TSX penny stock investors endure 3 years of suffering

Danny Deadlock Danny Deadlock, TickerTrax
15 Comments| May 9, 2014

subscribe


Stockhouse Ticker Trax is published to subscribers every Monday (annual cost only $195). We focus on best-in-class high growth small companies trading on the TSX and TSX.V between 5 cents and $3 with a market cap below $300 million.

Equity Analyst Danny Deadlock has 30 years of experience speculating on Canadian penny stocks and targets capital gain opportunities and diversification in metals and minerals exploration, energy, and technology.

For the experienced investor, Ticker Trax provides an extra set of eyes and ears (idea generation) and for those learning to invest in micro cap stocks, we provide stock picks and market education.

Subscribers receive; (1) new research (stock picks) weeks in advance of being featured on this weekend column (2) exclusive access to our list of junior gold exploration companies (critical for peer valuation), (3) exclusive access to our list of Cash Rich micro cap companies (our Virtual Vulture Fund) which contains 80 companies with almost $3 Billion.

Both tables are updated monthly.


 
The following is a five year chart of the TSX Venture (TSXV) Composite Index
 

 
By comparison here is the blue chip Dow with their ridiculously high valuations
 

 
And the Dow's less wealthy neighbor to the North - the TSX
 

 
The TSX Venture (TSXV) Composite Index is indicative of the best small companies listed in Canada.  If this reflects the "best" you can imagine how the worst (or mediocre) companies have performed. Terrible would be an understatement as the large majority lost 80% to 90% of their value over the past couple years.
 
In 2013 they saw two bottoms hit in June and December. A sense of relief crept over the crowd of penny stock speculators in Q1/14 as many small stocks performed very well.
 
The larger companies within the TSXV composite gained an average of 10% to 15% in Q1/14 but it was not uncommon to see many of the higher quality resource exploration companies gain in excess of 50% from December 2013 levels.
 
Unfortunately that was short lived. Risk aversion grew as we headed into April and this quickly pushed speculators to the sideline (again).
 
Now as we enter the sixth week of that correction many of these companies are back to the levels we saw heading into January.  The chart of the TSXV Composite shows that the best companies have hit a period of consolidation but this is not indicative of the "average" on the exchange. While some companies have held up very well, the majority are doing VERY poorly again.
 
During the winter medical marijuana stocks were the strongest sector with incredible gains of several hundred percent. Several even gained more than 1000%.
 
But like many similar rallies of the past (lithium and graphite for example), the euphoria was short lived. Dozens of junior resource exploration companies announced they were jumping onto the marijuana bandwagon. But it was very late in the cycle and they either stalled quickly or generated large losses for those late to the party. While the sector could have another run, it is impossible to know when.
 
And the pain for small stock investors is likely not over - now we must deal with the old adage of Sell in May and Go Away. While this doesn't always hold true - it weighs heavily on the mind of many investors and tends to become a self-fulfilling prophecy.
 
So what does this mean for the typical penny stock (microcap) investor on the Toronto Stock Exchange or the TSX Venture?
 
It likely means that the next four months are going to be less than stellar. In fact it would not surprise me if we find this painful penny stock slump moving well into its fourth year. It is not uncommon to see a summer rally but its' a tough thing to hedge your bets on.
 
From my perspective as an investment letter writer and microcap equity analyst, I will continue to do the same thing I have done quite successfully over the past few years to try and keep our head above water and generate some very nice gains in a very tough environment:
 
> Look for high growth companies in niche industries
> Focus on strong balance sheets
> Speculate on companies with very large bank accounts trading near or below cash value
> Play sectors that are attracting capital and short term traders.

** TWITTER NOTE:  I maintain a twitter page at - twitter.com/tsxalerts  

Tags: UTILITIES - INDEPENDENT POWER PRODUCERS UTILITIES

Rate this article
5 stars
v
Usefulness

Clarity

Credibility

Comments

EOIM
Right on Danny!!! What happened to penny juniors is unprecendented. Anyone in this space has been destroyed by at least 90%. Management of these pennies are also not helping as many are broke and massively duluting their stocks. It would take many decades for anyone to put money in this penny stocks.
2.5 stars
May 10, 2014
Rate this comment
5 stars
v
Usefulness

Clarity

Credibility

las5513
Not time yet to buy the penny dreadfuls, in fact I've decided to avoid them completely.
2.5 stars
May 10, 2014
Rate this comment
4 stars
v
Usefulness

Clarity

Credibility

ramblersrest
It's neighbour V.AZX is going much better and about to get broad coverage .....It has lots of cash , selling some feed ground to AEO and is drilling all the time adding ozs. very cheaply ....Super smart CEO ....
4.5 stars
May 10, 2014
Rate this comment
3.5 stars
v
Usefulness

Clarity

Credibility

wallstreet12345
Announce is long overdue on this special gem, they'll be doing 2 major drill ing project very shortly. This news announcement could be released within 1-2 week or sooner, log rd permits have been signed and the drilling permits are expected to be released by the Municiplality soon. Cavan Venture will be drilling on their Buckingham property as well they'll be drilling afterward meters from Mason property. I also heard they'll be doing work on the Cage properties as well, so C...
1.5 stars
May 11, 2014
Rate this comment
0 stars
v
Usefulness

Clarity

Credibility

outonthetiles
As always, a great write up Danny!! One of Danny's big picks is GMA-Geomega on the Venture exchange. Big news coming this week on their groundbreaking REE technology. Take 30 min out of your weekend to read Danny's last article on the company (his 3rd in the series!!!)....... you'll be glad you did as GMA is going to revolutionize the rare earth industry. Hardly any outstanding shares and plenty of money in the bank. Gonna big a HUGE gainer over the next few years. Do yourself...
4 stars
May 10, 2014
Rate this comment
4.5 stars
v
Usefulness

Clarity

Credibility

gashole
Penny stock suffers? Do people have their life savings in these stocks? No, they invest a few grand... I am still down $35k on my Suncor stock for over 5 years now, so why dont you do an article on undervalued large cap companies?
2.5 stars
May 10, 2014
Rate this comment
5 stars
v
Usefulness

Clarity

Credibility

mrpancake
PMI ?
3.5 stars
May 10, 2014
Rate this comment
0 stars
v
Usefulness

Clarity

Credibility

spekul8or
Danny. Have you seen the earnings of CTO.v Circa Enterprises from two days ago. No debt, great cashflow, and revenue up 60% in latest quarter and only $9 million market cap.
2 stars
May 13, 2014
Rate this comment
0 stars
v
Usefulness

Clarity

Credibility

Mooneyman
two words - "precious metals" How could the Venture NOT be down?
3 stars
May 9, 2014
Rate this comment
0 stars
v
Usefulness

Clarity

Credibility

StockExpertPro
C.WOF (Woulfe Mining) ~ Why Big Money is Attracted to Tungsten Tungsten is a metal that is critical to modern life, but until now it has largely remained below the investment radar. However, when a legendary investor such as Warren Buffet- or at least a firm in which he has major stakes- invests in a tungsten project, the metal is bound to become a subject of growing interest.
3 stars
May 10, 2014
Rate this comment
5 stars
v
Usefulness

Clarity

Credibility

    1 2 Next  

Leave a Message

You must be logged in to access this feature.