By Michael
Volker
Market Commentary
The Tuesday, April 4th, bloodbath made the Ides
of March market drop look gentle.
Could I believe my mid-morning financial
screen? What, PMC Sierra down U$49 already? Creo off U$10 to U$30,
Ballard down $20 to $96 and Sierra Wireless trading at $65, almost
one-quarter of its $232 high of just weeks ago. The red ink was flowing
everywhere in the tech sector. The Nasdaq QQQ (the technology 100 index fund
trust) was down U$14 to U$89 and Nasdaq itself suffered a record drop of 574
points by mid-day, on the heels of the previous day's plunge of 349 points!
But wait - by the end of the trading day, the
market made a remarkable recovery with most stocks closing down just slightly.
The Nasdaq index was down only 74 points on the close. The CDNX wasn't quite as
fortunate, closing down 246 points at 4000.
After that ride, I couldn't wait to log on the
next morning. When I did, and for most of the day and the next few days as well,
there were only minor ups and downs. How boring!
Suddenly everyone is nervous about tech stocks.
Over the years of watching market activity, I've reached one firm conclusion:
stocks always fall much faster than they rise when when sentiments reverse. I'm
sure that there's an avalanche effect at play: fear psychology coupled with hard
core margin call pressures, forcing leveraged investors to sell.
This recent market turmoil once again confirmed
a few key points for me:
- market players have a short term perspective
- momentum players outnumber real investors
- memories and corporate love affairs are
short
- investors are fickle
- investors have little patience
- no one can predict what will happen
So if you're feeling bored, here's your
opportunity to get in on some of the big cap firms at a substantial discount to
their recent prices. Case in point: Sierra Wireless, which was trading in the
$60's already doubled by the week's end.
How do the juniors fare in such situations? In
general, I have found them to be less vulnerable. Although they too got hit, the
impact was smaller. Perhaps this is because many cannot be purchased on margins
and because there are no large blocks held by institutional players. Whereas the
big guys were off 30-50%, the smaller ones were off only 5-10% - a good argument
for keeping company with some of the juniors.
I believe that there's good money to be made in
the junior techs. If you take a look at our list of all BC companies, you'll
find some excellent, inexpensive prospects especially those which are just under
the cut at getting into the top 20. Typically, these firms do not yet have a
great following - i.e. there are few, if any, large investors (e.g.
institutional players), they tend not to promote themselves (sticking to the
knitting), and they are thinly traded. But if they have good technology and good
teams, it's usually just a matter of patience. Whenever I buy such stocks, I
inevitably find that the prices drop even below my purchase price. But after
many months, perhaps years, these stocks can return 10X or 100X one's
investment. Traders tend to watch these and only buy in on momentum as prices
start to rise, then sell as momentum slows. However, I have learned to keep some
cash aside in the event that there is a decline in price (giving me a discount)
allowing me to top up my holdings somewhat. I only sell if I'm discouraged about
corporate progress or if the stock gets overpriced (I can always buy back on a
fallback).
But whether you're keen on the juniors or the
name-brands, these turbulent times do offer those who like living on the edge
some thrilling opportunities. Now is the time to buy some shares in your
favorite tech company (you know - the one which you studied and analyzed for
fundamental value). If you liked this company a month ago, you should be totally
enamored now.
Imagine! You can now buy companies like CREO
and Pivotal for only double their IPO prices of last summer! And nothing's
changed - they're booming along and filling orders in a healthy economic
climate. And for the dot.com's, the internet boom has not abated one iota.
A recent BC Business magazine article produced
a summary of the top 14 technology performers with respect to their stock
prices:
| Company |
% Gain (year) |
| Infowave |
2841% |
| Sideware |
2807% |
| Norsat Intl |
2105% |
| eDispatch.com |
1941% |
| PMC Sierra |
652% |
| Burntsand |
634% |
| Angiotech Pharmaceuticals |
405% |
| Westport Innovations |
365% |
| Inex Pharmaceuticals |
331% |
| StressGen Biotech |
241% |
| QLT Phototherapeutics |
235% |
| Inflazyme Pharmaceuticals |
188% |
| Ballard Power Systems |
162% |
| MDSI Mobile Data Solutions |
132% |
The article noted that if you had invested $10K
in one of the top two, your investment would have ballooned to over a quarter
million dollars!
