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Which stock will be our best performer of 2022?

Published 15-OCT-2022 14:00 P.M.


13 minute read

Small cap investing can be exhilarating when things are going well.

When markets are rough it can also be a horror show.

To smooth out this emotional rollercoaster, whether in a bull market like 2021 or a rough market like 2022, our general rule is to hold a diversified portfolio of small caps, and give each company a few years to execute on its plan.

Generally we are chasing a big winner (or two) every ~12 months, and a few other positions showing decent returns, in order to be ahead overall when taking into account all the “bets” that didn’t work out... or haven’t delivered just yet.

Today we will cover the six stocks we think have the potential to be one of our outsized performers for 2022...

But first let’s take a look at last year where we held ~40 stocks across our four portfolios - with a few stand out performers like PRL, VUL, ONE, 88E and MNB - the chart shows the % rise over the 2021 calendar year:

chart key small 2.jpg

You can see that out of a diversified small cap portfolio, it’s usually one, two or maybe three positions that deliver outsized returns to offset the laggards.

While the share prices have fluctuated since, nearly all of them have re-rated on average to a higher level from our Initial Entry Price and now form a solid part of our Total Portfolio.

The majority of other stocks in the portfolio will generally be up OR down around say 50% (depending on broader markets and what the company is doing, typical for small caps) and fluctuate while we wait for the company to deliver a material piece of news that will re-rate the share price upwards.

After a pretty rough 2022 on global markets, we are broadly nursing some paper losses while we patiently wait for the market to turn.

Our strategy is to invest in companies and hold to see them re-rate based on executing a plan over a few years, rather than jump in and out of stocks on broader market sentiment.

The good thing about small caps is that even in a bad market, if a small cap stock delivers significant news it can and does re-rate upwards (remember GAL managed a run from 20c to nearly $2 on a discovery during the May stock market bloodbath this year).

So with ~8 weeks to go before the markets effectively shut-up shop in mid December, there are six stocks in our portfolio that we think have the potential to deliver the biggest outsized win for us before the end of 2022.

In our view, the stocks with meaningful enough catalysts in the next 8 weeks to become our best performer of 2022 are GAL, IVZ, TYX, RAS, LRS and LNR.

For ease of calculation, we are defining “best performer” as “largest % increase in share price from January 1st 2022 to December 31st 2022”.

GAL, TYX, LRS and RAS have already performed pretty well so far in 2022 PLUS we are expecting pre-Christmas news from each stock that could push it to become our top performer for 2022.

IVZ had a decent run in 2022 but has come off in the last few weeks.

IVZ are expecting crucial drill results pre-Christmas that we think has the potential to re-rate it enough to win the title - assuming that the result is positive AND exceeds market expectations. Expect the opposite if the results are not good.

LNR is our dark horse, and hasn’t seen a big rise yet in 2022.

LNR are operating in the hot macro theme of rare earths and have drilling results due soon, although the company will need to deliver something pretty special to take the best performer of 2022 prize.

So, based on the price performance to date, combined with hopefully a highly positive result from an upcoming critical catalyst, we believe that one of these six companies will claim the title of “best performer in our portfolio for calendar 2022”.

The winner will likely be determined by who can deliver the most “expectation beating” news pre-Christmas.

An interesting observation is that of the six stocks that are in the race to be our best performer for 2022, three of these Investments were made in 2020, one in 2021 and only two in 2022.

This shows that it can sometimes take a year or two before a small cap stock delivers enough progress, and is in the right window, to achieve a material share price re-rate.

We expect that some of our best performers of 2023 will be companies that we have already been holding from the years prior.

In 2022 we have added 10 new small cap stocks to our Portfolios - some of these stocks had fast starts, others need time to build value and could become our best performers of 2023.

Even though the market has been rough during 2022, we hope that just one (maybe two) of our stocks can deliver us that rare 1,000%+ return needed in a diversified small cap portfolio.

Obviously, small cap investing is risky and if any of these results fail - or the broader market continues to correct or crashes, then these stocks will likely go down.

So here are our current contenders for best performer for 2022 - as always we are targeting a 1,000%+ return:

GAL - If its northern drilling delivers more hits AND positive assays

GAL: Drilling out a PGE discovery

Current Market Cap: $224M

Days since Portfolio Initiation: 957 days

Performance since Initial Entry Price: +409%

Performance since Jan 1 2022: +449%

Commentary - GAL is already up 449% in 2022 and has a strong lead to be the best performer.

GAL already made a discovery which re-rated it upwards, but it also recently announced more new potential discoveries (assays pending) in different locations showing that there is a lot more potential across another 5km of ground.

Two rigs are now drilling, there is a backlog of assays to come before Christmas and lots of scout drilling going on to potentially find extensions or new systems - a couple of excellent results could crown GAL as our top performer for 2022 and hopefully hit that 1,000% rise.

