cloud Computing.  The model is shifting, and I am sorry to say that I do not think that crowdfunding will be the answer.

There just are not a lot of IPOs.  We don’t see the new-company formation process in as high a gear as it was before.   The risk-return equation is now much more weighted toward return, and light on risk.  That means deals are later-stage, and valuations are higher.  The early-stage companies are not in the mix.  Is the model totally broken?  All I can say is that later-stage deals are what we see happening now.

JA:  Do you think we will get a budget this year?

WI:  I think the House will produce a budget, and then it will be up to the Senate to modify it.   There will be a good deal of hemming and hawing and a lot of finger pointing, but I think we will get there.  A lot depends on whether President Obama will negotiate or not.

JA:  Let’s talk about sectors to watch for 2013.

WI:  I can tell you what we’re looking at.  First of all we think that because of the general uncertainty about our economic situation, “discovery” names will be interesting this year.  For example, there are many unmet needs in healthcare – therapeutics, diagnostics, and even medical devices to some extent.  If we can continue to find the names that have potential, not only will that help in meeting  medical need, but  large pharmaceutical companies and the bigger and successful biotech companies will be standing in line seeking to replenish their product offerings.  Those big companies have become distribution channels to a large extent, and they need the discovery companies to help in coming up with new products.

We tend to like companies that are local – not exclusively, but that is a bias we have.  We like to be close to the companies we invest in, knowing what makes them tick, and close geographically if possible.  If your investments are in the neighborhood, it’s a lot easier to fill in the information blanks, it seems to me.  One local healthcare company that we have owned for a while that is still relatively small is Synta Pharmaceuticals Corp (SNTA), which is in Lexington.  One thing I noticed early on about them is that with new financings, the senior management consistently invested serious money into the future of the company. Their most recent offering was also heavily subscribed by insiders.  We consider it very favorable when management is willing to take the same kind of risk that we are exposed to.

SNTA has a number of products, but I will mention its lead product, Ganetespib, an Hsp90 inhibitor.  Hsp90 is a protein that is necessary to the growth of tumors, and if you can inhibit it, the theory is that you can degrade or destroy the tumor, the more so in combination with other cancer drugs.  I believe it has shown pretty good results in non-small cell lung cancer, for instance, which is a notoriously difficult cancer with high mortality rates.  And, as I said, the insiders have put their own money on the table, which is encouraging.  SNTA has gone from $4 to $10 in the last year, but we think there could still be good upside if, with clinical success, some big pharmaceutical company decides to make a bid for them.

Another company, and one that took us a long time to get involved with, is Repligen Corp (RGEN), which is also close by, in Waltham.  I visit them every few months to make sure I stay on top of developments there.  About 18 months or so ago, they had change in their board of directors which turned out to be the first clue that the company was finally undergoing a transformation. Their legacy and main business currently is the supply of Protein A, which is essential to Protein A affinity chromatography, considered the gold standard in the purification of monoclonal antibodies.  They went on to develop some drugs, but  were never adequately structured for that, in my opinion, though over time they actually built up a pretty good cash balance.  Following several disappointments and apparent lack of focus, they came dangerously close to being perceived as something of a zombie.  Then the Board changed and they seemed to find direction and began to employ that cash.  They acquired their only competitor in Protein A and are now in a dominant position, with opportunity to really ramp up profitability by rationalizing costs and capacity.  In addition they have developed a line of disposable “column” products that are used in chromatography for the downstream purification of biologics.  This new modular approach to development and production is rapidly gaining acceptance by their customers which now include CROs, discovery companies, successful biotechs and big pharmaceutical companies.

JA: Which other sectors are you watching closely?

WI:  It so happens that through individual stock selection, we have increased our weighting in technology, and in particular we’re watching some turnarounds with interesting new agendas that are gaining traction.

First, though, I‘ll mention Extreme Networks (EXTR), which is out in California.  They make data switches, and theirs are the fastest and best products available in that category.  Why is it a great investment now?  We believe the need for ultra-high-speed data switches is here.  What has held EXTR back in the past has been the higher cost of their industry-leading switches, and while we think their management was great on the tech side, they could have been better in marketing.  Recently, a new management has come in and emphasized marketing and how to go to market.  Extreme has great products, a good balance sheet with $100 million in cash such that with good execution,  we believe the stock could  be a multiple of what it is now.

