Looking forward to 2024 it may be the case that the temptation to be overly negative about prospects is the one to avoid. This is despite or perhaps because of the way 2023 has been such a car crash. At least blue chips were up 3%, despite all the negatives of inflation / cost of living crisis, and the massive tax burden. On this basis it is a miracle that we are not in deep recession. Fortunately it is a characteristic of the 2020s economy that its sectoral diversity means that the kind of 1970s style recession some may be fearing is likely to be avoided. There may not be much upside from a largely services based economy, but it does seem that the troughs are not that deep either.
United States Outperformance
The real pain and irritation comes from the way that while the headline performances of the blue chips and small caps were of small percentage gains, in the UK, especially given the S&P 500’s 24% rise, and 45% up for the Nasdaq. On this side of the pond it has been the liquidity issue which has really done at the damage. Investors have used the stock market as their ATM machine, whether or not the shares they are selling likely to be winners or losers. This has severely skewed the landscape, with babies being thrown out with bath water on an industrial scale. Good companies have seen their share prices towards the cash value. Normal / middling companies have seen their shares down by a half or two thirds with little effort. In addition, whereas in the past one could be on a PE of double digits, these days two or three times earnings, if there are any, can feel like a party.
Buy And Hold
Of course what we are supposed to do, like Warren Buffett is to be on the buy and hold strategy. The question is though, which stocks to buy and hold and which to job short term? In the small cap space though, where we are generally looking for growth/ future growth, aspects such as cash in the bank, speed of the journey to profitability, management, and sentiment all play a part. If one had to narrow it down to any of these factors in 2023, the cliche of cash being king had to be the winner given how torturous most of the fundraises looked to be. This point was clearly underlined by the dearth of IPOs. In small caps, one was lucky to raise a couple of million at best for such purposes.
Stocks To Watch
Given what a poor year it has been for the minnows, and given the lay of the land, why there is little reason to expect a sudden improvement, I have waited to see what some of my alleged contemporaries have listed as their stocks to watch for 2024 before taking the plunge. These sources are a mix of those who are clickbaiters, cowboys, used car salesman, sociopaths, holier than thou gurus, nerds, and those with no professional experience of the market, the latter very often from the legacy media. As well as the dubious chance to pick out the best of these picks, there is an advantage that I have always had, to combine the fundamental analysis with the technicals. This is important, as after more than a decade of the daily Bulletin Board Heroes video, it is clear that the charting can very often trump any other way of timing / calling small caps. Even more important, it is there to tell you when you have got it wrong.
80/20
This means that unlike others who may just highlight’s stock to be a winner at say 100 pence, and then leave you in the lurch, I will add in achievable chart based price targets and stop losses, so say 150p and 80p on a 100p share price respectively. This means that the chance of being left holding the baby on a situation which turns out to be a duster is greatly diminished. Indeed, this should mean that most will understand that when I say for instance, above 5 pence a stock could go to 10 pence when currently 6p. This does not mean they are still holding the stock when it is 2 pence. Ironically, I was heckled on this point just the other day by someone on X, who clearly did not read or understand the bit about “above.”
Technicals
It is all about using technicals to manage risk. 80/20 is a ratio which dominates our lives, and it is the case that with the correct money management 20% of a portfolio can still lead you to victory, even if only half the stocks turn out to be winners, Hopefully, with the mid price end of day close targets and stop losses in the 20 stocks below, the overall score will be positive in 2024. But it will not be easy while current stock market conditions prevail.
Types of Setups
It is typical of small caps that in terms of the landscape of the generally sub £100m market cap space that they fall into a few clear categories. The first is the binary bet, usually from a very low base. The BB of the moment is Helium One (HE1), where we are waiting for a couple of billion party balloons worth of gas, or not as the case may be. There are then (alas all too few) companies which have established themselves as growth plays, and are hence momentum situations. The obvious ones this year were biotech duo Hvivo (HVO) and Poolbeg (POLB), something made all the more enjoyable by the fact they are both in the biotech space. Apart from AI stocks, the big laggard in the UK in contrast with the US has been biotech.