We also note that the $1.20 placement from July has had plenty of time to be digested, which is usually a precursor to a re-rate higher.

Our GAL Investment Memo

IVZ - If it strikes gas before Christmas

IVZ: Drilling largest onshore oil & gas prospect in Africa (Zimbabwe)

Current Market Cap: $138M

Days since Portfolio Initiation: 756 days

Performance since Initial Entry: +387%

Performance since Jan 1 2022: +23%

Commentary - at just 23% up since January 2022, IVZ has a lot of ground to make up if it is to become our top performer for 2022. But with some exploration luck it is certainly possible given that IVZ is in the process of drilling such a large oil & gas target, with long awaited results expected pre Christmas.

We have included IVZ in this list today based on the potential re-rate from a successful drill result - we should know before December.

With drilling well underway, a first look at results soon, and an almost binary result expected, some holders appear to have decided to de-risk their position pre-result over the last few weeks, resulting in the IVZ share price coming off.

IVZ trading was paused on Friday and went into trading halt pending a response to a price query from the ASX, expected Monday.

We haven't sold any IVZ in the last few weeks and will be holding into the result, hoping for a repeat of what happened to us with this past oil and gas exploration investment we made.

Our IVZ Investment Memo

LRS - If it delivers a large JORC resource for new lithium discovery

LRS: Resource drilling lithium discovery (Brazil)

Current Market Cap: $193M

Days since Portfolio Initiation: 688 days

Performance since Initial Entry:+457%

Performance since Jan 1 2022: +233%

LRS is already one of our top performers after striking a high grade lithium discovery in late March which sent it up from 3.6c at the start of March to as high as 22.8c by early April.

If LRS can deliver a few more drill results to grow its discovery AND top it off with a JORC resource, we think that could be a challenger for our top performer.

LRS’s regional lithium neighbour Sigma Lithium is capped at $4.75BN, and LRS is following the same discovery to development pathway.

Our LRS Investment Memo

TYX - Big Lithium strike from its maiden drill campaign

TYX: Maiden drilling campaign for lithium in Angola

Current Market Cap: $98M

Days since Portfolio Initiation: 38

Performance since Initial Entry Price: +141%

Performance since Jan 1 2022: +550%

Commentary - TYX is drilling for lithium in Angola - this is a pretty simple story:

TYX is very close to starting a maiden drilling campaign in an unexplored region, searching for lithium - the hottest commodity in the world right now.

If TYX can deliver some decent core visuals and back it up with strong assay results pre Christmas, we think it has a very good chance to be our best performer of 2022.

(note: we only Initiated Coverage on in TYX late in 2022, so obviously can’t claim the strong run it had prior to our Initiating Coverage).

Our TYX Investment Memo

RAS - Big Lithium strike from its maiden drill campaign

RAS: maiden drilling campaign for lithium, Western Australia

Current Market Cap: $36M

Days since Portfolio Initiation: 466

Performance since Initial Entry Price: +338%

Performance since Jan 1 2022: +244%

Commentary - Another simple story - RAS is drilling for lithium in the Northern Territory right now after picking up some prime tenements neighbouring $2.1BN Core Lithium.

As a result RAS has moved from a low of 5.5c in March all the way to 23c in late May.

We’re now looking to see the assays from its drilling after recently kicking off the drill program - we are expecting to see some results pre Christmas.

In this market, any significant lithium strikes are rewarded, and with RAS starting from a base of 244% up already during 2022, a decent lithium discovery could give them the top performer spot.

Our RAS Investment Memo

LNR - Big rare earths strike from its maiden drill campaign

LNR: Maiden drilling campaign for rare earths, Western Australia

Current Market Cap: $34M

Days since Portfolio Initiation: 246

Performance since Initial Entry Price: +21%

Performance since Jan 1 2022: +76%

Commentary - Another simple story - maiden drilling results for a hot commodity: rare earths.

We’ve been eagerly anticipating the results from LNR’s maiden drill campaign in the Gascoyne region of WA next to much bigger rare earths neighbours Hastings ($393M market cap) and Dreadnought ($261M).

At only 76% up in 2022, LNR will need some pretty spectacular results pre Christmas to take our best performer prize, but anything can happen if a stock gets blessed with exploration luck and its commodity is in favour - we should know before December.

(note: we only Initiated Coverage on LNR in Feb-2022, so can’t claim any run it had prior to our Initiating Coverage).

Our LNR Investment Memo

Essentially, it all comes down to exploration luck for these six companies, where results that exceed market expectations can happen (but are rare).

Here is a visualisation of our portfolio performance for 2022 so far, showing who is already an outsized performer.

chart key big 1

So with ~8 weeks of market time to go, we will check back to see which of these companies claims the prize.

Got a view on which of the six stocks we’ve profiled here will be our best performing stock this year? Or have we missed something?

Let us know which stock YOU think will be the top performer in 2022 and why via the form below:

Click here to fill out our survey

We’d love to hear your thoughts.

