6 Reasons Why You Should Invest in Small Cap Stocks
Small-cap stocks tend to be misunderstood, and as a result, investors often miss out on very lucrative opportunities. Many individuals have amassed large fortunes by investing in these types of stocks. Here are 6 reasons why you should invest in small cap stocks.
1. Higher Potential for Growth
A small-cap stock is a type of stock with a market capitalization between $300 million to $2 billion. Many successful companies were traded as small-cap stocks at one point in time. Consider the astronomical success of Monster Beverage Corporation.
Monster Beverage Corp is the most successful US stock of this century. When Monster’s shares first went public in 2003, they sold for $0.10 per share and the company had a market value of less than $1 million. Today the company is worth around $56 per share with a market value of $29 billion. That’s over a 60,000% increase within the past 2 decades.
As you might imagine, early adopters Monsters Beverage Corp stock would have saw their investments grow exponentially. This is the benefit in investing in micro-cap and small-cap companies. These types of companies offer a chance for investors to get in on the ground floor with younger businesses that may have a higher ceiling of potential.
As a company matures, it becomes increasingly difficult for that company to grow organically. This is because if a company becomes very successful, it will grow to address a large portion of its target audience, which makes further organic growth difficult. As a result, large-cap stocks may take a long time before there is any return or significant growth on investments.
Small-cap companies are usually younger and can grow in ways that are simply impossible for mid-sized or large companies. Companies in their early stages and have the potential to maximize on investments since they can still grow organically. Such equity increases can come in forms such as buyouts, new discoveries or developments and/or strategic acquisitions.
For example, a mining company could be trading at $0.04 per share before entering the exploration stage. However, during the exploration stage, the company finds a gold vein or another valuable source in the mine. This new discovery will propel the value of the stock to rise rapidly, and each share could grow to be worth over $1 almost instantly.
2. Thinly Traded
Small-cap stocks are usually more thinly traded than larger stocks. This means that there is a lower number of buyers and sellers. Although this can be a double-edged sword, careful investors can use this as a tool to increase returns on their investments.
When a company grows, their reported revenues and earnings may grow as well. As the pubic becomes more aware of a company and its future potential, they will seek to invest. However, since there is a low amount of shares available, the prices of each individual share will rise significantly.
3. Financial Institutions Don’t Invest
Financial institutions must comply with strict regulations set by the SEC, which prevents these institutions from heavily investing in small-cap companies. This allows individual investors to purchase shares at a price that is not artificially inflated by financial institutions.
In addition, when these companies reach a level of success where institutions can invest, the institutions will buy a large number of shares and significantly raise prices. These raised prices will greatly benefit pre-existing shareholders.
4. Unknown Values
Small-cap companies have very little analysis coverage compared to their mid-cap and large-cap counterparts. As a result, it is highly possible that the listed value of a small cap company is not reflective of the true value of that company. This inefficiency in the market creates opportunities for individual investors to obtain optimum pricing on shares and receive high returns on those investments.
5. Company Flexibility
Small-cap companies are usually smaller in size and run by a more intimate management staff. As a result, these smaller companies are able to adapt to changing market conditions with quicker haste. This is exactly what happened between Netflix and Blockbuster.
Netflix went public with their stock in 2002, selling at $15 per share with a market value of around $300 million. One of their main competitors, Blockbuster, had a firm hold of the market during this time and, in 2004, was worth around $5 billion. However, Blockbuster was slow to adapt to changing market trends and technologies, such as the popularity of video streaming. This eventually led to the company declaring bankruptcy. On the other hand, the management at Netflix was quick to identify and adapt to market trends, which led to it becoming the iconic company it is today.
6. Diversification
Small-cap stocks have less liquidity than large-cap stocks and, as a result, it may be difficult to buy and sell them at optimal prices. Although it may seem contradictory, this lack of liquidity may actually be beneficial in certain circumstances.
If the market shifts and a large number of investors seek to purchase less-liquid stocks, then the lack of liquidity can be greatly beneficial to pre-existing small-cap stock owners. The increased demand for less-liquid stocks will inflate prices for small-cap stocks more quickly and significantly than the higher liquidity large-cap stocks.
Carefully selecting small-cap stocks and investing in them can add to the overall quality of your portfolio through diversification. Since the liquidity of these large-cap and small-cap stocks respond differently to market influences, the losses of one side might be mitigated by gains on the other.
