NOW THAT SMALL CAPS ARE MOVING HERE’S WHERE I MAKE MONEY in places besides ENERGY

Small caps are getting some life!!

It’s been tough making money for the past two years, but since the Market turned as interest rates peaked in late October, good companies have seen their stocks make some big moves.

Here in oil-and-gas land, the steady to winning stocks have been
1. TENAZ Energy (TNZ-TSXv)—natgas in Europe,
2. MPLX Inc. (MPLX-NASD) a pipeline subsidiary of Marathon Petroleum (MPC-NYSE) and
3. Source Rock Royalties (SRR-TSXv), a very well managed micro-cap royalty play in Canada

Over at sister newsletter www.InvestingWhisperer.com, my wins, for the most part, did not come in Canada but in small cap NASD stocks like SPIR Spire Global and BYRN Byrna and MYO Myomo.

Here’s a quick synopsis of my current InvestingWhisperer portfolio, and why I own these stocks.  These stocks cover all areas of the Market OTHER than energy.

I try to buy simple stocks, simple stories that have a definite and sometimes compelling business edge in science, product or process. Something UNIQUE that is a moat.

And because I try to find them CHEAP, they often have at least one big hairball that still has to be resolved, and will take patience before and after that (if ever) happens.

I’ve ranked these in rough order of how much I like them TODAY:

Delcatch-DCTH-NASD-$8.50; 28 M shares–owned for 3 years, up 50% but a triple now off the recent low 8 months ago. I see $30+ in 3-4 years if Boston Scientific doesn’t buy them first. This technology is over a decade old and proven. Got FDA approval last year to market their HEPZATO med-tech in US and sales now ramping up FAST.

Doctors use it to pull the liver out of the body, re-route the blood and blast it with high chemotherapy. UNIQUE. Had first outpatient use recently (WOW!). May or may not need one more small funding to get to break-even. This procedure is HIGHLY PROFITABLE for hospitals with approved price of $750,000. Major incentive for rapid adoption across US. Inflection is NOW. They report Mon Aug 5

Blackline BLN-TSX—CAD$4.0—81 M shares–I own at $3.60 – $4, bought exactly 1 yr ago. BLN has the only gas detection device with satellite connection to safeguard remote workers. UNIQUE.

Sales ramp happening steadily last 3 Q ($100 M). Global product, multi-sector and multi-country customer base. A high margin SaaS play (over $50 M ARR and growing) with good hardware margins to boot. Positive EBITDA expected Q4; huge catalyst.

EBITDA losses steadily shrinking last 4 Q. $30 M raise just done with first round of US institutions. Mgmt built and sold a similar style company 20 yrs ago. No US listing means it will not likely ever have a steep stock chart, but 30% per year coming I think for a long, long time. They report mid-August.

MYOMO-MYO-NASD–$5.25; 29 M shares–owned for 8 months and is now 600% (80 cent ACB). I bought more at $4.95 as Q2 revenue just announced to be up 90%+ QoQ. They have an MIT-developed arm brace that allows patients to regain detailed arm wrist and finger. It reads your mind via myo-electric impulses.  UNIQUE!!!

Just received CMS approval across US at a very high re-imbursement price of $63,000. There are 12,000 O&P clinics (Orthotics/Prosthetists) who can make $20K per patient on this product. Again, the health care industry has HIGH INCENTIVE to prescribe. Between stroke, car accidents and other end-of-nerve conditions, over 750,000 new potential patients added each year. All the heavy work—funding, hiring expansion workers—DONE. MYOMO brace works, it’s UNIQUE, it’s a 1-time cost, it increases quality of life and earnings power for users. Inflection NOW.

The stock jumped from $3.25 – $5.25 earlier this month as they pre-announced Q2. I expect during formal quarterly call they raise guidance.

HYTN INNOVATIONS – HYTN-CSE / HYTNF-OTC – 77 M shares — $0.35 – my cost $0.13; owned for 3.5 years—they are 1 of 2 independent GMP-certified cannabis product manufacturers and the ONLY GMP-certified producer for psilocybin products. UNIQUE…so far. Also unique in that they built very SMALL vs rest of oversized, overbuilt, facilities that a much higher cost base embedded into their op costs.

Balance sheet always tight, but first GMP-cannabis revenue should come in late July as they pass their 90 day stabilization requirement for final stamp of approval. That should ignite the stock a bit BUT…a cheap. 9.5 cent financing comes free trading on Friday July 26 (tomorrow).

Tolling for others is high margin business. 2000kg per month capacity from one 5-day production shift in a 10’ x 10’ hyper-clean room. Break-even at 400 kg expected Oct-Nov 2024. Kelowna BC plant has at least 3 potential hyper clean rooms.

With recent cannabis approvals in Germany and Australia–and GMP certified product a must for those jurisdictions–the market is big, and ripe for HYTN.