2023 IPOs
Explorer / developers have been one of the more high profile situations in the small caps this year, with First Class Metals (FCM), Golden Metal Resources (GMET) and Fulcrum Metals (FMET) IPO’s of note.. In the latter part of the year it was Neo Energy (NEO) and Energy Pathways (EPP), who came to market. They all certainly deserve a round of applause in just being able to get listed, and paying all the costs of getting listed. The key with all of these is for the companies in question need to prove up / be sitting on so much resource, that the market will bid up the shares in anticipation.
Another category of stock which is hard to put one’s finger on, for obvious reasons is a “surprise” win by a company. It can be a discovery in the ground, like Empire Metals (EEE), a license like Celadon (CEL), a contract win such as recently with Filtronic (FTC). The other “surprise” can be a sudden market need, such as Optibiotix (OPTI), in the summer following the Aspartame cancer scare. It rather goes without saying that the main way of getting your stock price up in 2023 was to surprise the market (and perhaps yourself), with news so that even the shorters have to panic cover their positions. A way of not getting your shares up was to keep huffing and puffing regarding potential good news, so that even when it arrives the market has already factored it in.
Rabbit Out Of A Hat
A category that played a big role in at least some of the winners of 2023 was the ability of a company to pull a rabbit out of a hat, wrongfooting a cynical / negative market by proving its worth. One could argue that Destiny Pharma (DEST) did this twice in the last year, the first time in July with the return of the former Chairman, and then on positive data regarding its flagship XF-73. Given ongoing stock market conditions, small caps will need to engage in rabbit pulling of Magic Circle proportions during the course of 2024.
Falling Knives
Finally, and something which may be the real challenge for the coming year, is the falling knife. This is clearly related to the ATM issue described above, where shareholders or a shareholder, just want to head for the exit at all cost, no matter what the price is. The trick is obviously to work out whether after the rug pull the shares have got to a level which is just plain silly and from which there should be an appreciable rebound.
24 Stocks For 2024
- Acuity RM: 4.75p Target 12p Stop Loss 3.5p
One of the stumbling blocks that small cap companies have is the “roll out.” They can have the best product in the world, but the cost of sales and marketing, competition, product validation, and the ability to scale, can all be headwinds that only the best can overcome. Enter Acuity, a software group, which supplies the STREAM software platform for the Governance, Risk and Compliance market. As we enter 2024 it is clear that the company has managed to overcome the issues described above, something which suggests that the share price is clear for take off. Recent newsflow has underlined the prospect of this scenario, such as the company’s largest ever contract win, in this case from the UK Government. With such validation and contract size, one can assume that ACRM will be able to scale up internationally, something which at the present market cap of £6m certainly has not factored in.
- African Pioneer: 2.35p Target 4p Stop Loss 1.75p
The junior mining space, with its perennial funding concerns, and the inherent risk of exploration, has not exactly been the most popular in 2023. You had to be a company which discovered something world class that you might not necessarily have been looking for, Empire Metals (EEE), to really blow the lights out. Nevertheless, African Pioneer (AFP) did see its shares slightly up on the year, which in current market conditions represents a 50% plus outperformance. The trigger here, and it was a worthy one, came from news in October that mining giant First Quantum had exercised its license options. This meant that the exploration and resource development company with advanced projects in Namibia, Botswana, and Zambia, has had a serious validation and de-risking event. During the first earn In period First Quantum will prepare a Technical Report demonstrating an Indicated mineral resource of at least 300,000 tonnes of contained copper for First Quantum to earn a 51% shareholding in African Pioneer Zambia. Shares of AFP have risen since the First Quantum news, and one would expect further gains as the latter progresses its earn in work.
