Wharton School professor Jeremy Siegel believes that Wall Street could boom in 2021 “no matter who is President.” Siegel cites increased money supply and higher worker productivity among the reasons for his outlook. In addition, the novel coronavirus headwind is likely to be less intense in the coming year.
Historical records also show that the stock markets have delivered positive returns in the year following elections, irrespective of the incumbent party winning or losing.
Given this outlook, it makes sense to consider fresh exposure to stocks after the election-triggered volatility dies down.
Further, within the equity portfolio, investors can consider exposure to small-cap and micro-cap stocks. If the bull market sustains after some correction, micro-caps can be outperformers.
Let’s look at four micro-cap stock that hold potential for long-term growth. I have also focused on two micro-cap stocks that have an attractive dividend yield besides the prospects of stock upside.
4 High-Risk, High-Reward Micro-Cap Stocks: Costamare (CMRE)
With a dividend yield of 6.99%, Costamare is my top pick among micro-cap stocks. In the last one year, CMRE stock has declined by 29% due to economic headwinds. However, I believe that the shares have bottomed out. CMRE stock is worth buying as it consolidates around current levels of $5.70.
From a business perspective, the company is one of the leading owners and providers of containerships for charter. The company has a current order backlog of $2.1 billion with an average charter duration of 3.5 years. This is a key positive as the company has a clear revenue and cash flow visibility.
On the balance sheet, the company has net-debt-to-adjusted-EBITDA of 3.33. However, leverage is not a concern, with its EBITDA interest coverage ratio of 5.0. Therefore, with smooth debt servicing visibility, the company’s credit profile is strong.
As a matter of fact, the company has paid 40 consecutive quarterly dividends since its initial public offering. With a strong backlog and healthy fundamentals, dividends will sustain. In addition, the worst might be over for the global economy. As GDP growth gradually gains traction, the market for containerships is likely to remain strong.
GasLog is another pick from among micro-cap stocks that has a robust dividend yield of 8.4%. GLOG stock has slipped by 83% in the last 12 months. However, I believe that high-risk taking investors can consider some exposure for a reversal in stock sentiment.
GasLog is in the business of owning, operating and managing maritime LNG carriers. The company currently has a fleet of 12 LNG carriers which includes four new carriers to be delivered through fiscal year 2021.
The company’s consolidated balance sheet has a net-debt-to-adjusted-EBITDA of 7.1. High leverage is a key factor that has resulted in GLOG stock slipping. However, the company’s LNG carriers have a clear revenue visibility.
Once all 12 carriers are operational, the company will have a $2.5 billion contracted backlog. Further, the annual EBITDA visibility is $265 million. Therefore, near-term debt refinancing can ease the pressure on the stock. Once the entire fleet is operational, debt servicing is likely to remain smooth.
The global economic slowdown is another headwind. However, natural gas carriers will be in demand as imports continue to increase to countries like China and India.
For those comfortable with the risk, I would not be surprised if the stock doubles from current levels in the next 12-24 months.
IBIO stock is a purely speculative bet, which has surged by 598% for year-to-date FY2020. With iBio in the race for the COVID-19 vaccine, the stock has been in the limelight.
To be sure, rivals such as Moderna (NASDAQ:MRNA) and AstraZeneca (NASDAQ:AZN) are well ahead in the vaccine race. Moderna will commence Phase III trials in the beginning of 2021. Meanwhile, IBIO-200 and IBIO-201 (COVID-19 vaccine candidates) are still in the pre-clinical stage.
The company also has a pipeline of other drugs and vaccines, but primarily in the early stage (pre-clinical and Phase I). Therefore, there are no immediate stock upside triggers.
However, if the company does enter Phase I trial for the COVID-19 vaccine, the stock could see some action. Positive news from trials can send the stock higher. I therefore believe that a small exposure to IBIO stock makes sense.
It’s worth noting that the stock currently trades around $1.65. However, the stock had touched a high of $7.45 in July 2020. If there are positive developments in the coming quarters, the stock could rise significantly.
Aurora Cannabis (ACB)
Aurora Cannabis shares have plunged by 90% in the last 12 months. However, I believe that high risk-taking investors can consider ACB stock at current levels below $5 a share.
Aurora Cannabis might be struggling with the cash burn and relatively slow market growth. However, the industry has potential in the long-term. With cost-cutting measures, Aurora is focusing on survival. Once industry growth gains traction, the company will benefit.
The company also launched cannabis 2.0 products in December 2019. These include vapes, gummies, chocolates and baked goods, and command a higher margin than traditional marijuana sales. The company’s EBITDA margin can potentially improve if sales of these derivative products is strong in the coming quarters.
Overall, ACB stock has been on a sustained downtrend. However, as I write, the stock is up by 16% in recent days. From oversold levels, the rally can be strong. Some exposure to the stock makes sense.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.