A second one – and again a local company in Westford – is Sonus Networks (SONS).  They are a comeback company who had an earlier gateway product that essentially became commoditized and is winding down now.  That is all people see about SONS today.  But they have a new product line now built around Session Border Controllers, or SBCs.  They basically hold access (a “pipe”) open for a user, something like a traffic cop, so lots of information can get through when desired.  We think that the old product decline will be offset by the growth of the SBCs over the next 18 months or so, and we think that most people in the market are looking only at the old product.  This company has a $600 million market cap with $320 million in cash.  And the new CEO is taking all his compensation in equity.  That’s impressive, and we think there is at least a double in this stock.

JA:  Fascinating.  What’s next?

WI:  We like some agricultural companies as I cannot overstate the importance of food production given the global growth of what we would call the middle class.  We are again looking favorably at Chiquita Brands International (CQB).  It is not a sexy company, but they appear to be back on track.  They went off the rails with pre-packaged salads, as the effort to boost margins and steady earnings never materialized.  They were also hurt by a bizarre tariff structure introduced by the European Union which cut deeply into volumes and profits.  Now they have new management and the emphasis is back on bananas and fruit.   All I can say is that the rough edges are smoothing out; the tariff picture is much better;  and spending is again going to their traditional business.  In past years, at the peak of a cycle, they were earning $3 a share, and the stock approached $30.  Now it’s at $8, but we think they can earn $2 a share in the near future, and if that happens, the stock ought to be at least double from here.  Yes, they have a lot of debt, but their cash flows have always been adequate.

We also like Pilgrim’s Corp out in Colorado.  Most people know them as Pilgrim’s Pride, and they are a chicken and turkey company.  They were bailed out a few years ago by JBS, a large Brazilian company that now owns 75% of the company which dampens investor interest, but we think that also provides downside protection. The stock had gone down to $3 on fears of rapidly rising feed costs, so we increased our position and the stock has rebounded nicely to over $7, with room to grow.

JA:  I have to say those were not companies I was expecting you to mention.  Anything else?

WI:  We like natural gas, and I’ll mention two companies: Rex Energy Corp (REXX) and Carrizo Oil & Gas (CRZO).  They did not help us last year but we think they are good operators which is the key to the investment thesis.  They are developing a lot of properties through fracking and drilling, particularly in areas where gas liquids are significant part of the production.  In the energy industry we are looking for companies that can acquire good properties and develop them efficiently.  Natural gas is currently in abundant supply and pricing is depressed. Of course we would like to see pricing increase, but we are much more  volume-oriented.  Longer-term, we believe we will be seeing natural gas exported from the US, and prices will come up if only because the differential between natural gas and oil is too wide. All good for the stocks, I would suggest.

JA:  That’s a lot to consider, Warren.  Many thanks.

Neither Allen & Caron nor Joe Allen owns the stocks mentioned in this article, nor do we anticipate initiating positions in the near future.  Please do your own research.

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A Sweet Deal: Chocolate Found to Reduce Stroke Risk for Men

Some delicious news arrived from many media sources this week, at least if you are a chocolate lover and a man between the ages of 45 and 79. A new, decade-long Swedish study of 37,000 Swedish men to be published in the journal Neurology made headlines all over the world when it showed that eating chocolate can actually reduce their risk of having a stroke.

Photo courtesy of weightworld.com

Of course, the Stroke Association  was quick to warn that the study’s findings “were not an excuse  to overeat chocolate,” according to the BBC (http://www.bbc.co.uk/news/health-19402143), and that it needed to be part of a healthy, balanced diet. The study split the men into four groups with one group eating no chocolate and the others eating progressively more with the top group eating about 63 grams a week, “slightly more than an average bar,” according to the BBC story.