All the universities who want to do research into psylocibin need GMP certified product. This is where they can get it.

California Nano CNO-TSX / CANOF-OTC – 44 M shares — $0.75, owned for 10 months—my cost = $0.15 and $0.25. Just reported Q revenue of US$1.7M, up 243% YoY, and net income of $696,000, up from $35,000 YoY. However, they were cash flow negative as expansion costs—biz is growing so fast they have to build a second facility.

This is an odd company—but so far more profitable than I could have thought when I first bought it last September. It is a science project, as they use two oddball technologies—cryo-milling and splintering (SPS) to make unique products for industry. Management doesn’t own a lot of stock. There is no real “sponsorship” which is something that I look for (who are the large shareholders who could get rich here and therefore hold mgmt to account).

One green steel client has been ramping up the testing of an unnamed new product, which has been ongoing for a year—and has the possibility of being their first real commercial order ever. All their other revenue is from companies testing their own R&D ideas. But that is lucrative as well, just short term and one-offs until somebody finds a KILLER APP for their business that has to be made via cryo-milling or SPS.

This is not an easy company to explain. Yet. But it is definitely UNIQUE, and so far mgmt is executing and growing revenue.

The stock just had its first run from 45 cents to $1.15 on volume, so it likely consolidates until further contracts or next quarterly.

SIMPLY SOLVENTLESS—HASH-TSXV / SSLCF-OTC – 70 M shares out – $0.35 –my cost is $0.21—simply the most profitable cannabis producer in Canada and possibly North America. That’s what makes it UNIQUE to me.

Organic sales growing with their brands in many provinces. Most importantly, good business management and good capital management allows them to use both internal cash flow and ability to raise money to do highly accretive M&A like their most recent—which takes them from $7 M revenue to $40 M and gives them pro-forma EPS run rate by Q4 24 of 9 cents per share—that’s net income; EPS! That’s after all the onerous excise tax is paid.

There are many more M&A opportunities to be had for TRULY pennies on the dollar. Other floundering cannabis teams WANT to be bought by HASH CEO Jeff Swainson because they think he gives them their best chance to deliver their earn-out pay after 2-3 years.

ARTERIS—AIP-NASD–$8—38 M shares—my cost = $7—they basically have the global royalty on automated driving. Their IP for chips in AI for automated driving (ADAS) is in 80% of the industry—over 3.5 billion chips. The reason it’s this far down—ADAS is going to take some time to develop. The big inflection for revenue—and this stock—could be 1-2 YEARS, not months or quarters.

With a market cap of only $250M, Arteris is a minnow in the industry. Yet Arteris is at the center of two big trends: autonomous driving and artificial intelligence.

To survive as a small cap, Arteris licenses the intellectual property (IP) for their designs to other chip designers.

Arteris IP is designed into about 80% of the chips that are used in advanced driver assistance systems (ADAS). In Q4 and Q1, 50% of their new wins came from machine learning and artificial intelligence (AI) chip designs. On their Q1 call Arteris said that AI is moving “very, very fast, much faster than any other segment that we’ve seen”.

Their IP is in 3.5B chips today, they have 200+ customers and 725+ system-on-chip (SOC) designs. They have partnered with major players like Mobileye (MBLY – NASDAQ) in autos. They’ve been talking about their AI designs since well before Nvidia (NVDA – NASDAQ) made AI a household word.

CELLECTAR CLRB-NASD–$2.32 a patient trade now but a big winner I think after announcing positive data on a rare type of blood cancer called Waldenstrom’s macroglobulinemia (WM).

A structured financing with too many warrants has allowed the stock to get back down close to 52 week low, and will likely stay here until if/when they get priority review status from FDA late this year.

But they are funded, they have good data, and they have both a delivery method and a payload that crosses the blood brain barrier.

HYDREIGHT NURS-TSXV / HYDTF-OTC — $0.31 (my cost as well) 38 M shares out (majority shareholder Victory Square (VST-TSXv) owns 65%) – this company has the only 50-state online health platform that can give patients pharma, doctor and nurse treatment. Their doctors have malpractise insurance that covers the platform.

They bill themselves as the UBER for nurses—where nurses can monetize their credentials doing home visits for some medical and non-medical procedures. Except that the number of nurses on their platform has stalled at 3000 for the last two quarters, as has revenue per nurse. And the med-spa growth has not become large enough to attract investors.

As yet, this is kind of a business solution in search of a problem. The good news is, they aren’t burning cash. They have multiple revenue streams—pharma scripts, nurse visits, and med-spas are adopting their platform so they can leverage their own revenue streams.

This is likely a patient story too, and of all of these ideas, it’s still an if, not a when.

There’s a few others as well, but these hold the most promise IMHO.

All these past initiation reports, and future updates — are available in the Members Center. I’ve made it super easy to join us for updates —

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Keith Schaefer