KeyStone’s 2015 Cash Rich Report Released

In the wake of the 2008 credit crisis that froze capital, cash in hand became king. With Western economies awash in debt, both public and private, the great deleveraging continues. Companies with strong balance sheets including zero or manageable debt, solid cash positions, good working capital, and good cash generation can withstand downturns and prosper in market upturns. As such, these Cash Rich stocks continue to garner strong market attention.

With that in mind, KeyStone recently released our 2015 cash Rich, Profitable Canadian Small-Cap Stock Report. Research for the 40+ page report begins with over 3,500 Canadian stocks, our research uncovers over 60 Small to-Micro Cap stocks – all profitable, cash rich (no debt) companies, many with between 10-100% of their market caps in cash. We drill down on each providing fundamental statistics and research notes from our management interviews and provide a select number of NEW BUY Reports. We provide Flash Updates with current BUYS|SELL|HOLD ratings on all Cash Rich Stocks currently in coverage. This year, our three New BUY recommendations include 2 high growth software Small-Caps, one low-priced Micro-Cap and bonus notes on our recent Specialty Pharmaceutical selection which trades at a significant discount to its peers.

The report has become an annual must read for growth and value investors. With 16 stocks highlighted in the annual report over the last 3 years receiving premium takeover bids, it serves as an excellent source of potential takeover targets. Unique research you can find nowhere else. Last year’s Top Cash Rich recommendation, Cipher Pharmaceuticals (CPH:TSX), has gained over 140% – do not miss out on this year’s recommendations.

Again, the theme with these companies has been strong balance sheets and strong cash flow. This type of pristine balance sheet can withstand and even profit from a downturn (via strategic expansion through purchase of distressed assets). We believe companies that hold this profile will continue to attract more attention from individual investors and as potential acquisition targets in 2015.

Having said this, readers must be careful to remember that not all companies included in the report meet our full criteria. In fact, a large cash balance in itself does not make a great investment. If not employed effectively, the return on investment can be low and the opportunity to create excellent long-term returns can be wasted.

To compile this report, we included micro, small, and mid-cap stocks with an eye towards the lower end. Within this report, we strove to include companies with cash balances that exceeded (in most cases) 10-20% of their total market cap as a minimum. We also looked for current profitability or profitability within the last 12-months. Our bias was also towards debt free companies or those with cash balances that significantly exceeded long-term debt. Finally, we have also included our brief research notes on each company from MD&A and management interviews. We advise clients pay close attention to these. The report can be used as a tool to put together your own watch list of companies that appeal to you at certain prices and make strategic purchases. While 9 companies in the survey are already in active coverage, we are monitoring the remainder for potential entry points – we encourage clients to reference the notes on each company for further individual details.

While our Top Pick from last year’s Cash Rich Report, Cipher Pharmaceuticals Inc. (CPH:TSX), has performed tremendously well already, the company’s strong free cash flow and cash balance provide management the fuel necessary for accretive acquisitions in 2015. We maintain our current long-term rating on the stock.

In a low oil environment and over the long term, our 2015 report highlights two energy related stock with excellent free cash flow that trade at depressed prices with very strong balance sheet. The first recently employed its cash rich balance sheet and is well positioned to benefit from the fruits of that cash deployment over the course of the next 1-3 years. The company remains a BUY in both the near term and long term even in the current energy environment based on what we expect to be solid growth in the second half of 2015 with its new drill rigs hitting active operation under 2-year contracts. The second energy service stock trades at low relative valuations with a strong balance sheet. In the near term, the company may face growth challenges in its core market if New Tanker builds decline. Having said this, the company is entering new markets in the second half of 2015 and management is focused on deploying its cash on hand towards accretive acquisitions over the next year. The stock is suitable for long-term investors with a 2-3 year time horizon.

Enghouse Systems Limited (ESL:TSX) is a long-term star on our Focus BUY list and considered a core holding for many long-term clients. The stock is an excellent example of how to generate consistent cash flow and growth via that cash flow long term. We maintain our HOLD rating on the stock near term.

Cash Rich Company Notes

This year we beefed up our individual note section providing full company summaries and written analysis with our thoughts on valuations and whether individual companies may be attractive to certain clients. We are monitoring a number of the 60+ companies for potential entry points.

Primary recommendations include our BUY (Focus BUY) on a software and hardware based technology company, which offers a good mix of both growth and an excellent balance sheet at reasonable valuations. We also initiated coverage on a unique on demand TV-based software company which also boasts a strong balance sheet, current growth and the potential for further dramatic growth via new contract wins. Finally, we initiated coverage on a semiconductor monitoring and measuring equipment manufacturer, which offers a strong balance sheet with good current valuations for long-term patient investors.

