Research from Morningstar suggests that value is a reliable factor to access the superior returns of micro-cap stocks, making it an essential skill for investors in these tiny issuers to identify bargains before the broader market.
Readers curious about how to approach the art of valuation can consider the following three stocks, each of which makes a strong case for being worth more than it’s trading for, with investors with at least a 10-year time horizon slated to benefit the most.
Theralase Technologies
Our first micro-cap value stock is Theralase Technologies, a clinical-stage pharmaceutical company researching and developing light-activated compounds, associated drug formulations and the systems that activate them to destroy cancers, bacteria and viruses.
The company’s main drug candidate, Rutherrin, has been shown to be effective in the areas of cancer immunotherapy, bladder cancer, lung cancer, chemotherapy and viruses such as H1N1, coronavirus and Zika, representing hundreds of billions of dollars in market exposure.
Besides its bladder cancer study, Theralase has achieved its milestones in pre-clinical settings, which has kept shareholders from recognizing the company’s potential before clinical results provide firmer footing for their conviction.
Theralase Technologies stock (TSXV:TLT) has given back 33.93 per cent year-over-year and 43.94 per cent since 2019, positioning investors to build a position at a depressed price and watch as the company ushers new drug formulations through the up to 10-plus year FDA approval process, accounting for multiple years of in-market trials.
President and chief executive officer Roger Dumoulin-White joined Stockhouse’s Coreena Robertson to discuss Theralase’s Q2 2024 results. Watch the interview here.
Leading Edge Materials
Our next micro-cap value stock is Leading Edge Materials, a mineral explorer developing a portfolio of critical raw material projects in the European Union. Here’s a portfolio breakdown:
- The 100-per-cent-owned Woxna Graphite mine in Sweden yielded a 2021 preliminary economic assessment (PEA) with a post-tax net present value (NPV) (8 per cent) of US$248 million, average annual EBITDA of US$49 million and initial capital expenditures of US$121 million.
- The 100-per-cent-owned Norra Kärr heavy rare earth element project in Sweden boasts a 2021 PEA of its own with a post-tax NPV (10 per cent) of US$762 million, average annual EBITDA of US$206 million and initial capital expenditures of US$487 million.
- The 51-per-cent-owned Bihor Sud nickel cobalt exploration alliance in Romania houses 400 m of visible copper-nickel mineralization discovered in January 2023 and extensive zinc-lead-silver mineralization identified in June 2024, with multiple kilometres of prospective land to be explored.
Guided by chairman Lars-Eric Johansson, who served as president and chief executive officer of Ivanhoe Mines from 2006-2019, CEO Kurt Budge, who brings 30 years of experience in the mining sector from junior to major companies, including 8.5 years in Sweden, and director Eric Krafft, a successful natural resources investor who owns more than a third of the company, Leading Edge Materials is on a development path that far outweighs its current market capitalization of C$20.28 million. Key drivers of its potential include:
- Exponential tailwinds for its target commodities (slide 7).
- Graphite production and planned expansion to anode material production at Woxna.
- Likely expedited environmental permitting and mining leasing at Norra Kärr given the Swedish Geological Survey having recognized it as a deposit of national interest.
- Further value-accretive intercepts at Bihor Sud.
Shares of Leading Edge Materials (TSXV:LEM) have given back 30.77 per cent year-over-year and 47.06 per cent since 2019, losing sight of more than US$1 billion in post-tax asset value still early on the 15-year journey from discovery to production.
Budge joined Stockhouse’s Lyndsay Malchuk to shed light on Leading Edge Materials’ application to designate Norra Kärr as a Strategic Project under the European Commission. Watch the interview here.
Titanium Transportation Group
Our final micro-cap value stock, Titanium Transportation Group, is a North American transportation provider. It runs 18 trucking operations and logistics brokerages in Canada and the United States composed of a total of 900 power units, 3,000 trailers, more than 1,000 customers and 1,300 employees and independent owner-operators.
Titanium Transportation Group is a rarity among stocks of this size in that it is consistently profitable, having posted positive net income every year since 2019. It has grown its annual haul from C$1.59 million in 2019 to US$10.23 million in 2023, while growing revenue from C$167.03 million to C$438.69 million and EBITDA from C$18.5 million to C$53 million over the period, epitomizing the increasing cash generation we all hope for from our investments over time.
This trajectory validates the company’s acquisition-heavy strategy, which includes 14 asset-based trucking companies since 2011 (slide 17), and makes it reasonable to expect Titanium Transportation’s highly aligned management team with at least 35 per cent insider ownership to continue creating value over the long term.
An ongoing freight recession, as mentioned in the Q2 2024 news release, makes it an opportune time to pick up shares, which are trading at a 47.25 per cent discount from their five-year high, as strong cash flow and an established presence grant the company resiliency and the flexibility to grow opportunistically.
Shares of Titanium Transportation Group (TSX:TTNM) have given back 25.70 per cent year-over-year, but have gained 70.16 per cent since 2019.
President and CEO Ted Daniel spoke with Lyndsay Malchuk about the company’s Q2 2024 results. Watch the interview here.
Join the discussion: Find out what everybody’s saying about these micro-cap value stocks on the Theralase Technologies Inc., Leading Edge Materials Corp. and Titanium Transportation Group Inc. Bullboards and check out Stockhouse’s stock forums and message boards.
This is sponsored content issued on behalf of Theralase Technologies Inc., Leading Edge Materials Corp. and Titanium Transportation Group Inc., please see full disclaimer here.
(Top photo, generated by AI: Adobe Stock)