Small Caps
This week I attended Campney & Murphy's small cap forum in Vancouver.
This is a great little event because it gives investors a chance to meet with
local firms and get a good first-hand look at their business prospects. This
year, 16 mostly-technology companies were on hand. Many of these would fit into
my "junior tech" category referred to above. Here's a summary of these
firms:
| Company |
Symbol |
Apr6 |
| ALI Technologies Inc. |
ALT.TO |
6.60 |
| Anormed Inc |
AOM.TO |
14.00 |
| Burntsand Inc |
BRT.TO |
9.20 |
| Inex Pharmaceuticals Corp |
IEX.TO |
7.70 |
| Inflazyme Pharmaceuticals
Ltd |
IZP.V |
7.75 |
| Infowave Wireless
Messaging Inc |
IW.TO |
29.65 |
| Lasik Vision Corp |
LSK.TO |
3.00 |
| Micrologix Biotech Inc. |
MBI.TO |
7.90 |
| NII Norsat International |
NII.TO |
18.05 |
| Q/Media Software Corp. |
QMS.TO |
2.90 |
| Response Biomedical Corp |
RBM.V |
1.41 |
| Sierra Systems Group Inc |
SSG.TO |
21.25 |
| Silent Witness Enterprises
Ltd |
SWE.TO |
11.00 |
| Westport Innovations Inc |
WPT.TO |
13.90 |
Not included
are two non-tech companies which
were also featured, namely Sepp's Gourmet
Food Ltd., and Sun-Rype Products Ltd. |
Although I haven't studied them all in depth,
I've noticed that most have enjoyed recent price increases with the exception of
ALI Technologies Inc (TSE:ALT). ALI has traded in the $3.20 to $14.50
range this year. Based on ALI's corporate performance with respect to sales ($50
million last year), it would appear to me that this one may be a buy. Its good
management, proprietary medical imaging technology and strong sales growth lead
me to this conclusion.
Company News
This week, Creo Products (NASDAQ:CREO)
announced that its shareholders approved the issuance of 13.25 million Creo
shares in consideration for the assets of the digital prepress and
print-on-demand businesses of Scitex
Corporation Ltd. (NASDAQ: SCIX) (ëScitexí) of Israel. That will
certainly boost its market capitalization!
NetNation Communications (NASDAQ:NNCI)
announced that it was approved for listing on the NASDAQ SmallCap Market. Prior
to that, NetNation was trading on the OTC-BB market. Moving from the
Over-the-Counter market to Nasdaq is a promising sign. Recent pricing in the
U$12 area confirms this.
Absolute Software (ABT:CDNX) started
trading on the CDNX last week (March 28th), earning the distinction of having
completed the largest IPO on that exchange offering 4.4 million shares at a
price of $5 for gross proceeds of $22 million. The shares have traded as high as
$6.45 but if you missed the IPO, you may be able to pick some up at a slight
discount. The stock is now in the $4.50 area.
A website which I've found useful for information on technology ventures is emergit.com
which profiles emerging technology companies. It was launched in Toronto in 1997
and has expanded into Los Angeles to highlight innovators in California and the
U.S.
Capital Pool Corporation (CPC) Update
In this column, I keep track of Venture
Capital Pool ("VCP") companies (see chart below) as defined by the
former VSE because they may provide funding to, and in the process acquire,
technology companies.
Under the new Canadian Venture Exchange, the
CDNX, VCP's are being modified slightly as a result of being combined with
Alberta's popular Junior Capital Pool ("JCP") program. The new CDNX
product is called a Capital Pool Corporation ("CPC").
JCPs and VCPs will exist until March 1, 2000.
If they have not done their major transactions by then, existing JCPs and VCPs
will be re-classified as CPCs.
