TSXV not just a junior Canadian resource stocks refuge

The TSX Venture Exchange is not your father’s stock exchange. Elvis Picardo, vice president of research and portfolio manager at Global Securities Corp. in Vancouver, notes that instead of being dominated by junior Canadian stocks, the Venture Composite Index now reflects a much more diversified cast.

Just in case you haven’t yet noticed, the S&P/TSX Venture Composite index has been changing.

And it’s changing because of the unrelenting bear market for junior Canadian resource stocks over the past four years. In years gone by, the index was dominated by natural resource companies, thereby confirming those overseas investors who dismissed Canadians as hewers of wood and drawers of water.

But things are now different.  For instance, in September 2011, the 15 biggest stocks by market capitalization on the venture exchange were all Canadian resource stocks. Eight of these 15 were oil and gas stocks; the other seven, mining stocks and exploration outfits.

But the index has since plunged more than 50 per cent. And the 15 biggest stocks of the 424 that make up the index are a more diversified bunch.

More diversified stocks in Top 15

For starters, only about half of them are resource stocks: five oil and gas stocks and three mining stocks. The other seven stocks are an eclectic mix.

There are other differences between the top 15 on the index four years ago and now. Then, the average market cap of the top 15 was about $600 million. Today, it’s only $275 million.

Another notable difference is in the geographical location of the companies’ headquarters. In September 2011, as many as five of the top 15 companies were based in Vancouver, although this was exceeded even then by companies headquartered in Calgary, of which there were seven.

But now there are only two Vancouver-based companies in the top 15. The biggest contingent continues to be from Calgary (six), followed by Toronto (three), the U.S. (two) with one each from Markham, Ont., and Regina, Sask.

It’s encouraging to see that the venture exchange continues to be the premier listing for early-stage and growth companies in Canada.

Little Canadian stocks that could

Another positive point? Most of the current crop of the biggest venture exchange stocks have won that status through massive increases in their share prices and market cap over the past few years.

The biggest stock on the venture index is now Storm Resources Ltd. (TSX/VEN─SRX) whose market cap, $520 million, represents a 425 per cent jump from December 2011.

Storm started operations in August 2010 after certain assets were transferred to it following the sale of Storm Exploration to Arc Resources Ltd. (TSX─ARX).

Since November 1998, the same management team has been involved in growing all three versions of Storm — something that bodes well for the continued success of the current version.

Storm has large land positions in such resource plays at Umbach and the Horn River Basin in northeast British Columbia, as well as in the area near Grande Prairie, Alta.

In terms of market cap, healthcare stock Patient Home Monitoring Co. (TSX/VEN─PHM) holds down no. 2 spot. Headquartered in San Francisco, the company offers patients with heart disease and other chronic health conditions home-based services in the U.S.

Market for healthcare stocks is fragmented

Patient Home Monitoring is growing through acquisitions in a highly fragmented market — one that consists of small privately-held companies.

 In the meantime, its market cap, now $432 million, represents a more than six fold increase from where it was in September 2014.

Gold Reserve Inc. (TSX/VEN─GRZ), based in Spokane, Wash., ranks third on the index with a market cap of $364 million — more than double what it was in December 2011.

In 1992, this gold stock started developing the Brisas site — one of the largest undeveloped gold and copper deposits in the world — in Venezuela’s Bolivar state.

Venezuela intervened

But after Gold Reserve spent close to $300 million developing Brisas, Venezuela arbitrarily revoked its previous authorization to proceed with the gold stock’s project.

For its part, the company filed an arbitration request against Venezuela in October 2009.
                                                                                                                    
Pine Cliff Energy Ltd. (TSX/VEN─PNE) is one of the Calgary-based oil and gas stocks that’s grown rapidly through acquisitions over the past three years.

Not only does its daily production now lap 12,000 barrels of oil equivalent, but its market cap has jumped almost fourteen fold since December 2011 to roughly $350 million. As a result, Pine Cliff is now the fourth-biggest stock on the venture exchange.

No. 5 is another Calgary-based oil and gas stock: Tamarack Valley Energy Ltd. (TSX/VEN─TVE). Its market cap of $293 million represents a more than fourfold increase since December 2011.

Tamarack was formed in June 2010 by the combination of Tango Energy, a junior oil and gas exploration stock, and Tamarack Valley Energy, a privately held company.

Tech stocks also make the list

Toronto-based POET Technologies Inc. (TSX/VEN─PTK) ranks No. 6 on the index with a market cap of $265 million — a sevenfold increase since December 2011.

