I’ve been doing some shotgun approaches to seeing what’s been trashed in the Canadian equity markets. Here is a sample screen:
1. Down between 99% to 50% in the past year;
2. Market cap of at least $50 million (want to exclude the true trash of the trash with this screen)
3. Minimum revenues of $10 million (this will exclude most biotech blowups that discover their only Phase 3 clinical candidate is the world’s most expensive placebo)
We don’t get a lot. Here’s the list:
September 1, 2017 TSX - Underperformers1-Year performance -99% to -50%
Minimum Market Cap $50M
Minimum Revenues $10M
|#||Company||Symbol||YTD (%)||1 Year (%)||3 Year (%)||5 Year (%)|
|2||Aralez Pharmaceuticals Inc.||ARZ-T||-73.77||-76.19||-56.6|
|3||Asanko Gold Inc.||AKG-T||-62.86||-71.4||-38.8||-58.1|
|4||Black Diamond Group||BDI-T||-58.41||-56.78||-93.7||-91.4|
|5||Cardinal Energy Ltd.||CJ-T||-60.91||-51.8||-79.7|
|7||Crescent Point Energy||CPG-T||-53.04||-56.72||-80.8||-79.1|
|10||Home Capital Group||HCG-T||-55.42||-52.16||-74.3||-45.2|
|12||Mandalay Resources Corp||MND-T||-53.75||-66.36||-65.7||-52.6|
|14||Painted Pony Energy||PONY-T||-64.97||-60.94||-77.4||-65.9|
|18||Valeant Pharmaceuticals Intl.||VRX-T||-15.25||-56.68||-87.4||-67.3|
|19||Western Energy Services||WRG-T||-61.61||-55.09||-88.6||-82.7|
Now we try to find some explanations why this group of companies are so badly underperforming – is the price action warranted?
1, 8, 10 and 18 are companies with well-known issues that have either been explored on this site or obvious elsewhere (e.g. Valeant).
2 is interesting – they clearly are bleeding cash selling drugs, they have a serious amount of long-term debt, but they have received a favorable ruling in a patent lawsuit against (a much deeper-pocketed) Mylan. There could be value here, and will dump this into the more detailed research bin.
3, 11, 12 and 17 Are avoids for reasons I won’t get into here that relate to the typical issues that concern most Canadian-incorporated companies operating foreign gold mines, although 12 appears to be better than 3 and 11. 17 has had huge issues with the foreign government not allowing them to operate their primary silver mine.
4, 13 and 19 are fossil fuel service companies.
5, 7, 14 and 15 are established fossil fuel extraction companies with their own unique issues in terms of financing, profitability and solvency – if you ever predicted a rise in crude oil pricing, a rising tide will lift all boats, but they will lift some more than others (specifically those that are on the brink will rise more than those that are not). 14 is different than the other three in that it is mostly natural gas revenue-based (northeast BC) which makes it slightly different than the other three which warrants attention.
6 If you could take a company that clearly makes a lot of money, and drown it in long-term debt, this would be your most prime example. It just so happens they sell pharmaceuticals.
Sadly their debt isn’t publicly traded but if it was, I’d be interested in seeing quotations.
9 A cash-starved company selling a novel lithium-ceramic battery at negative gross margins would explain the price drop. Looks like dilution forever!
16 Lots of financial drama here in this technology company. They went through a debt recapitalization where a prior takeover was interrupted by a superior bid. Control was virtually given at this point and the new acquirer is using the company for strategic purposes that do not seem to be in line with minority shareholder interests. A rights offering has been recently conducted that will bring some cash back into the balance sheet, but the underlying issue is that the financials suggest that they aren’t making money, which would be desirable for all involved.