Outside of our 3 new recommendations included, we continue to closely monitor a number of stocks which we see as excellent businesses from the report that would make excellent long-term businesses if we can find opportune entry points in 2015.

Overall, 2015 is shaping up to be a very interesting year for North American markets. We see select value in information and technology-based businesses and have recently recommended a number of these including an undervalued Specialty Pharmaceutical Small-Cap which is poised to post significant cash flow growth in 2015. There will be select value in energy, but those investing here will likely have to take a long-term view as the industry adjusts to lower energy prices.

12/24/2014
CASH RICH MICRO-CAP, STRONG CASH PRODUCING UNIQUE TECHNOLOGY DRIVEN COMPANY, ZERO DEBT, LONG-TERM FOCUS– INITIATE COVERAGE

12/24/2014
CASH RICH SOFTWARE MICRO-CAP BREAKS INTO PROFITABILITY WITH STRONG BALANCE SHEET, CASH GENERATION AND POTENTIAL CONTRACT CATALYSTS IN 2015 – INITIATE COVERAGE

12/22/2014
UNDERVALUED SPECIALTY PHARMA STOCK COULD RECEIVE RE-RATING HIGHER BY INVESTORS IN 2015 VIA LATEST ACQUISITION AND NEW CEO OUTLOOK – INITIATE COVERAGE

12/4/2014
CASH RICH, STRONG CASH PRODUCING NETWORK SOFTWARE-HARDWARE PROVIDER, 33% OF MARKET-CAP IN CASH, ZERO DEBT, GROWTH INDUSTRY – INITIATE COVERAGE

12/1/2014
ENERGY SERVICES STOCK POSTS DECENT QUARTER, TRADES AT LOW CURRENT VALUATIONS, LONG-TERM INTACT, NEAR-TERM UNCERTAIN HOLD

“With just two trading days left in 2014, it’s mathematically assured that the S&P 500 will finish the year without ever having four consecutive down days. That’s never happened before in the 90 or so years since Standard & Poor’s launched its first stock index in the 1920s. (The S&P 500 in its current form dates to 1957.)

What’s more, there were barely any instances of three-day slides for much of the year. Before Labor Day, there were just four such three-day streaks, a startling testament to the lack of market volatility for large swaths of 2014.

But in the last few months, that’s changed. Since Labor Day, there have been six three-day slides, including twice earlier this month. But every time, day four was an up session.

In contrast, 2014 has brought us 11 winning streaks of at least four days, including the five-session run which ended with a 0.29-point decline on Christmas Eve.

The last four-day drop for the index was capped on Dec. 13, 2013. Even then, the S&P 500 barely notched a four-session skid, as the index that day logged a mere 0.18-point decline.“. – by Kevin Kingsbury of Morning Money Beat

….read: We Just Got A Major Warning Signal That Preceded Stock Market Crashes In 1987 & 2007

The BRIC grouping of Brazil, Russia,India and China has never looked so disunited to stock investors.

While Chinese and Indian benchmark equity indexes have surged an average 40 percent this year, Russian and Brazilian gauges posted a mean drop of 4.2 percent. The annual divergence is on pace for the biggest since economist Jim O’Neill coined the term in 2001, leaving the combined market capitalization of Chinese and Indian equities $5.2 trillion larger than that of Russia and Brazil, according to data compiled by Bloomberg……

CLICK HERE for the complete article

Of all the educational ideas a trader can learn, the “falling safe” concept is among the most valuable.

A falling safe can either crush you… or present you with a trading bonanza.

We’ll start this simple, but valuable, lesson with a chart…

This is a chart of crude oil from early 2007 through late 2008. See that huge, sharp decline on the right-hand side? That’s a market in crash mode. Some traders call this kind of move a “falling knife” or a “falling safe.”….. CLICK HERE for the complete article

U.S. stocks rose a fifth day, sending the Dow Jones Industrial Average past 18,000 for the first time, while Treasuries fell as data showed the economy grew at the fastest pace in a decade. European equities extended a rally, the ruble advanced and oil climbed.

The Standard & Poor’s 500 climbed 0.4 per cent to a record at 9:30 a.m in New York, while the Dow average added 46.72 points to 18,006.16. The Stoxx Europe 600 Index increased 0.5 per cent,  heading for its sixth gain in longest winning streak since April. The yield on 10-year Treasury notes added four basis points to 2.19 per cent. The Bloomberg Dollar Spot Index held near a five-year high, while the ruble strengthened 2.3 per cent as oil advanced. Greek bonds fell as the nation failed to elect a president… CLICK HERE to read the complete article