With inflation rising from 2.8 per cent in June to 4 per cent in August, following decreases in six of the seven prior months, retail investors are being tempted to dump small-cap growth stocks for safer assets to avoid the impact of a potential recession.
Persistently high prices for food, gas and mortgages are primarily responsible for the uptick – though measures of core inflation (ex. food and energy) have also moved up – leading to a 33 per cent rise in the Canadian 10-year bond since June.
The iShares S&P/TSX Small Cap Index has reacted negatively to this state of affairs, with its 4.76 per cent loss reflecting an improved opportunity set for investors looking for undervalued small and micro-cap stocks.
To that end, let’s consider three high-potential small-cap growth stocks that released value-accretive news over the past week:
Medicus Pharma
Medicus Pharma (TSXV:MDCX) is a life science and biotech company focused on Phase-II pharmaceuticals and medical devices.
The company’s first acquisition, SkinJect, represents a billion-dollar opportunity for a skin cancer treatment that is significantly less painful and invasive than standard Mohs surgery. Phase-II development, with an FDA-approved protocol, will commence in 2024 after encouraging Phase I safety and efficacy outcomes.
Medicus’ management team is made up of healthcare heavyweights – including a former CEO and executive chairman of FSD Pharma (CSE, NDAQ: HUGE), and a former medical director at Wyeth and GlaxoSmithKline – whose experience makes them ideal to identify underappreciated acquisitions, guide them through the regulatory process, and propel Medicus toward a rapid rise in capitalization.
Medicus Pharma stock (TSXV:MDCX) is down by only 5 per cent since inception on Wednesday.
Click here to visit Medicus’ official website.
Canada Nickel Company
Canada Nickel Company (TSXV:CNC) is developing large-scale nickel projects intended to supply the growing electric vehicle and stainless steel markets.
The company’s flagship Crawford nickel sulphide project in Timmins, Ontario, houses the second-largest nickel reserve in the world, as well as the second-largest resource, with initial mineral reserves of 1.7 billion tonnes of ore grading 0.22 per cent nickel.
Crawford’s bankable feasibility study details a US$2.6 billion after-tax NPV8% with an IRR of 18.3 per cent and annual free cash flow of US$546 million.
Production is estimated at 1.6 million tonnes of nickel, 24,000 tonnes of cobalt, 490,000 ounces of palladium and platinum, 58 million tonnes of iron and 2.8 million tonnes of chromium over a 41-year project life.
Next steps for the potentially world-class project include obtaining permits, finalizing a production decision by mid-2025, and initiating production by the end of 2027.
While four years is an eternity away, considering the tortoise-like pace of regulatory mining approval, the fact that 1) expected annual free cash flow from the project is 4.4x the company’s current C$168 million market cap when converted to US$, and 2) Canada Nickel has identified 11 additional nickel targets with a footprint larger than Crawford, implies a substantial margin of safety for interested investors, contingent on a full due diligence process.
Canada Nickel Company stock (TSXV:CNC) has gained 34.44 per cent since inception in February 2020.
Click here to read Canada Nickel Company’s latest investor presentation.
LevelJump Healthcare
Our final small-cap growth stock pick is LevelJump Healthcare (TSXV:JUMP), a radiology specialist providing telehealth services, as well as in-person diagnostic imaging through a growing clinic network.
It owns and operates Canadian Teleradiology Services (CTS), which offers hospitals and clinics remote access to licensed radiologists to read imaging scans, including MRI, CT, mammography, X-Ray and ultrasound.
Its in-person imaging services centre on dozens of owned or pending independent health facilities across Canada.
At the broadest level, LevelJump’s long-term prospects are supported by its ability to ease the burden of overcrowded, understaffed hospitals and other care centres.
On a more granular level, the company retains about 20-25 per cent of each reading fee with little overhead, and it enjoys predictable multi-year government contracts, representing high-quality revenue from a suite of essential services. LevelJump has sustained double-digit revenue growth over the past decade.
Additionally, management has shown itself to be adept at attractively priced acquisitions, as evidenced by its recent haul of four Alberta-based diagnostic imaging clinics for a little more than 1x revenue and approximately 5.76x EBITDA, with private healthcare companies averaging as high as 8.1x EBITDA over the past year.
Backed by an impressive growth trajectory and an executive team that knows its way around a balance sheet, LevelJump finds itself on the verge of consistent positive net income, with minimal quarterly losses likely to disappear as global market conditions rebound from the weight of high inflation.
Click here to read LevelJump’s latest investor presentation.
Join the discussion: Find out what everybody’s saying about these small-cap growth stocks on the Medicus Pharma, Canada Nickel Company and LevelJump Healthcare Bullboards, and check out Stockhouse’s stock forums and message boards.
This is sponsored content issued on behalf of Medicus Pharma, Canada Nickel Company and LevelJump Healthcare, please see full disclaimer here.
