April 7, 2017
Tier 2 Canadian Healthcare Companies – nicely positive with moderate volatility
In this blog, I am going to comment on the Q1 2017 share price performance of the group of 69 companies with share prices of between $0.10 and $0.99 to start 2017 (revised from 72 companies mentioned in Part 1).
There is nearly always more volatility in the share prices of Tier 2 companies than for the Tier 1 companies. There were share price changes of 40% or more (positive and negative) for 8 out of 50 (16%) Tier 1 companies and 16 out of 69 (23%) Tier 2 companies. The major difference in Q1 between these two groups is that specific announcements triggered most of those changes in Tier 1 and the changes in Tier 2 often occurred in the absence of major news and with low volume, sporadic trading.
There are more than 30 companies in the sector which closed 2016 with share prices below our $0.10 limit for inclusion in Tier 2, including LED Medical Diagnostics which ended 2016 with a share price of 6 cents. The share price increase of 64% in Q1 2017 deserves mention because LED announced completion of the acquisition of Apteryx (dental imaging software) for an aggregate purchase price of US$10.25 million and the related financings for gross proceeds totaling approximately C$14.4 million.
Medical/Retail Marijuana Group
Nineteen public Canadian marijuana companies are being monitored for share price performance in 2017. Most companies in this sector are in the early stages of commercialization, either still seeking Health Canada licenses or not yet profitable.
The announcement by the Canadian government on the decriminalization/legalization of marijuana use in Canada was announced after the end of Q1. The stock market anticipated that the legislation would create a highly-controlled market with large potential revenues but with many unknowns. One of the biggest unknowns is how each province will manage marijuana sales. As a reminder, marijuana is still illegal under U.S. federal law (unlikely to change soon) and, in the states where it is legal, all marijuana products must be made in the state where they are sold. The lack of information and clarity on the marijuana market led to stock market uncertainty which flattened out the sector share prices.
Looking Ahead
Last quarter, the expectation of certain legislative actions in the U.S. started the ‘Trump rally’, which continued into Q1. While no legislation has yet been passed, the expectations are still high. The Q1 earnings season is ongoing, with most companies meeting their lowered expectations. The pharma and biotech companies are hoping for tax reductions and trusting that there will not be any agreement on drug price controls. Adding in BREXIT and elections in U.K., France, Germany and Iran, there are so many factors which can impact the movement of the general markets.
You are probably going to have to pick individual winners in Canadian healthcare – whether you choose to bottom-fish, look for near-term events or expect improved financial performance.
[The author and his immediate family members may have long or short positions in the shares of some companies mentioned in or assessed during the preparation of this blog. Past share price performance may not be an indicator of future share price performance. This blog does not consider the investment objectives, financial situation or particular needs of any particular person. Investors should obtain professional advice based on their own individual circumstances before making an investment decision.]
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