Corporate change in
the Small Cap World
The Securities and Exchange Commission (SEC) down in the
states requires that all publicly traded companies under its supervision make
certain periodic and special filings. One such form is called a ‘Form 8K’, this
form is filed after a material event
occurs such as an acquisition, an asset sale, a bankruptcy, or a change in
control of the company. As far as I know there is no corresponding form
issued up here in Canada,
so to find out about these types of corporate events, an investor will have to
logon to www.sedar.ca and peruse
the company’s public disclosures. Maybe this is a good thing as the
information is more hidden and thus has more ‘wager value’. Narrowing
this approach down to the small cap universe only adds to the value of the
information as there is less competition paying attention to this sector of the
market place.
These types of
corporate events or ‘special situations’ can drastically alter the course of
the future of a small cap company and can often serve as a catalyst launching
the company in a new direction with increased profitability. One way to
hunt these situations down is to follow
small cap managers who follow and invest in these types of corporate events.
Typically they will be small operators with a limited amount of assets under
management making the information all the more valuable. The keyword in all of
this is ‘change’…What has changed in the
company and how will this affect the share price in the future? Management
teams who are good capital allocators will often make an asset sale or a purchase that
is likely to enhance shareholder value down the road. There are many different
themes that can play out in this area.
This strikes at the very heart of wager value…focusing on
little known or under-used information. While the majority of the investing
public (your competitors) focus their attention on the mass media and the news
of the day you can be doing valuable detective work under the secluded rocks of
the small cap universe.
If you like to work
with stock screens, this can be a valuable adjunct to researching the stocks
that catch your eye from the screens you run on the market.
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