Sunday's "Week in Review"

Happy Sunday everyone! Welcome to this week's edition of the "Week in Review". Here we like to recap any important events from the past week relating to our portfolio names as well as provide our members with anything to watch for during the week ahead. 

As a reminder, our Portfolio and Watch List can be viewed by clicking the links on the sidebar (right hand side of the member's blog). You will need to enter the member's password to access both areas. 

A Quick Word on the Markets

You guys know that we don't particularly care to offer tremendous insight and analysis on the markets in general because, well, truthfully "who the f*&^" knows?? But, I do think it is very important to briefly discuss this past week and how we as microcap investors we always should be prepared for when the markets get a little bit crazy.

Let's look at Monday's steep drop compared to other "crashes" of the market over the past 8 years. I use this chart as a reminder that the markets always snap back.

Simply put, you could have purchased almost any stock at the open on Monday for significantly less than you could have purchased it at the end of the day on Monday, and even more significantly less than you could have purchased it at the end of the week on Friday. Let's look at a few of our stocks in the portfolio to illustrate this point:

Microbix (MBX.TO) 5 Day Chart: At the open on Monday I sent a note to members noting I picked up some additional shares of Microbic at $0.35. The stock ended the week at $0.40.

Xpel Technologies (DAP-U.V, XPLT) 5 Day Chart: On Monday you could have picked up shares of this awesome company for under $3.00. The stock (DAP-U.V) closed the week above $3.50. 

It's very difficult, however, to know when to buy when the markets appear that they are going to hell. Let's face it, even as microcap investors such drops can be flat out scary. However, if we remain focused on our individual companies and not the markets at a whole, then we know when adding more to our position makes sense. 

I sent an email out to members on Wednesday sharing a few words of advice from Matthew and I during weeks such as the one we experienced. The two points below we feel are critical and always applicable, no matter what the market is doing:

1. The single most important piece of advice I can state is that when the markets are volatile (and quite scary) like they have been this week, always remember that market events do not alter the value in our underlying investments. Volatility creates opportunity for microcap investors.

2. On days like today (Wednesday) when our portfolio stocks trade with little volume and little price movement it can create a mentality within us to want to "force" a trade (either buying more of something, selling something, etc). As a former trader myself, what's been the hardest thing for me to train myself to do over the past few years is to accept the fact that "boring" is good, and that I don't have to be active in the market on a daily/weekly basis. We have to train ourselves that is okay!

In summary, the volatility from this past week seem to have been a market driven event, as opposed to an economic driven event, and as a result serious opportunities were created in a market that was at best...dysfunctional. 

The Past Week for our Portfolio Stocks

As noted, I picked up some additional Microbix (MBX.TO) shares on Monday at a discount. It is trading below the value that we perceive the virology unit alone to be worth, so the sum of the parts is much higher than where the stock is trading now. We will work on a piece for Microbix to illustrate this point. 

Matthew put out an awesome research piece on OneSoft (OSS.V). If you missed it, it is a must-read. This tiny company seems to be building something that could be extremely valuable, and it's always easier to take a leap of faith with a company where a vast range of insiders own such a significant portion of the shares. Cloud computing is the future, and these guys are positioning themselves nicely to capitalize on a huge market opportunity in front of them.

Matthew believes it's quite difficult to predict which technologies will gain traction in the market place and even in the case where we're sure they will gain traction, it's even more challenging to anticipate how long they will remain relevant in the market place for technology changes at an extremely fast pace. That being said, Matthew is confident that OneSoft has good odds of succeeding which could result in a multi-bagger should he be right. The cloud model has already been validated and the big players (e.g. Microsoft Azure, Amazon Webservices, etc.) are just starting to transition to it. OneSoft's competitive advantage is that they are one of a dozen managed partners with Microsoft. This allows their program to seamlessly integrated with the Windows operating system and Microsoft Office applications. It may sound silly to some, but there's tons of programs that require you to be working in parallel with Office applications. If the Office applications can be directly integrated into the programs, it's a game-changer. Furthermore, the programs are sure to work perfectly with any Windows device. To anyone who's familiar with the SalesForce story (SalesForce is the pioneer of the cloud-computing and SaaS model), OneSoft's relationship with Microsoft is analogous to business software developers selling their programs on SalesForce's AppExchange, except on a much larger scale. Despite the vision Matthew has for OneSoft, it's still important to only allocate a small position and gradually build it as the company performs.

Brekford saw some awesome price movement this week. The bid/ask spreads can be somewhat wide on this one, but investors were purchasing shares around $0.27. We will see if there is carry-through this week. I don't think it will be long before the market starts to price this company more in-line with competitors, which would be at least 2-3 times current levels. 

Beamz Interactive (BZIC) put out a press release this week which can be viewed here. I am working on a piece for this special situation company and I look forward to sharing it with you all later this week.

The Week Ahead

  • Xpel Technologies (XPEL, DAP-U.V) 
    • Xpel Technologies will release their Q2 results on Monday before the market open. Management is targeting 50% YoY growth as per the Q1 conference call, and given that Q2 is seasonally their strongest quarter and management has consistently executed over the last few years, we think it's very likely they will generate in excess of $12M in revenue. 
    • Should the company do $12M+ in sales, we are fairly certain there could be a significant movement in the share price (despite the recent global market declines, investors will have a difficult time ignoring a jump in sales from $8.1M to $12M+ sequentially and $8.4M to $12M+ YoY). History tells us that an immediate 100% gain is not out of the question -- the stock doubled last year after Q2. Matthew expects a more modest 30% gain.

Have an excellent week everyone and remember that Matthew and I are here for you! As always, referrals by our members to other potential members is always appreciated!