The benefits apparently come from the flavonoids in chocolate that “appear to be protective against cardiovascular disease through antioxidant, anti-clotting and anti-inflammatory properties,” the BBC quoted Swedish researchers as concluding. According to Wikipedia, flavonoids used to be called Vitamin P “due to the effect they had on the permeability of vascular capillaries.”

Anyway, there’s a small cap story in all this. We found six small cap chocolate or confectionery companies that may or may not be delivering high quantities of flavonoids in their products. You’ll need to do that research.

Durango, CO-based Rocky Mountain Chocolate Factory (Nasdaq: RMCF, http://www.rmcf.com/) is a confectionery manufacturer, franchisor and retailer and also operates and franchises self-serve frozen yogurt retail outlets. It produces about 300 chocolate candies and other confectionery products.  The chocolate news hasn’t seemed to have a substantial effect on RMCF stock. It’s 52-week trading range is $7.14-$13.97 and its market cap is about $75 million. It closed Sept. 7 at $12.41, down 8 cents on the day.

Los Angeles-based Reed’s Inc. (Nasdaq: REED, http://www.reedsinc.com/) makes and sells soft drinks, New Age beverages, candies and ice cream. The company was originally known as Original Beverage Co. and changed its name to Reeds in 2001. Its 52-week range is $1.10-$7.20 and market cap is about $80 million. It closed Sept. 7 near the top of its best price of the year at $6.78, down 21 cents for the day.

Calabasas Hills, CA-based The Cheesecake Factory (Nasdaq: CAKE, http://www.thecheesecakefactory.com/) operates 173 upscale restaurants and two bakery production facilities where it sells cheesecakes and other baked products. Of the restaurants, 153 operate under The Cheesecake Factory name, 14 as Grand Luxe Cafe and one RockSugar Pan Asian Kitchen. CAKE’s 52-week trading range is $23.65-$34.90 and market cap is about $1.8 billion. It closed Sept. 7 at the very top of the range, at $34.82, up 28 cents for the day.

Winston-Salem, NC-based Krispy Kreme Doughnuts Inc. (NYSE: KKD, http://www.krispykreme.com/) operates doughnut shops and retails a variety of foods, sweets and beverages worldwide. The company was founded in 1937 and now has stores in 29 states and 20 countries. KKD’s 52-week trading range is $5.78-$8.77 and market cap is about $499 million. It closed Sept. 4 at $7.47, up 1 cent for the day.

Germany-based Halloren Schokoladen (ETR: H2R, http://www.halloren.de/) is a chocolate factory based in Germany. Its main product is the Hallorenkugel, a chocolate globe made in many flavors, but it also produces 180 chocolate products, chocolate bars, chocolate-coated jellies and rum balls. It also owns and operates a chocolate museum in Halle. It’s 52-week trading range is (all prices in Euros) 4.69-7.01 and market cap is 28 million. It closed Sept. 7 at 6.26.

Chicago-based Tootsie Roll Industries (NYSE: TR, http://www.tootsie.com/) manufactures and sells a variety of confectionery products distributed through about 65 candy and grocer brokers and by the company to about 15,000 customers throughout the US. The company also has production plants in Canada and Mexico that sell products in their respective countries. TR’s 52-week trading range is $21.63-$26.45 and its market cap is $1.5 billion. It closed Sept. 7 at $26.32, up 15 cents for the day.

Could 2012 Be the Year for AG Stocks?

You can profit from Mother Earth, according to some followers of agricultural or “AG” stocks. While historically a slow

Photo courtesy Rural Route 3 blog

growth industry, many believe 2012 could provide a bountiful harvest for these agricultural stocks for a variety of reasons:

  • Since the recession of 2008, food inflation has sky-rocketed, scaring consumers.
  • Food price inflation is good for AG stocks. Starting in 2005, the International Monetary Fund’s food price index is up 90 percent. And 41 percent of food and beverage companies expect to increase prices in 2012, compared with 12 percent a year ago, according to http://www.grantthornton.com.au/files/ibr_food_and_beverage_nov11.pdf
  • As the planets population has risen, the arable land available for planting hasn’t kept up.
  • With new technology, AG products can be used in alternative fuels. 
  • With the growth in organics and more healthy lifestyles for “baby boomers” worldwide, profits are perking up.

