If You're Going to Invest in Micro-Cap Stocks, You Need to Get in the Weeds

Before I get around to noting the small-company management teams I will meet with next week at The LD Micro Invitational in Los Angeles, I must get one thing off my chest about more famous management. After heaping fulsome praise in my Real Money column on JPMorgan Chase (JPM) after its professional remediation of issues in my account caused by my misadventures with a stolen phone on a recent trip to Brazil, I was startled to see last Thursday that I apparently had double-paid several of ExCap’s vendors on June 1. This Fox News article explains the snafu. The charges have been reversed and all is well with my vendors, but still, how does that happen?

I do not expect such glitches from JPM. CEO Jamie Dimon needs to forget about politics and tighten up the IT. After 30 years as a client (my first Chase branch was located, sadly from a historical perspective, in the World Trade Center), I am not abandoning Chase. But this fiasco reinforces the need for options. So, when I return to New York City I’ll open a business account for ExCap with Valley National Bank, which has multiple branches in Manhattan.

As I revel in the strong performance of Valley National’s floating-rate preferreds, (VLYPO) , which I bought in size on May 2 at $16.58 and which closed June 3 at $22.375, I will use Valley National as a second source to Chase for ExCap’s banking needs. There are companies that lie beneath the ticker symbols that flash across our screens. When consumer-facing companies don’t perform, consumers have other options.

But JPMorgan will survive, I am sure, regardless of how much of my company’s banking business I send elsewhere. For smaller companies, the calculus is very different. That is why attending conferences such as LD Micro, which Chris Lahiji and his team always operate flawlessly, is vital to my process when analyzing small and micro-cap companies.

These are emerging growth companies, and one fundamental change can render the entire model obsolete. That will never happen to Chase, but, as I have written many times, smaller companies require a larger dedication of research time to make them investable.

Consequently, next week I will meet privately with the management teams from CorEnergy Infrastructure Trust (CORR) , NewtekOne Inc. (NEWT) , Vicinity Motor (VEV) , Freedom Holding (FRHC) , Geodrill Ltd. (GEODF) and Energous Corp. (WATT)

Freedom Holding recently acquired LD Micro from Chris and his partners, and with Maxim Capital (a $400 million acquisition) also now part of the Freedom family, I am eager to learn how this Kazakh powerhouse plans to drive research in the micro-cap space. To say that the current slate of equity research on small and micro-cap companies is underwhelming would be the understatement of the century. Type in any of the tickers above into Google and be prepared to be deluged by a bunch of nonsense complemented by a few Real Money articles written by yours truly. Yes, I like to look at my photo on the web, but, really, the financial industry can do a lot better.

I have covered CorEnergy in my Real Money column and ExCap still owns a sizable slug of the preferreds, (CORR.A) . For CORR to sell its Missouri-based natural gas pipelines to Spire (SR for $175 million was an absolute coup, with that valuation compared to a net book value of just under $100 million and a projected value (projected, of course, by me; CORR has no sell-side research to speak of) of $125 million to $150 million for those assets. When the deal closes, which is projected by CorEnergy management to take place in the third quarter of 2023, those proceeds will easily allow CORR to fully retire its bank debt, which currently totals about $100 million.

But that divestiture will leave CORR with only its California crude oil pipelines, which have been challenged by shifting demand and have driven CORR management to request major tariff increases from the California Public Utilities Commission. I look forward to discussing that process with CorEnergy CFO Robert Waldron, as success, I believe, would allow CORR to re-establish dividend payments on CORR.A. May 31 represented the second consecutive dividend not paid on CORR.A, and while those dividends are accruing in arrears — thereby presenting the prospect of a large catch-up payment when CORR’s balance sheet is again able to support such payments- — there is a limit to my patience.

I have also covered Vicinity Motor and NEWT, now officially named NewtekOne Inc., in prior columns, and I look forward to meeting with Vicinty’s EV of business development, John Lagourgue, and NEWT’s CEO, Barry Sloane, next week. It’s always great to see old friends.

I have followed the Energous story for many years and have met with Dave Harper, Geodrill’s CEO, at several LD events as well. At one prior meeting Dave told me that he had imported the first Tesla into West Africa — he is based in Accra, Ghana — and constructed his own home charger.

It’s that type of ingenuity that is necessary for micro names to outshine the macro names. As the proprietor of two small financial businesses, I can tell you how difficult it is to compete with the big boys. But true innovation is produced at the micro level. LD always reminds me of that, even if Jamie Dimon occasionally forgets it. 

(Please note that due to factors including low market capitalization and/or insufficient public float, we consider CORR, VEV, GEODF and WATT to be micro-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)