🗣️ This week’s Quick Takes

88E: 88E neighbour Pantheon's drilling exceeds expectations

AKN: Promising met results for WA base metals project

ARN: Maiden JORC resource estimate announced

CAY: Government expresses support of 1BN tonne bauxite project

CAY: Targeting prospects outside of 1BN tonne resource area

GAL: High grade assays again...

NHE: NHE Loyalty Option Prospectus is out

PFE: Drilling to commence at WA Manganese Project

RAS: NT lithium project tenement granted

TG1: More target generation works at gold discovery

TYX: Civil works started, drilling to start shortly

This week in our Portfolios 🧬 🦉 🏹

Galileo Mining (ASX:GAL)

On Monday, Galileo Mining (ASX:GAL) reported that it had identified a new zone of disseminated nickel sulphide. Four drill holes 400m north of its Callisto discovery intersected disseminated nickel sulphide mineralisation of up to 51 metres thick.

GAL followed up on Wednesday with the assay results from its ongoing RC drill program, confirming palladium-platinum-gold-copper-nickel in the western most drilling undertaken to date. The Mineralisation remains completely open to the west-northwest where a three metre high-grade seam has been discovered.

Then on Thursday, GAL, massive sulphide assays from Callisto revealed a new style of magmatic nickel-copper-cobalt with potential for high-grade zones within the growing mineralised system. This was the first occurrence of significant cobalt at Callisto, and the first massive sulphide intersection to date, occurring above and separate from the palladium rich lower zone.

We wrote about GAL on Monday ahead of its announcements on Wednesday and Thursday.

📰 You can read that Note here: ANOTHER discovery OR one giant discovery? GAL hits thick sulphides on 400m step out drills

Kuniko Ltd (ASX:KNI)

Our Europe based battery metals explorer, Kuniko (ASX:KNI) hit significant cobalt mineralisation in all eight

holes from the primary target at its Norwegian project.

The cobalt mineralisation is open in all directions (including deeper than was drilled) and there are still a number of EM targets still to be drilled.

KNI says it has already started planning its next drill campaign based on what it has found so far.

📰 Read our full Note: KNI hits cobalt in all 8 drill holes at primary target

Sarytogan Graphite (ASX:SGA)

Sarytogan Graphite (ASX:SGA) announced a product strategy targeting the battery anode market, while reporting on the progress of its ongoing metallurgical work to assess the type of graphite it has and processes to extract and refine it.

In the first round of refinement SGA produced 92.1% purity at the Australian labs. The next stage of metwork (in German labs) SGA is aiming to exceed its historically achieved purity of 98.6%, before achieving battery grade graphite of 99.95% purity for final processing to be used in battery anodes.

While the market didn’t seem impressed, the metwork update reassured us that SGA is making progress on this front, and there is plenty more testing to come.

📰 Read our full Note: Initial metwork results are in - SGA targeting battery market

Ragusa Minerals (ASX:RAS)

Ragusa Minerals (ASX:RAS) has just started drilling for lithium in the Northern Territory, immediately south of the $2.1BN Core Lithium deposit, and on the same type of geology.

RAS has the same type of outcropping spodumene bearing pegmatites that Core identified before it drilled out its project.

And RAS’s first drill hole has now hit a 35m downhole intercept of pegmatite, recorded from just 16m depth below the surface.

📰 Read our full Note: RAS now drilling to the south of $2.1BN capped Core Lithium

⏲️ Upcoming potential share price catalysts

Results expected in the near term:

  • GAL is undertaking a second round of drilling at its Callisto PGE discovery in WA.
    • Update: Lots of updates - high grade assays continue; new nickel sulphide zone north of Callisto; massive sulphide defines new target zone.
  • KNI is drilling its cobalt targets in Norway (memo).
    • Update: Assay results enlarge potential at Skuterud cobalt project.
  • PFE has drilled its polymetallic (Hellcat) project (memo).
    • Update: No update on Hellcat, but approvals are in to commence drilling at Weelarrana Manganese Project.
  • IVZ drilling its giant gas prospect in Zimbabwe - we waited two years for this event (memo).
    • Update: Went into a trading halt following a price query from the ASX.
  • PRL: Awaiting final execution of a joint development agreement with Total Eren(memo).
    • Update: No material news this week.
  • BPM: results pending from drilling at its Hawkins lead/zinc prospect in the Earaheedy Basin, close to Rumble Resources’ discovery. (memo)
    • Update: No material news this week.
  • GGE is drilling its maiden helium well in Utah, USA (memo).
    • Update: No material news this week.
  • LNR has recommenced maiden drilling for rare earths along strike from Hastings Technology Metals (memo).
    • Update: No material news this week.

Company Progress Trackers

RAS Progress Tracker [NEW]

KNI Progress Tracker [NEW]

Have a great weekend,

Next Investors

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