For general research on trends in the industry, take a look at http://www.agrifoodforum.com/.

For 2012, some experts suggest AG stocks should have good growth and offer some defense for a more speculative industry portfolio. What are some small cap stocks that fall into the “AG” category and could benefit as food prices keep getting higher? 

 Omaha, NE-based Lindsay Corp. (NYSE: LNN, http://www.lindsay.com) designs, manufactures, and sells irrigation systems that are primarily used in the agricultural industry to increase or stabilize crop production while conserving water, energy, and labor. LNN also manufactures and markets various infrastructure products. The company serves departments of transportation and roadway contractors, subcontractors, distributors, and dealers.   The stock has a 52-week range of $46.03 -$ 73.75 and a market cap of about $841 million with a daily average trading volume of 140,000 shares.  For the second quarter ending February 29, LNN beat analyst estimates on both revenue and earnings significantly. It closed May 3 at $64.90, down $1.26 on the day.

West Fargo, ND-based Titan Machinery (Nasdaq: TITN, http://www.titanmachinery.com), a recent IPO which has doubled, owns and operates a network of full service agricultural and construction equipment stores in the United States and Europe. It engages in the sale of new and used equipment. The company sells agricultural and construction equipment manufactured under the CNH family of brands, as well as equipment from various other manufacturers. Recent quarterly revenues were up 67 percent to $132 million with earnings of $6 million.  The stock currently trades about 425,000 shares a day and has a 52-week range of $15.58 – $36.92. Its market cap is near $730 million. It closed May 3 at $35.28, down 77 cents on the day.

Newport Beach, CA-based American Vanguard (NYSE: AVD, http://www.american-vanguard.com) manufactures and formulates chemicals for crops, human, and animal health protection. Its chemical products include insecticides, fungicides, herbicides, molluscicides, growth regulators, and soil fumigants in liquid, powder, and granular forms.  The stock’s 52-week trading range $8.92 – $25.34 with a market cap of about $700 million and volume of more than 280,000 shares traded daily. It closed May 3 at $25.28, down 75 cents on the day.

Port Washington, NY-based Aceto Corp. (Nasdaq: ACET, http://www.aceto.com) sources, markets and distributes the following:  Pharmaceutical intermediates and active ingredients, finished dosage form generics, nutraceutical products, agricultural protection products and specialty chemicals worldwide. The company operates in three segments: Health Sciences, Specialty Chemicals, and Agricultural Protection Products.  ACET stock has a 52-week range of $4.51 – $9.99 and an average daily volume of more than 190,000 thousand shares. Its market cap is about $240 million. ACET closed May 3  at $8.90, down 17 cents on the day.

A possible company for the more aggressive investor and further out on the natural pharmaceutical spectrum is tiny San Diego, CA-based Medical Marijuana (OTC: MJNA.PK, http://www.medicalmarijuanainc.com). MJNA which is a legal growth industry in California and 15 other states, provides various business management solutions to the hemp and medical marijuana industries in the United States. It also operates the Hemp Network, a network marketing platform that provides consumers with hemp products. MJNA offers tax and collection solutions to governments including revenue collection systems, turn-key management solutions, and marijuana testing and gradation. The company’s 4th quarter revenue increased in excess of 100 percent over the prior quarter to $430,000.  MJNA’s 52-week range $.01 to $.19 with a market cap of $22 million and volume of near 3.6 million daily shares. It closed May 3 at $.038, up $0.0015 for the day.

Small-Cap Restaurant Stocks Serving Opportunities for Savvy Investors

In the ongoing battle of fast-food giants, the fight seems to be for second place. Nobody is expected to beat McDonald’s for the top spot, but the news this week was  former second-place holder Burger King (which announced this week it will go public, again) has been demoted to number three behind Wendy’s for the first time since Wendy’s opened in 1969, according to food industry research firm Technomic, Inc. in a recent article in TIMEBusiness:   (http://business.time.com/2012/03/19/wendys-unseats-burger-king-as-second-largest-hamburger-chain/?iid=biz-main-mostpop1#ixzz1qEPd41Vp) .