Small-cap stocks are often misunderstood and suffer many claims that may not necessarily true. There are many reasons to invest in small-cap stocks, and the diligent investor can turn these stocks into very lucrative opportunities.
- Published in Uncategorized
Cobalt’s surge attracts string of market hopefuls
Cobalt’s surge attracts string of market hopefuls
Like moths drawn irresistibly to light, the surge in the price of cobalt over the past few months has sponsored a couple of quick sharemarket floats and a rush of explorers hoping to latch onto the latest signs of life among some of the more exotic metals.
Just as lithium has won a lot of speculative investor support on the back of the prospects of rising demand with increased battery usage thanks to electric cars, even though any demand from this source is a decade away, at the very least, now it is cobalt’s turn.
Also giving cobalt a lift was the criticism of Apple Computer for sourcing its supplies of the material from uncontrolled mines in Congo, along with security issues in parts of that country that have raised additional questions over the security of supply.
Apple has said it will tighten control over its purchases of cobalt to avoid both child labour and harsh working conditions, although it has also said it wants to avoid causing too much disruption to the miners who need the income from supplying the high-tech giant.
In the process, the price of cobalt has surged around 40 per cent over the past few months to more than $50,000 a tonne, with the speed of the rally catching may in the market by surprise.
So, for a material that has been mostly an unwanted byproduct of nickel or copper mines, with usually very little value, the surge in its price has raised the prospect that standalone cobalt mines could be developed if the price rise proves to be sustained.
Geoff Hill, long-time investment banker and corporate adviser, initially to John Spalvins who spun a tug boat operator in Adelaide to a sprawling conglomerate owning breweries and department stores last century, was quick out of the blocks, launching a $10 million raising for Cobalt Blue. It was issuing shares at 20¢ in February that are now trading at more than 30¢.
Ditto for Ardea Resources, which also issued shares last month at 20¢ which are trading at more than 50¢ a piece after a recent run to more than 90¢. It was spun out of Heron Resources, and it is already touting a pre-feasibility study on some cobalt-nickel acreage near Kalgoorlie, which it is calling the “largest resource in the developed world”.
A host of others have figured out that pegging cobalt acreage might just give their share price sufficient lift to justify a quick fund-raising so they can eke out another few months of life. Last Tuesday, it was Latin American Resources disclosing acreage in Argentina and later in the week Cohiba Minerals was updating the market on some acreage it is looking at.
“There are a lot of companies looking at the potential, with what they’ve got,” said Mike Millikan, analyst with Hartley, pointing to Independence Group with its Nova project. “At the moment there is a lot of interest but it is anyone’s guess how long it will last.”
Brian Robins
- Published in Blog, Cruz Cobalt, Mining
Stakeholder Alignment – A Predictor of Success in Green Technologies
Stakeholder Alignment – A Predictor of Success in Green Technologies
Pundits and prognosticators should take notice. The evidence points to an emerging reality that is leading the so-called green technology revolution. Futurists and visionaries may be looking for some incredible and revolutionary breakthrough, but a variety of compelling new technologies are already being commercialized.
Green energy technologies are those that either harness power from renewable, sustainable sources or aim to reduce adverse human impact on the environment. For new sources of energy to be widely implemented, investors, technologists, and policymakers must understand their potential impact and the path to market that will ensure their commercial viability. Many new technologies can be successful if they are deployed according to sound business principles.
While some allegedly green technologies are struggling to gain traction with businesses and consumers, others are quietly changing the world and addressing the need for responsible and functional solutions to complex environmental challenges.
So, where are these technologies, who is behind them and why are they quietly seizing momentum in the marketplace? The answers are remarkably simple. Like most advances over the course of history, they are conceptually simple, relatively inexpensive and only modestly disruptive.
The automobile is an example of change that occurred at the onset of the 20th century. It harnessed an older technology of propulsion but applied it in a different format. With the advent of mass production, overall costs per unit were reduced and the technology became widely affordable. Additionally, it did not usher in an entirely new mode of transport. It only eliminated the need for an animal to provide propulsion and made travel a modest amount more rapid and marginally more reliable.
As we head towards the conclusion of the first 20 years of the 21st century, the keen observer will be able to identify technologies that have moved from ideas to commercial reality and are quickly going mainstream. Several may be below the radar at the moment, but they won’t stay there for long.