POET is the developer of an integrated circuit platform that combines electronics and optics onto a single chip, resulting in huge improvements in size, power, speed and cost.

Not only does the company boast more than 34 patents, it has another nine in the pending file.

No. 7 on the index is Regina-based Input Capital Corp. (TSX/VEN─INP), which bills itself as the world’s first agricultural commodity streaming company.

Input buys canola from farmers using multi-year contracts that pay the bulk of the cash upfront, while the company gets paid at the end of the contract in years five and six. Since March 2014, Input’s market cap has surged 80 per cent to $242 million.

Westaim has morphed into a financial stock

Weighing in with a market cap of $230 million, Toronto-based Westaim Corp. (TSX/VEN─WED) ranks No. 8 on the index.

Westaim has been around for almost two decades, having morphed from an incubator of development-stage businesses in electronics and coatings to a property and casualty insurer.

In no. 9 spot on the index is Vancouver-based mining stock Reservoir Minerals Inc. (TSX/VEN─RMC). Its market cap of $227 million represents a fifteen fold increase since November 2011.

Reservoir is developing a slew of mineral exploration projects in Europe and Africa. But its flagship is Timok, in Eastern Serbia, which Reservoir is developing with mining stock giant Freeport-McMoRan Inc. (NYSE─FCX).

Kicking Horse among top TSXV oil and gas stocks

In no. 10 spot on the index is Kicking Horse Energy Inc. (TSX/VEN─KCK), a Calgary-based oil and gas stock with extensive lands and producing assets in Alberta’s Deep Basin.

Formed in December 2014 through the merger of Contact Exploration and Donnycreek Energy, Kicking Horse boasts a market cap of $217 million. Its shares have also zoomed 80 per cent from their December low.

At position no.11 is another of the Calgary oil and gas stocks, Madalena Energy Inc. (TSX/VEN─MVN).

Although its market cap — $221 million — has fallen six per cent since December, Madalena boasts a big land position in Argentina. It also has core operations in Western Canada.

Another one of the tech stocks in the top 15, Sylogist Ltd. (TSX/VEN─SYZ), holds down no. 12 spot on the index.

Based in Calgary, Sylogist provides turnkey software solutions, hardware products and services to its customers from its offices in Canada, the U.S. and the U.K. Since September 2011, its market cap has grown more than six fold to $202 million.

Consumer stocks also in Top 15

In position no. 13, you’ll find theScore Inc. (TSX/VEN─SCR), a creator, aggregator and distributor of sports content through digital media.

The company was formed by the spinoff in October 2012 of the digital assets of Score Media, which was bought by Rogers Media.

TheScore, whose market cap now stands at $194 million, has surged 175 per cent from its June 2014 low of $0.24 a share.

Roxgold Inc. (TSX/VEN─ROG), another one of the gold stocks on the list, is the only other Vancouver-based company to make the top 15.

Roxgold’s key asset is the high-grade and fully-permitted Yaramoko gold project in the African nation of Burkina Faso. Since October 2011, Roxgold’s market cap has jumped 88 per cent to just under $200 million.

At No. 15 is People Corp. (TSX/VEN─PEO), another of the financial stocks on the list, whose market cap has soared thirteen fold since August 2011 to $170 million.

Headquartered in Markham, Ont., the company is a national provider of group benefits, group retirement, along with human resource services.

Contrast is stark compared to 2011

The turbocharged performance of most of these companies stands in stark contrast to that of the top 15 in September 2011.

Four companies in that group were eventually bought out, while as many as six companies graduated to the TSX.

Meanwhile, the 15 stocks that were the biggest on the venture index in September 2011 have since fallen by an average of 10.5 per cent.

Only a handful of stocks like Rio Alto Mining, which was bought earlier this year by Tahoe Resources Inc. (TSX─THO), Parex Resources Inc. (TSX─PXT) and Surge Energy Inc. (TSX─SGY) have posted sizeable gains, while six stocks have slumped at least 60 per cent.

Keep in mind that I’ve mentioned all these stocks for information purposes only. I’m not recommending you buy them.

Indeed, at this advanced stage of the economic cycle, it may be difficult for these stocks to continue their sizzling performance.

Still, the growing number of non-resource companies making it into the top ranks on the venture index bodes well for the diversification of the Canadian economy.

 

Investor’s Digest of Canada, MPL Communications Inc.
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