While these fast food behemoths are too big for our radar, there are several small-cap restaurant companies that are serving up opportunities for investors, along with their traditional fare. Some are major franchisees of the bigger fast-food names, while others are more regional specialty food shops with recognizable names like IHOP and Applebee’s.

Courtesy of USA Today

Please do your own diligence.  We do not recommend stocks, nor are we financial advisors.  We do not own the shares of any companies in this article.

Syracuse, NY-based Carrols  Restaurant Group (Nasdaq: TAST, http://www.carrols.com/) operates restaurants under the Burger King, Pollo Tropical, and Taco Cabana names. Last week they announced they would buy 278 Burger King outlets in a cash-and-stock deal that will make it the biggest Burger King franchisee in the world. At the close of market April 3, TAST was trading at $15.24, down 24 cents on the day, with a market cap of $353 million.

Spartanburg, NC-based Denny’s Corporation (Nasdaq: DENN, http://www.dannys.com/) operates traditional American-style food restaurants under the Denny’s brand name. With approximately 1,680 restaurants in 50 states and nine countries, Denny’s is the nation’s largest family dining chain (in units). On April 2 DENN closed trading at $4.10, up 4 cents on the day.  Their market cap is $389 million, with a 52-week range of $3.10 – $4.55.

Glendale, CA-based DineEquity (NYSE: DIN, http://www.dineequity.com/), which bills itself as the world’s largest casual-dining chain, owns and operates two restaurant concepts: Applebee’s Neighborhood Grill and Bar, or Applebee’s, in the bar and grill segment of the casual dining category of the restaurant industry; and International House of Pancakes, or IHOP, in the family dining category of the restaurant industry. On April 2 DIN closed at $49.42, down 18 cents on the day. DIN has a market cap of $893  million, and a 52-week range of $35.20 – $56.78.

Irving, TX-based CEC Entertainment (NYSE: CEC, http://www.chuckecheese.com/) and its subsidiaries develop, operate, and franchise family dining and entertainment centers under the Chuck E. Cheese name. As of February 29, 2012, it operated 555 Chuck E. Cheese stores located in 48 states and in seven other countries or territories. At the close of market April 3, CEC was trading at $38.09, down 6 cents on the day. Its 52-week range is $25.83 – $42.75, with a market cap of $672 million.

Lakewood, CO-based Einstein Noah Restaurant Corp (Nasdaq: BAGL, http://www.einsteinnoah.com/ ) owns, operates, franchises, or licenses various restaurant concepts primarily under the Einstein Bros. Bagels, Noah’s New York Bagels, Manhattan Bagel Company, and Kettleman Bagel Company brands. BAGL. Its retail system consisted of approximately 773 restaurants in 39 states and the District of Columbia. On April 2 BAGL closed at $15.07, up 15 cents on the day. BAGL has a market cap of $252 million, and a 52-week range of $11.48 – $16.28.

Market Study Projects Global RFID Market to Reach $18.7 Billion by 2017

The technology used in Radio Frequency Identification (RFID) is not new, but global business continues to find additional lucrative applications for its use. Security and access control were among the initial drivers of RFID technology but now such applications as product security, inventory, production efficiency, shipping and importing, food safety, aviation and retail, just to name a few, are making use of RFID. A new market study by Global Industry Analysts has projected the world RFID market will hit $18.7 billion by 2017.

The small cap world is loaded with companies that use RFID technology as important parts of their business models.

RFID reader courtesy of Tootoo.com

Here are a few names, selected completely at random, that may be worth checking out. Remember: we are not recommending anything, but solely identifying some small companies that are publicly traded.

Israel-based B.O.S. Better Online Solutions (Nasdaq: BOSC, http://www.boscorporate.com), founded in 1990, provides an entire array of mobile and RFID solutions and supply chain solutions for enterprise logistics and organizational products. Its customer base is global but its market cap is tiny, only $2.95 million as of March 20. At mid-day March 26 BOSC stock was trading at $1.04, down 1 cent on the day, near the the bottom end of its 52-week range of $0.58-$3.67. If you’d like to learn more, tune in to the company’s fourth quarter and year-end conference call at 4 p.m. Israel time March 28.