Green technologies are not immune from the ordinary laws that govern business success. The idea that some “better mouse trap” will sell itself is as false as it is comedic. The business success comes from being well capitalized, having a superior value proposition and ensuring that business leadership is equipped and motivated to execute against objectives in a disciplined and systematic manner. If the product or service is ground breaking, wonderful. Who doesn’t love something that is groundbreaking? But does it deliver what I want?
This raises the important principle of stakeholder alignment. If a new technology can align the interests of several disparate interested parties in an industry sector, it has a particularly good chance for success. Stakeholder alignment creates unstoppable momentum for green technologies. In most instances, being more eco-friendly, while desirable, isn’t the primary motivator of change. However, when a number of constituencies all experience a simultaneous benefit that is both measurable and meaningful, change proceeds and the adoption of the new technology is perceived as essential rather than optional.
An example of stakeholder alignment is a fast-growing Hawaiian enterprise called Elevate Structure. It was launched in 2012 by a team of residential engineers in with a dream to develop profitable spaces for living by building eco-friendly structures. The portable spaces are elevated above ground and, therefore, utilize 6-20 times more usable space while minimizing the overall footprint on the ground. This uses less than desirable land, gives consumers the flexibility to expand or relocate their green homes and provides municipalities with new incremental tax revenues without adding infrastructure.
Another good example of stakeholder alignment is International Wastewater Systems of Vancouver, Canada, http://www.sewageheatrecovery.com. Employing a simple idea and proprietary technology, IWS has pioneered the concept of turning the energy contained in warm waste water into heat that is processed, reclaimed and reused. With an ingenious idea and a scalable solution, the company is poised for success internationally as its solutions are increasingly in demand. The success of the endeavour isn’t exclusively due to the green technology. It is because the technology has been able to address diverse needs among a broad group that includes energy providers, builders and building owners. The company’s solutions, green technology and ease of implementation presents and unassailable value proposition to anyone who wants to reduce the heating and cooling costs of buildings. The eco-story is largely secondary. The “green argument” involves saving large amounts of money!
Investors that are considering taking a position in new green technologies are advised to look beyond the excitement of a product or process. A company’s financial state is always a consideration. What have they sold and what projects are well underway? As important as these fundamentals are, it is also critical to examine the “alignment factor” of the product or service to properly evaluate the scope of its potential.
- Published in Blog, Energy, Green Technology, International Wastewater Systems
Support the Troops: Invest in Legal Cannabis!
How to Make Money and Save Lives at the Same Time
It’s not just about the money.
I know, this is not typically something you’d expect to read from an investment analyst, so let me explain …
A few years ago, I started writing about investment opportunities in the legal cannabis space. As a result, I was accused by many of compromising my ethics in an attempt to make a quick buck. But nothing could be further from the truth.
Yes, one of the reasons I invest in the cannabis space is because it’s insanely profitable. And I make no apologies for this, nor should any other right-minded capitalist who enjoys the spoils of free markets and the good fortune to create wealth and prosperity.
The truth is, at the moment, there is no greater investment opportunity than legal cannabis. And I have dozens of double- and triple-digit winners in my portfolio to back up this claim. Some of my most profitable cannabis investments right now include a 501{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} gain on Canopy Growth Corporation (TSX: CGC), a 373{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} gain on Aphria, Inc. (TSX-V: APH), and a 567{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} gain on OrganiGram (TSX-V: OGI). And there are plenty more to come, too.
But while few things make me smile more than watching my brokerage account grow, this is not the onlyreason to invest in the legal cannabis market.
Three Reasons to Invest in Legal Cannabis
Aside from the massive profit potential, there are three other reasons you should be investing in legal cannabis right now:
- Legalization helps slow the war on drugs, which has been one of the most violent and costliest wars in recorded history. More than $1 trillion has already been spent on this war, and it’s put millions of folks — particularly the poor — in early graves.
- Legalization helps build local economies, which, in this day and age, is something we need to embrace, not shun.
- Legalization on the medical side allows millions of Americans to treat illness when other “legal” pharmaceuticals have failed. How anyone could look at a young child with severe epilepsy and deny that child a medical cannabis therapy that’s proved to work is beyond me.
Of course, it’s not just kids with epilepsy that have benefited from cannabis.
Support the Troops
Last year, while attending a legal cannabis conference in New York City, I met a man named Sean Kiernan.
Kiernan is the co-founder of a group called Weed for Warriors. It’s an advocacy group that works to provide access to medical cannabis for military veterans suffering from PTSD.
Now, the fact that a military veteran — someone who has risked his or her life for this country — can be denied medicine to treat PTSD is despicable. Especially when you look at some pretty unsettling statistics.