- Ananda Developments: 0.34p Target 1p Stop Loss 0.25p
Whether it is the ongoing opiate crisis, or whether enough water has passed under the bridge, it was clear in 2023 via companies like Celadon (CEL) and Ananda (ANA), that this was the year when medical cannabis finally came of age as far as investors were concerned. No one could say that this process has not been a slow burn, but now that the log jam over trepidation has been cleared, one would expect significant momentum to gather. This is especially the case for Ananda, with its “been there, done that” management, and multiple initiatives in the past 12 months to validate and fund its roll out. A highlight at ANA was acquisition of MRX, which has a proprietary method to formulate cannabis medicine. This was then finessed by funding from NHS Scotland for the MRX1 endometriosis trial, and ANA restructuring its debt in September. With all of this under the company’s belt this year, one can anticipate a re-rate for ANA off the back of newsflow such as last month’s drug supply agreement with the University of Edinburgh. The run up to a mainstream medical cannabis rollout appears compelling.
- Cadence Minerals (KDNC): 5.75p Target 12p Stop Loss 3.75p
Another of the flagship project companies, of which we have a few in this selection, it was notable that for Cadence the year began with a bang, with the shares rallying from near 9p through 17p. While the company is known for its flagship Amapa Iron Ore Project in Brazil, what gives it an advantage over many of its peers is the way that it is certainly not a one trick pony. We were reminded of this within the latest update from investee company European Metals, of which KDNC has 5.3%, something which actually led to a decent 16% rise in the share price on the last session of the year. But the big prize is certainly Amapa of which Cadence now owns 32.6% on a NPV of $949m. The last key event here came in the form of a MOU with Sinoma Tianjin Cement Industry Design & Research Institute Co Ltd. Sinoma is set to deliver a final proposal complete the definitive feasibility study on Amapa, and then a fixed price engineering procurement and construction contract for the project. At close to the low of the 2023 range, but with fundamental momentum here, one seems justified in regarding KDNC near their a base.
- CleanTech Lithium: 19.75p Target 40p Stop Loss 14.5p
Given the way that nearly a fifth of all new cars are now electric, one would have thought that any stock even vaguely related to lithium would have been roaring. Clearly, this has not been the case, although it should be said that for the beginning of 2023, shares of CleanTech (CTL) were very much on the front foot, as the market celebrated the way that the company was mobilising its assets. Highlights at the time included a scoping study confirming the potential of the Laguna Verde project, as well as the announcement of a proposed listing on the ASX. However, concerns over jurisdiction risk in Chile pulled the rug from under the shares, even though CTL was effectively set up to be a plug and play in that country. Subsequently, none of the market’s fears regarding Chile’s plans for its lithium industry proved to be founded. As we go into 2024, with the over £8m raise to advance its projects, we should see the shares rebound off their recent lows, if only on the basis of the merit of Laguna Verde and Francisco Basin.
- Critical Metals: 9.75p Target 25p Stop Loss 6p
At the start of 2023 shares of Critical Metals (CRTM) were very much on a high, boosted not only by the market’s enthusiasm for its flagship Molulu copper-cobalt project in the Democratic Republic of Congo, but also the dynamism of CEO Russell Fryer. Fast forward to October and the company said it entered into an offtake agreement with OM Metal & Resources SARL, for the sale of at least 20,000 tonnes of copper oxide ore. This month’s operational update underlined that the first ore sales are due by the end of Q1 2024. If you add in the sizzle from the latest 24-drill-hole campaign at Molulu, and the current share price vs 30p plus at the start of the year, CRTM not only seems the wrong price, but this is classic situation which underlines how short term traders have exited, just before the fundamental party is set to begin.
- DG Innovate: 0.19p Target 0.8p Stop Loss 0.13p
The aforementioned surprise factor, in the case of DGI, more akin to shock and awe, has already been at play with DG Innovate (DGI). Here a welcome fund raise, as well as the Tesla hires, should build a solid base for the EV and energy storage technologies company. While the stock is already up 5x since the news on December 11, once the bedwetters are out one would imagine the shares will be rather nearer to where they were at the beginning of 2021 at the end of 2024 than they are now.
