Advisors in Focus- March 2, 2021

Volatility around inflation and re-opening may create uncertainty around valuations…

But it’s great for stock picking! 

One area that’s been lighting up the board: small caps.

And here’s why that matters to you.

Why small-cap?

Check this out – the most recent Bank of America Fund Managers survey showed net 31% of fund managers expect small-caps to outperform large-caps names over the next 12 months -a record for the 20-year history of the survey. 

Small-caps outperform large-caps during periods of rising inflation expectations and the early stages of economic expansions. Rising bond yields and sentiment surveys reflect rising inflation expectations. 

Where we stand in the economic cycle is open for interpretation. Small caps outperformed large caps from March 1999 to March 2011 during the internet bubble and the Great Financial Crisis. Operating environment outweighs the importance of picking tops and bottoms in the cycle. 

Thing is, small caps tend to carry higher risk. The ability to grow both market size and market share drives speculation. We can reduce risk through good old-fashioned due diligence.

Our TrackStar data pulls out the search history of everyone from the top asset managers to the retail investor. The data allows us to see where eyes wander- a helpful road map when searching for fresh ideas.

And it uncovered advisors probing small-cap, each one for unique reasons. This is what we found: 

TrackStarIQ Data

1AMC Entertainment Holdings IncAMCXtant Medical Holdings IncXTNTSPYGDX
2Tesla IncTSLAGlory Star New Media Group Holdings LtdGSMGQQQSLVP
3Gamestop CorpGMEBayport International Holdings, Inc.BAYPARKFREMX
4Churchill Capital IV Cl ACCIVMediwound Ltd Ord ShMDWDVUGSIL
5Apple IncAAPLAmeriserv FinancialASRVDIAXME
6Sos LtdSOSLixte Biotech HldsLIXTVOOGDXJ
7Pfizer IncPFEIMD Companies, Inc.ICBUQYLDRING
8Palantir Technologies Inc Cl APLTRBlackrock Science and TechnoloBSTARKWSILJ
9Workhorse GrpWKHSSilversun Technologies Inc Cl ASSNTRSPWOOD
10Sundial Growers IncSNDLFarfetch Ltd Cl AFTCHIWVCOPX
11Ocugen IncOCGNStereotaxis IncSTXSBLOKFXZ
12Zomedica Pharmaceuticals CorpZOMWearable Health Solutions, IncWHSIIWBXLB
13Nio IncNIOBiodelivery Sci IntlBDSIVTIGOAU
14Naked Brand Group IncNAKDRyerson Holding CorpRYIVTI
15NewStar Financial IncNEWSPandion Therapeutics IncPANDSUSA
16Boeing CompanyBAFTI ConsultingFCNDGRO
17Peloton Interactive IncPTONPhoenix Tree Holdings Limited ADRDNKMTUM
18Global Telcom & Technology IncGTTArmstrong Flooring IncAFIIYY
19Castor Maritime IncCTRMSynergie Wellness Products, Inc.SYHO
20Fisker IncFSRBrasilagro ADRLND

Here are three names that were at the top of the search list for financial advisors.

Xtant Medical Holding (XTNT

Xtant Medical Holding was the top surge search by Financial Advisors last week. We discussed this name in our Sunday e-mail as it was also on retail investors’ radars with a few highlights:

  • XTNT manufacturers regenerative products and medical devices for orthopedic and neurological surgeons. In layman’s terms, it makes spinal implants for patients experiencing back issues. The global spinal implant and device market will be over $15 billion in 2027 according to Allied Research, with compounded annual growth of 5.7%. 
  • Shares gained interest after reporting earnings and announcing a $20 million private placement. This means XTNT is selling shares to private investors to raise cash but it also dilutes current shareholder value. 
  • Revenues fell 17% in the fourth quarter. XTNT stated the impact from COVID was the primary driver. However, this marks the fourth straight year of declining revenue. 
  • Total Debt to EBITDA stands at 5.3x which suggests a heavy debt load. Basically, all things being equal, it would take the company over 5 years to pay down what it owes. There is no indication it plans to use proceeds of the capital raise to pay down debt.
  • Yet, volume erupted on Friday when over 200 million shares changed hands. The average daily volume for XTNT is 3.78 million.