The suicide rate for veterans is extremely high. Every year, about 8,000 veterans commit suicide. That means that since we first invaded Iraq back in 1991, more than 200,000 U.S. veterans have taken their own lives. And understand, this is a group that makes up just 7{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} of the U.S. population but represents 20{92d3d6fd85a76c012ea375328005e518e768e12ace6b1722b71965c2a02ea7ce} of the national suicide rate. And that’s assuming these numbers are accurate — which they are not.
Truth is, this data has only been collected from 21 states and only accounts for the vets who have been seen by the Veterans Affairs Administration. Sadly, those numbers are likely considerably higher. And that’s an absolute travesty. Especially when you consider that many of these deaths could’ve been avoided.
You see, there’s a significant amount of evidence that indicates cannabis can effectively treat the symptoms of PTSD. One study in particular, conducted by the scientific journal Drug Testing and Analysis found that cannabis could “dampen the strength or emotional impact of traumatic memories through synergistic mechanisms that might make it easier for people with PTSD to rest or sleep and to feel less anxious and less involved with flashback memories.”
Of course, to get similar conclusions, one could also simply ask any veteran who uses cannabis to treat the effects of PTSD.
Some do it legally, assuming they live in states where cannabis has been legalized for the treatment of PTSD, and some do it illegally, since the very country that sent them off to war won’t allow them to medicate as they see fit.
Think about that for a moment.
These folks put their lives on the line for us every single day. They’re not paid large sums of money to do this either. These are honorable men and women who not only deserve to be treated with the respect they’ve earned, but also deserve the right to use any medication they choose to keep them safe and healthy.
How any lawmaker in this country could deny a United States veteran medication is beyond me. As far as I’m concerned, this is nothing short of a human rights violation.
Regular People have the Power to do Great Things
Most of us are just regular people.
We’re not billionaires with loads of influence in Washington. We’re not lawmakers, judges, or high-profile celebrities. But that doesn’t mean we can’t do our part to keep our vets healthy and safe.
You see, as investors, collectively, we have an enormous amount of power. Every day, billions of dollars worth of public equities are bought and sold on the open market. And I’m not talking about fancy algorithms created by investment banks and hedge funds. I’m talking about regular, retail investors. Folks that have online trading accounts and are happy with year-end returns of eight to ten percent.
Now imagine if all these investors decided to allocate just one percent of their portfolios to stocks that represent companies that are making it possible for our veterans to get the relief many of them need by providing medical-grade cannabis.
While the U.S. government may not be willing to do right by the very people that protect our democracy, we can override that decision through our collective purchasing power, which will result in strengthening the cannabis industry thereby making it harder and harder for the government to continue its prohibition against something that, quite frankly, never should’ve been prohibited in the first place.
Of course, I’m not suggesting you run out and buy a bunch of random cannabis stocks. Especially those listed in the U.S., which, for the most part, are garbage. Investing in a stock that’s not going to make you any money makes no sense. Particularly because such a stock is likely issued by a company that’s not going to be around very long. And that’s not going to help anyone.
But there are exceptions. Take Innovative Industrial Properties (NYSE: IIPR) for instance. This is a REIT that acquires specialized industrial real estate assets that are used for growing medical-use cannabis and operated by state-licensed growers. Just a few weeks ago, IIPR closed its first transaction with PharmaCann, a cultivator of medical-grade cannabis. This transaction alone guarantees the company an initial base rent of $319,580 per month. That ain’t chump change.
It should also be noted that the company’s executive chairman is the guy who co-founded BioMed Realty Trust, which was sold to Blackstone last year for $8 billion. These guys aren’t amateurs.
Of course, if you’d rather focus on actual cannabis producers, one of your best bets might be with Emblem Corp. (TSX-V: EMC).
While this is a Canadian cannabis producer, management is actively developing advanced cannabis formulations designed to help folks with PTSD. This research alone could prove to be incredibly valuable to other producers in the U.S. that are currently providing cannabis for vets with PTSD.
Here’s the bottom line: As a legal cannabis investor, we can not only make a lot of money, but we can also help facilitate a movement that can help our veterans get the medication they need… a medication that could help these folks live normal lives… a medication that could quite possibly decrease the number of veterans that commit suicide, too.
And that, my friend, is an honorable investment.
Source (Wealth Daily)
- Published in Blog, Medical Marijuana, Namaste Technologies, Tetra Bio Pharma