Welcome to this week’s edition of Microcap Moonshot Weekly.
Let me start with Peter Lynch's November 2023 quote on small-cap investing and the state of the market.
"I love it when stocks go down… We've been in an incredible bear market for two years, except for basically ten big stocks. Stocks are almost selling for less than cash. Look at the Russell 2000."
-Peter Lynch
Peter Lynch famously stepped away from managing the Fidelity Magellan Fund after compiling a track record that approached 30% per annum.
But few investors understand that Magellan made its money by investing primarily in microcap or small-cap stocks that morphed into ten-baggers.
Lynch understood this, which is why he exited the game at just the right time. He knew he couldn’t sustain Magellan’s remarkable performance without the benefit of small-cap stocks.
Magellan had become too big.
Most of us aren’t trying to manage billions of dollars. And that’s precisely our edge.
Combine that with the fact that small caps have underperformed for the past decade, and you have the makings of a monster rally in microcap and small-cap stocks.
With that, here are three other small caps others are betting on. And one short candidate to boot.
NOTE: Premium Microcap Moonshot subscribers will have access to this week’s paid recommendation in a separate email.
Microcap Moonshot Weekly
Microcap Moonshot Weekly researches and ranks microcap and small-cap stock investment recommendations made by various paid financial newsletters, mainstream media outlets, and other Substack publications.
I rank each of these recommendations using Microcap Moonshot’s proprietary ranking system, which focuses on three factors: Quality, Value, and Momentum.
I then assign an overall rating on a scale of 1 to 100.
Looking beyond the numerical rankings below, Microcap Moonshot applies additional fundamental, technical, and market sentiment indicators to each stock. This process helps winnow down the list of over 10,000 candidate stocks to a handful.
Now, onto this week’s look around the web for microcap stocks.
Microcap Moonshot Verdict
1. UiPath Inc. (PATH)
PATH is a leading robotic process automation (RPA) company.
The RPA market is rapidly expanding and is projected to reach a multibillion-dollar valuation in the coming years, as organizations increasingly prioritize digital transformation and operational efficiency.
In essence, PATH’s platform is built to be used by employees to address a wide variety of use cases — from simple tasks to long-running, complex business processes.
The Company generates revenue from the sale of licenses for its proprietary software, maintenance and support, the right to access certain software products it hosts and professional services.
In Q4, PATH reported record quarterly revenue of $405 million, an increase of 31% year over year (YoY), along with adjusted free cash flow of $146 million.
During the full year 2023, PATH saw revenue of $1.3 billion, an increase of 24% YoY, and $1.9 billion in cash.
Lastly, its annual recurring revenue was $1.464 billion, an increase of 22% YoY.
Source: Paul Mampilly – ATG Substack
Microcap Moonshot Rating: 65/100
Quality: 77
Value: 11
Momentum: 92
Microcap Moonshot View:
Nothing suggests any issues with company health, bankruptcy risk, or earnings manipulation.
The stock did not qualify for any guru screens.
2. Customers Bancorp, Inc. (CUBI)
Customers Bancorp, Inc. is a bank holding company that engages in banking activities through its subsidiary, Customers Bank (the Bank).
The Bank provides banking products, primarily loans and deposits, to businesses and consumers through its branches, limited production offices, and administrative offices in Berks County and Southeastern Pennsylvania, New York, Hamilton, New Jersey, Boston, Massachusetts, and other geographies.
The Bank administratively supports loans and other financial products, including equipment finance leases, to customers. It also offers venture banking loan portfolios.
The Bank serves specialty businesses nationwide, including its commercial loans to mortgage companies, commercial equipment financing, SBA lending, specialty lending, and consumer loans through relationships with fintech companies.
The Bank’s specialty lending includes fund finance, real estate specialty finance, technology and venture, healthcare, and financial institutions groups.
Source: Market Mosaic, Substack
Microcap Moonshot Rating: 93/100
Quality:51
Value: 85
Momentum:93
Microcap Moonshot View:
Mosaic recommends the stock on a purely technical basis. The Company appears to be stable, and there are no red flags regarding its health, bankruptcy risk, or earnings manipulation.
The stock qualified for one guru screen.
3. Ceragon Networks Ltd (CRNT)
Ceragon Networks Ltd offers wireless backhaul solutions. Its products comprise of FibeAir IP-20 Platform, FibeAir IP-20 Assured Platform, and Network Management.
The company provides its services to wireless service providers, public safety organizations, government agencies, and utility companies. Its FibeAir IP-20 platform offers flexibility in choosing all-outdoor, split-mount, and all-indoor configurations to suit any deployment scenario.
Its products include short-haul access, short haul aggregation, small cells, long haul, and enterprise access.
Geographically, it derives most of its revenue from India and has a presence in North America, Europe, Africa, Asia-Pacific, the Middle East, and Latin America.
Source: Benzinga
Microcap Moonshot Rating: 98/100
Quality: 80
Value: 73
Momentum: 95
Microcap Moonshot View:
The Company has a low Altman X-Score which suggests some level of bankruptcy risk.
The stock did not qualify for any guru screens.
4. Petco Health and Wellness Company (WOOF)
The Chief Customer Officer of Petco Health and Wellness Company was “terminated without cause” after a little over one and a half years. The company’s Chairman/CEO also “entered into a separation and consulting agreement and general release of claims” in March after nearly six years. The company is down ~90% since its January 2021 IPO.
Source: The Bearcave (Substack)
Microcap Moonshot Rating: 30/100
Quality: 28
Value: 82
Momentum: 4
Microcap Moonshot View:
This stock’s problems are highlighted by its low Altman Z-Score.
The stock qualified for one short guru screen.
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