Port Townsend, WA-based Intellicheck Mobilisa (AMEX: IDN, http://www.icmobile.com) provides commercial applications for reading and verification, government sales of defense security and identity card applications and develops wireless communications applications. Its products come in three areas: commercial identification, defense security and wireless applications. IDN bought Positive Access Corp. in August 2009. One product, IDv-Check, helps read and verify California and Canadian drivers’ licenses, among other things. At mid-day March 26 IDN stock was trading for $1.66, up 1 cent on the day, so far setting a new 52-week high. Low end of the range is $0.81.

Everett, WA-based Intermec (NYSE: IN, http://www.intermec.com) is a global business that designs, develops, integrates, sells and resells automated identification and data collection products and related services. Products include mobile computers, barcode scanners, printers, RFID products, among other things. On March 13, IN introduced two new desktop printers “perfect for space-constrained settings,” according to a press release. At mid-day March 26 IN stock was trading at $7.81, up 10 cents on the day. Its 52-week range is $5.87-$12.21 and its market cap is nearly $465 million.

Santa Ana, CA-based Identive Group * (Nasdaq: INVE, http://www.identive-group.com/) is a seller of physical and logical access control products, RFID products and identity management. CEO Ayman Ashour has built the company through acquisitions after coming over from HID Global, a division of Stockholm-based Assa Abloy, a major competitor. Identive is followed by several sellside research analysts.  At mid-day March 26 Identive was trading at $2.03, up 19 cents on the day. Its market cap is about $105 million and 52-week range is $1.37-$5.90.

* Denotes a client of Allen & Caron, publisher of this blog

U.S. Listing May Ignite Move Toward Better Valuation

It is generally considered good news when a company announces a new listing on an American exchange such as Nasdaq, or the NYSE. Such a listing brings the company exposure to the world’s broadest markets of institutional and retail investors.

Even if a company is dual listed on another exchange such as the Toronto exchange (TSX), as are three smallcaps we are tracking here, the move to a U.S. listing brings the opportunity for more investment dollars and more exposure to sophisticated investors. The Canadian investment community, while expert in companies focused on natural resources or other traditional Canadian industries, is often thought to be less savvy than the broad base of U.S. investors in areas such as medical devices and other technologies. Ultimately, that can translate to lower valuation multiples in Canada than in the U.S.

Also, since the U.S. is generally considered to be among the largest commercial markets for a company’s products, trading in the U.S. can offer the secondary benefit of more exposure to customers.

Does that mean the onset of a new U.S. listing is a time for smallcap investors to buy? It is often the first step toward a better valuation, but that may take time and a marketing plan for the stock, based on our look at three Canadian companies that were all trading on the Toronto exchange and then moved south to also begin trading on Nasdaq. The three companies are from different market sectors and in different stages of development. We’ll continue to track these and report back on their progress in the future.

Vancouver-based GLG Life Tech Corporation (Nasdaq: GLGL, http://www.glglifetech.com/) produces, from seed to harvest and refining, high quality stevia, a zero-calorie, natural sweetener. The company’s newest product, BlendSure was created to compete with sugar as an additive in soft drinks. GLGL began trading on Nasdaq in November 2009 and, while the stock jumped at the onset to about $8.50, today the stock price has settled at about $7.60. A cursory look at the GLGL summary chart shows a lack of robust trading as perhaps a lingering problem–an average of only 7,800 shares trade each day.

Winnepeg-based IMRIS Inc. * (Nasdaq: IMRS, http://www.imris.com/) develops and markets image guided therapy solutions that are fully integrated into complete surgical and interventional suites. IMRIS just started trading on Nasdaq in November 2010 and announced the sale of an IMRISneuro, a fully-integrated, multi-operating room system designed for neursurgical procedures to Dartmouth-Hitchcock Medical Center in Lebanon, New Hampshire on November 29. By early December the stock price had dropped to about $4.75.

