Yesterday I posted the first five of my top 10 small-cap picks for 2022. You can read that article here.
One theme that I am looking at very closely in the year ahead is de-SPACs. SPACs were pretty much a disaster in 2021, but the poor action in the sector has created some exceptional opportunities as well. There are a number of potentially great stocks that have been tarnished with the SPAC stink, but they should eventually start to perform and trade on their own merits. I've listed a couple of names here as potential plays for 2022, but there are several others that I like and will discuss in the future more, and I will be discussing them in the future.
Here Are My 5 Remaining Picks
Urban-Gro (UGRO) is a small company that provides infrastructure for the cultivation of cannabis and other crops. It is a fully integrated architectural and engineering company focused on Controlled Environmental Agriculture (CEA). Since the company is not involved in the actual sale of cannabis, it enjoys full listing on the Nasdaq exchange.
Because cannabis is largely subject to state laws, each state must grow its own supply for distribution in that state. It can't be transported across state borders. This creates a large customer base for UGRO. The company is also expanding into Europe.
Its most recent quarter revenues more than doubled, and the company reported its first profitable quarter. It has substantial cash on hand. It trades very thin, but the valuation is attractive and should benefit greater as the cannabis sector improves.
Xeris (XERS) is a disappointing name I have followed for quite some time, but the company merged with another small biotech name earlier this year, and it just received FDA approval of a drug for a rare disease. The company is ready to start marketing this new drug immediately. In addition, the company already has technology that is used for drug delivery that negates the necessity for refrigeration. It is currently offering Glucagon, which is used in an emergency situation when blood sugar levels drop too far. The company is exploring other uses for its drug delivery technology.
Analysts are bullish on the name, and Leerink just issued an $8 target. The stock has some substantial technical overhead to work there, but it is now executing on its plans and looks ready to start trending upward.
Alto Ingredients (ALTO) is a small company that underwent a dramatic transformation due to the Covid crisis. It was on the verge of bankruptcy as its ethanol fuel business struggled, but it transitioned into producing high-grade alcohol used for sanitizers, alcohol, and medical purposes. It has paid off all its debt, is now cash-flow positive, and producing substantial net income. Recently it was able to reopen an ethanol plant due to a surge in the price of ethanol. The company is expected to have a very strong fourth quarter and currently has an EPS estimate of $0.80 for 2022, which is probably low.
IonQ (IONQ) is one of many de-SPACs during 2021. It is not only a leader in Quantum computing but has a large lead over its competition and is building a portfolio of cutting-edge patents. An investor presentation can be found here.
IONQ is still an early-stage company without major revenues, which means it is likely to be a very volatile trader, but it is very likely to emerge as the leader in an industry that institutional investors will want to be exposed to. I am looking for the stock to provide numerous good opportunities on pullbacks in the year ahead.
Humacyte (HUMA) is another early-stage de-SPAC. Like IONQ, it is on the cutting edge of new technology. HUMA develops bioengineered human tissues for a wide variety of uses. It is currently preparing to manufacture human acellular vessels (HAVs) in various sizes for vascular repair. Its technology can be extended to many other areas, and the total addressable market for its products is huge. An investor's presentation can be found here.
The company has no revenue at this time but should have a steady supply of news and data as its developmental efforts continue. The stock has been hit hard due to tax selling, some insider selling, and the poor market for SPACs, but this is a true unicorn that will eventually attract substantial institution interest.
There is an unusually large number of attractive small-caps in the market right now that have been hidden under the action of the indexes. The potential for some great trading is there, but it will require discipline and good timing.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider UGRO to be a small-cap stock. 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.)