It’s unusual to see bullish price action on the back of dilutive share issuance. Given the current environment, that likely did more to create news interest and grab retail traders’ attention than anything else, showing up in trader chat rooms across the net.

When the retail frenzy dies off, you’re left with declining revenues and a heavy debt load. We would be cautious despite shares hold of the $4 level. 

Glory Star New Media Group (GSMG

Glory Star New Media Group was #2 on our surge list. GSMG is a Chinese mobile and online digital media and entertainment company. The company offers its CHEERS app, e-commerce platform/online stores, live streaming online games, and online short videos. Our initial take on the name is it sounded like another Tik Tok. Anyone with teenagers can appreciate the potential value of a company in this space!

  • GSMG creates its own ecosystem with videos and online games to attract prospective buyers and drive consumption. Once users are in the e-Mal, GSMG clients compete for wallet share by advertising on the platform.
  • Sellers find value in this format as GSMG tracks user habits on its site, providing valuable information to marketers.
  • Caijing magazine, Barron’s Weekly China magazine, and Tiger Securities included GSMG on a list of Top 10 Chinese ADRs for 2020.
  • App downloads in the first half of 2020 exceeded 121 million compared to 35.5 million in the prior year. Average Daily Active Users increased to 4.5 million compared to 700K in the prior year. Gross Merchandise Value increased to $20 million compared to $1.0 million in the prior period.

The market for short video ads, mobile shopping, and live streaming ad markets in China continues to increase. China’s online advertising market saw the largest growth from short video ads (107%) and social ads (62.5%). GMSG provides investors with the ability to invest in that growth. 

Mediwound (MDWD)

Mediwound was #3 on the surge list. The company specializes in tissue repair and regeneration products to assist patients suffering from varicose veins and burn victims- two areas with steady demand.

  • The varicose vein market grows at an annual rate of 6.9% and is projected to reach $290 million in 2021. The global burn treatment market size reached $2.1 billion in 2020 and projects to increase 7% annually through 2028. 
  • The company reported solid fourth-quarter earnings and has 25 million in cash with no debt. This reduces fear around a dilutive secondary offering to raise additional cash. 
  • BTIG Research expects the company to receive FDA clearance in June 2021 for the company’s NexoBrid used in the removal of deep partial and full-thickness burns. EU and international market approvals are in hand and the treatment has substantial U.S. Government support at BARDA- The United States biomedical research center. MDWD projects the Targeted addressable market (TAM) to be over $200 million.
  • MDWD’s EscharEX drug candidate’s Phase 2 adaptive study is underway. This drug would be used to heal chronic.hard-to-heal wounds. The TAM projects to over $2 billion.
  • MDWD announced the launch of a clinical development program for the treatment of non-melanoma skin cancer. It has a Phase I/II clinical study in basal cell carcinoma scheduled for the second quarter with data expected by the end of 2021. Financial Advisors show laser focus when it comes to cancer treatments. 

The company has a commercial collaboration in the United States with Vericel and it’s R&D programs are fully funded by BARDA. MDWD has a direct sales force in the EU providing it with an international presence. The pipeline is robust with BARDA contracts for over $200 million.

 A solid set of fundamentals and an encouraging pipeline puts a tidy bow on this story. The stock consolidates between $5-6. It is seeing accumulation according to the On the Balance numbers.

TrackStar provides us invaluable insight into the research habits of financial advisors and the retail crowd. We continue to track the data and provide context. Research can be the difference between a winner or a company long on buzzwords and short on fundamentals, so channel the inner voice of your Indian mom and “study hard” when it comes to doing your due diligence! 

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