Burnaby, Canadar-based Tekmira Pharmaceuticals Corp. (Nasdaq: TKMR, http://www.tekmirapharm.com/) is a biopharmaceutical company that develops therapeutic agents based on the field of gene silencing, known as RNA interference (RNAi). Its three lead product candidates target cholesterol management, cancer and Ebola infection. TKMR works with partners including Roche, Bristol-Myers Squibb and Alnylam Pharmaceuticals. Like IMRIS, Tekmira began trading on the Nasdaq in November 2010. At the moment, however, the stock has not caught the eyes of many investors. Average volume is only about 18,000 shares a day. On December 7 the stock price jumped up 5.5 percent to an even $5.  

* Designated a client of Allen & Caron, publisher of this blog.

Fishing, Boating Stocks Adrift in Oily Gulf

While vast quantities of oil were leaking into the Gulf of Mexico, the eyes of the world have been focused on the coastal sprawl stretching from Texas, east past the Mississippi River delta at the gulf, all the way to Florida. It’s one of the best recreational areas in the U.S., or at least was, and it is generally known as being one of the top fishing regions in the world.

According to NOAA (National Oceanic and Atmospheric Administration), there are approximately 5.7 million recreational fishermen based in the region who take 25 million fishing trips a year. Commercial fishermen in the region harvest more than 1 billion pounds of fish each year. To outfit these fishing expeditions takes a lot of bait, tackle, miscellaneous fishing equipment of all types, boats and boating related equipment.

But with fishing activities temporarily closed in certain areas due to the oil spill, the industry most surely has been, and may continue to be, impacted no matter how the outcome of British Petroleum’s new fix ultimately turns out. No doubt this has been hazardous to small cap companies focused on  the fishing industry, so let’s take a look at how four have fared  to this point.

Watsonville, CA-based West Marine (Nasdaq: WMAR, http://www.westmarine.com), a specialty retailer of boating supplies, has been riding a growth wave for the past several years. Two years ago, in July 2008, the stock had bottomed out at about $4. Since then, however, the stock has been on a steady, if somewhat choppy, ride back up as high as $13.63 last May and, so far at least, it shows no signs of being harmed substantially by the spill. Revenues have grown to nearly $600 million annually and the company recently reported its sixth straight pre-tax improvement in year-over-year operating results. Just last month Avondale Partners initiated coverage with a market outperform rating. Might be one to watch.

Morgan Hill, CA-based Coast Distribution System (Amex: CRV, http://www.coastdist.com), a distributor of boating and marine products (along with RV products) including boat covers, hardware, anchors, depth sounders to customers including boat dealers, boating parts supply stores and service centers, is tiny–market cap $19 million–and trades only about 1,700 shares a day. The company cut expenses to get through the difficult economic issues of 2009 and reported a slight gain in revenue (to $24.1 million) year over year for the first quarter of 2010. With distribution centers in Texas and Florida, CRV will be interesting to see how it gets through the summer.

Clearwater, FL-based MarineMax Inc. (NYSE: HZO, http://www.marinemax.com) is the nation’s largest recreational boat and yacht dealer, selling new and used boats including sport boats, sport cruisers, yachts and fishing boats, as well as related marine products through 55 retail locations including Texas and Florida. Its market cap is about $156 million and about 280,000 shares trade per day. While there’s no telling if it is oil spill-related, since mid-May, the stock price has taken a tumble from $12.58 all the way down to $6.36 on July 6. Like the market in general it’s bounced back, however, in the past few days to upwards of $7.80. On June 25 the company announced it had secured a $100 million financing facility with GE Capital, its only outstanding debt.

Houston-based Omega Protein Corp. (NYSE: OME, http://www.omegaproteininc.com/) processes and markets fish meal and fish oil products, which it sells all over the world. The company’s fish meal products include those derived from gulf shrimp and fish; its fish oils are used for animal and aquaculture feeds as well as additives to human food products and industrial applications. Some of its protein and oil products are derived from menhaden, a species of wild herring-like fish found along the Gulf of Mexico and Atlantic coasts. That may be why the stock price has tumbled since May, when after climbing up to nearly $6.70, it began a steady decline to $3.83 on June 8. Like most stocks, however, OME has enjoyed July and surged back to $5.15 on July 13.