- ECR Minerals: 0.27p Target 0.5p Stop Loss 0.2p
It was difficult to resistance including ECR Minerals (ECR) in this selection, if only for just one reason, Mike Whitlow. For those who are not familiar with the wonderful world of UK small caps, Whitlow is also known as a straight talking commentator on this area under the guise of Doc Holiday. Having been an investor in ECR, he was appointed COO in September. I was pleased to interview him earlier this month. It was interesting to appreciate the transformation from poacher to gamekeeper (or is it the other way round?) What will be worth taking note of at ECR is whether unlike so many others, Whitlow is as good as walking the walk, as talking the talk, given how much easier it is to be an armchair CEO, or a keyboard warrior these days. So far the omens look good, especially in the wake of the new discoveries announced at Lolworth in September, and the additional license application at Kondaparinga. It is also clear that Whitlow and the powers that be at ECR have caused the company to turn over a new leaf, and they are certainly running a tight ship.
- Eco Buildings: 13.5p Target 25p Stop Loss 9.5p
While the temptation after a gruelling year on the small cap market is to pick out this year’s winners, and hope that they will keep on going, such an attitude is not quite in the spirit of this investment class. What one wants to pick out is something at ground floor level both in value and expectations, with a scaleable business that has a massive addressable market. True, doing such a thing this time last year would not have not you very far. However, we are going into 2024 and not 2023. Enter Eco Buildings (ECO), where the hook is that the company could be described as the “Ikea of housebuilding.” Given that there is a world wide housing shortage, ECO’s prefabricated modular housing products appears to be right on the zeitgeist. This point has been underlined in the form of the latest news from the company regarding the start of production at its Albanian factory. The company, formerly known as Fox Marble has an order book of €114m, plenty to be getting on with, in the run up to further targeted expansion in Chile and Spain.
- Firering: 4.25p Target 7p Stop Loss 2.75p
It has not been a great year for “big project” small cap resources companies, something which is perfectly understandable, given cash concerns. Firering has not only been caught in this, but a relative hiatus in newsflow provided buyers with an excuse to sit on their hands at the exploration company focusing on critical minerals. What could and should be the driver for 2024, apart from the share price now being in the bargain basement section, is the prospect of a revival of operational activity. FRG stated in December that it has signed a drilling contract with FTE Drilling for a campaign at its flagship lithium – coltan Atex asset, which is to begin next month. The company has partnered with the Canada-headquartered FTE in a reverse circulation drilling programme at the asset in Ivory Coast. With results due from this by the end of Q1 2024, we have a decent time window, short term enough to attract fresh interest in the company. Given the relative weakness of the lithium price, it is now back to where it was trading in 2021, those getting into the best of the lithium plays could find themselves well geared up to recovery from stocks like Firering.
- First Class Metals: 6p Target 15p Stop Loss 4p
If there were awards for hard work and dedication then First Class Metals (FCM) would be one of the year’s top stock risers. Alas, in 2023 exploration companies, with the subtext extra funds being required in the wake of every other positive RNS, have had to battle hard both in real terms, and against the competition. That said, FCM has made it clear that all options are open as far as its portfolio of projects, with the mantra of it getting them drill ready as quickly as possible meaning that sentiment has been rather strongly towards the company than the modest £5m market cap would suggest. The latest newsflow underlines this, as the latest shareholder letter underlined: the company delivered on bringing four properties to a ‘Drill Ready Status’ and undertake a drill programme on one property in 2023. The icing on the cake in the letter was that the company will explore opportunities to secure third-party investment through ‘earn-ins,’ joint ventures, or potentially even corporate transactions.
- Hummingbird Resources: 10.25p Target 25p Stop Loss 7.5p
On the face of it, there may not be much reason to highlight multi-asset, multi-jurisdiction gold producing company, Hummingbird Resources (HUM), other than on the basis that the gold has gone above $2,000 oz, and looks set to stay at or even go to new record highs off the back of the potential interest rate cuts in the New Year. However, given current stock market conditions, such simple analysis is not usually enough for everyone even though HUM has said it is on track to produce 200,000 oz of gold in 2024. To facilitate this the company announced a $30m placement, something designed to get up to cruising altitude in terms of production. Given the lay of the land in terms of the underlying commodity, one would take the view that the timing is spot on. HUM should be in an ideal position to take advantage of what looks to be the great gold price break out of 2024.
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