New additions to the list are: Asean
Cybernetics Inc., Healy Capital Corp., HGS Technologies Inc., Norstar
Ventures Corp., Planex Ventures Ltd., Saturn
Ventures Inc., and Transcend Capital Corporation. All the new
additions are CPCs except for Norstar, which is a VCP. Also, Healy, HGS, Saturn
and Transcend originate from Calgary.
Deleted from the list is Capital Charter Corp., which has completed its
Qualifying Transaction. The emerging company is Zconnexx Corporation (CDNX:ZXX),
a Vancouver internet company providing a "yellow pages" service.
A hot VCP which which I've mentioned in
previous columns came to market last week. Technology Growth Partners Corp.
(CDNX:TCY) completed its IPO on March 28th. The gross proceeds received by the
company for the offering of 1.6 million shares at 25 cents were $400,000.
The stock made a jump start opening on the
first day of trading, March 29th, at $1.10 ($0.85 over the offering price) then
traded as high as $1.50 before settling back to close at $1.40. Very impressive!
Most CPC companies start to trade in the $.50 to $1.00 range. The stock has
recently settled down to trade in the $.80 - $1.00 area and could be a good buy
at this level.
The volume on TCY was staggering, turning over
almost 1.8 million shares, more than its entire float of 1.6 million shares.
Speaking of "float", i.e. the number of freely tradable shares on the
market (the rest are founders' shares which are escrowed for at least three
years), you can see why the price shot up. It doesn't take a lot of demand, in
the face of limited supply, to drive up the price. In the case of TCY, the
strong demand is certainly a vote of confidence for the management team. Notable
on this team is Sharka Stuyt who headed up the Marketing function on the Pivotal
(NASDAQ:PVTL) team.
Very few CPCs have shown such a dramatic
performance on their debut. Although it's great for investors who got in on the
IPO, I still believe that the IPO's are priced too cheaply. This, of course, is
a CDNX policy matter. Under the new CPC rules, the maximum offering price for a
"blind pool" is $.30 - a super deal for investors who got in on the
IPO.
I hear many complaints from people who'd like
to get in on a hot IPO offering but are not offered the opportunity. In the case
of CPCs, it's easier. You may not be able to get a large allocation, but you can
usually get some. For brokers, it's a good way for them to build their
"books" with new clients. Ask your own broker to let you know about
any upcoming CPC offerings.
Check our
Venture Capital Pool
chart for a complete updated list of the CDNX's CPC and VCP companies,
thanks to David Ing of Pacific International Securities.
Upcoming Events
If you've been reading the business papers
lately, you may have noticed some creative (and cute) ads run by StockHouse.ca.
Well, on Thursday, April 13th Jeff Berwick, President & CEO of StockHouse
Media Corporation will be the featured speaker at NewMediaBC's breakfast meeting
at CBC Broadcast One Studios, 700 Hamilton St. in Vancouver.
StockHouse hosts 2.8 million visitors and 130 million page views per month,
providing realtime equity news, information and commentary for investors. Check
with NewMediaBC if
you're interested in attending.
The March 27th Vancouver Enterprise Forum
on e-Commerce was a sell-out event. Keynote Speaker Kristen Hamilton (VP and
Chief Strategy Officer, Onvia.com (NASDAQ:ONVI) gave an overview of
e-commerce from the perspective of a founding member of Onvia.com. This
presentation was followed by a look at the e-business strategies of three
very different Companies: Communicate.com, Stratford Internet and Future
Shop. Some of the presentations may be found on-line at http://www.vef.org.
The next VEF event will be held on April 25th
and the spotlight will be on the photonics industry.
Michael Volker is the
Director of the University/Industry Liaison Office at Simon Fraser University,
Chairman of the Vancouver Enterprise Forum, and a technology entrepreneur. He
owns shares in many of the companies he writes about. Contact: mike@risktaker.com.
Copyright,
1999.
What
Do You Think? Talk Back To Mike Volker
Tech Futures is a bi-weekly column that focuses
attention on new and emerging BC publicly listed technology companies. Mike
Volker is the Director of the University/Industry Liaison Office at Simon Fraser
University, Chairman of the Vancouver Enterprise Forum, and a technology
entrepreneur. He owns shares in many of the companies he writes about.
Contact: mike@risktaker.com
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