The great thing about investing in micro-cap stocks is there is always something to do no matter the market conditions. Between Canada and the United States, there are about 10,000 public companies.
There also a few good signs right now:
- The S&P 500 is trading at an all-time high price-to-sales multiple.
- Short interest is at an all-time low.
- SPACs (Special Purpose Acquisition Companies) are trading at an average premium to net asset value (NAV) of 26.4% as more investors pile in to take advantage of the “pop” once a deal is announced.
There are two great ways to find micro-caps to invest in, and it’s how I found the three micro-stock below.
- Google alerts – a great free resource that I use to monitor certain keywords
- Quarterly letters – following professional managers who share their ideas every quarter
There are three micro-caps I’ve recently added to my portfolio, and below I’ll share what they are and why I’ve added them.
1. Meridian Corp (MRBK)
I found Meridian Corp (MRBK) courtesy of a Google alert. “Special dividend” is one of the terms that I monitor, and the alert notified me that Meridian, a bank, would soon be paying a special dividend.
I’m always interested in companies returning cash to shareholders whether it’s through share buybacks or special dividends.
After a preliminary review, the stock looks interesting.
It was paying a special dividend of $1.00 per share for shareholders of record on March 1. The $1.00 per share dividend works out to a one-time yield of 4.2% – not a crazy large special dividend, but still attractive.
The stock is close to a 52 week high so momentum looks good. Finally, the stock is incredibly cheap trading at a P/E of 5.5, and there has been aggressive insider buying.
2. Stabilis Solutions (SLNG)
I found Stabilis Solutions (SLNG) courtesy of another Google alert keyword term: “pre-announcement.” When a company pre-announces good results, it can be a nice buy signal.
I started to dig into Stabilis, and although I need to do more work, it looks like an interesting situation. The company is focused on providing solutions for liquid natural gas fueling, production, and distribution.
The company pre-announced revenue that is 170% higher than second-quarter 2020 revenue (the low point for the year). On a year-over-year basis, Q4 revenue is expected to be up at least 8%. It’s pretty impressive that an energy company is already back to peak revenue generation.
Meanwhile, the company’s valuation (1.4x revenue) seems reasonable and there has been insider buying right around the current share price.
3. CCUR Holdings (CCUR)
One great way to find new ideas is to follow professional managers who share their ideas in quarterly letters. I found out about CCUR Holdings (CCUR) through Cedar Creek Partners’ latest quarterly letter.
CCUR trades at a huge discount to book value per share of 6.91. Further, the company is sponsoring a SPAC and its founders’ shares could be worth an additional $3 to $4 per share if a successful acquisition is consummated. Finally, the company is doing a reverse stock split to effectively squeeze out small shareholders at less than 50% of book value. This is great for the shareholders who aren’t squeezed out!
Micro-caps stocks like Meridian, Stabilis, and CCUR tend to outperform. From 1927 to 2016, micro caps generated a compound annual return of 17.4%.
Will you invest in micro stocks this year? Why or why not?