SYLOGIST LTD (SYZ.V)

Despite all that chat of large cap, I continue to be drawn by small and micro cap names. I opened a small position on SYZ.V this morning ($1.90), a micro cap ($26 million) software company based in Calgary, Alberta, Canada. Strong growth on revenues, net income, EPS and free cash flow. Strong ROE, large backlog (hence strong visibility). Clean balance sheet. Very cheap valuation. I expect the company to make $0.2 for FY06 (September 06) and $0.3 for FY07. At current level, it is traded at 9.5X of its 06 EPS and about 6X of 07 EPS.

The company just announced that it is raising $5.0 million cash by way of a private placement at $1.9, resulting in a 10% decline in the past few sessions, an opportunity for long term investors. I believe it will announce a decent Q406 and analyst (only one) will look at FY07 EPS for valuation. Even give it a 10X multiple, it will be at $3.0 level, which is my target for next 12 months.

Position: Long SYZ.V

WPCS International Inc. (WPCS)

WPCS is breaking out over the past few sessions and insiders are buying. Very positive signs. Valuation remains reasonable. I am reluctant to chase here though, as I believe there probably will be better entry point later.

Position: None

STELLA-JONES INC (SJ.TO)

I put through a bid for SJ.TO this morning despite my near term bearish lean. This is a great company with very consistent growth profile. It has grown its top- and bottom-lines, and cash flow by more than 20% for the past five years. ROE at 20.5%, and currently paying a dividend. Outlook for 07 remains very strong. The company is in a sweet spot where two of its major business, rail ties and electrical poles, are in major replacement cycle, and will likely to continue in the next couple of years. It is also aggressively acquiring smaller companies in North America and has done a very good job consolidating. Based on its first six months results,

Valuation is also compelling. I estimate that it would made about $1.85-$2.0 per share for fiscal year 2006. At current level, it is trading at about 10-11x of its 06 EPS. It is even cheaper on cash flow basis. Even with a modest multiple of 15X, SJ.TO should be traded at 30 level. Having said that this is a very small company ($220 million market cap), limited share count (roughly 11 million floating), and low liquidity. There is also no apparent near term catalyst. Be patient, pick your entry carefully.

Position: Long SJ.TO

CAUTION REQUIRED

Haven't been posting for a few days, partly because I remain cautious as indexes marching towards new highs. I did add some HSKA yesterday to increase the size of my position to about 1.5% of my portfolio.

STB.UN announced its FY06 results. While impressive growth rate, I am a bit of concerned of its leverage level (3.7X EBITDA). The business trust as an asset category is out of favor and I generally do not like leverage. I pass for now.

NEOG also announced decent results. While I like this name, it is traded at about 20X of its FY07 EPS. It is fairly valued, in my view. Under $20, preferably at 15-17 level would be a good buy.

COM DEV INTL LTD (CDV.TO)

CDV.TO announced its third quarter of FY06 (Aug. 06) results after market closing and it was, again, a great quarter. Both revenues and EPS ($0.10 vs. $0.06) meaningfully exceeded expectation and the company raises its revenue guidance from previously 15% to 20% (after raising from 10% to 15% after second quarter). Backlog remains strong, balance sheet is clean. The company also provides initial FY07 revenue growth of at least 10% over FY06. Industry trend is also very encouraging as a signficiant number of satelites globally require upgrade and replacement. There's hardly anything not to like. The stock probably will pop a bit tomorrow and if I probably will trim my position a bit.

Position: Long CDV.TO (see previous posting here)

MEDISOLUTION LTD (MSH.TO)

Benj Gallander, president, Contra The Heard and Ben Stadelmann, vice president, Contra the Heard mentioned MSH.TO today on ROBtv today and the stock shot up by 40% immediately. I took a look, and it is rather interesting. Here's are some salient points:

1. A decent business model. The company serves the healthy care industry, primarily in the province of Quebec, although it is expanding to other provinces and USA. About three quarters of its business are recurring and growing, while its hardware business is declining. While top line has showed no growth in the past few years, it has stabilized at about $45 million level.
2. Positive cash flow. While losing money, the company generating positive cash flow from its operations for the past three years and in FY06 (March 06), it generated about $0.05/share cash from its operations. Outlook for FY07 cash flow remains positive.
3. Compelling valuation. At currently, it is traded at 0.8X of its revenues and about 4.6X of its cash flow from operations.
4. Strong support from Brascan. Brascan owns 60% of its outstanding common shares. In addition, it provides financial support in the form of two credit facilities. Given the strong support, the risk of bankruptcy is very limited.
5. Buy back. Believe or not, the company actually bought back some stocks last year at 0.35 level.
6. Cut costs. The company continues to cut its operating costs, reduce headcount and lower its debt level, which will further improve its cash flow and profitability.
7. Defensive sector. The company serves the healthy care industry, a public sector in Canada. Given the potential hard landing or even recession in North America economies, it is not a bad place to hide.
8. Limited coverage. There is only one analyst covering this stock.
9. Catalysts. While no obvious near term catalysts, I expect the company will continue to improve its cost structure in next few quarters and it is conceivable that it may be able to break even at four quarter of FY07.
10. All time low. It is bouncing from all time low.

Having said that, this is a very speculative stock without any earnings. Be cautious and mind your entry point.

Position: None

COM DEV INTL LTD (CDV.TO)

I added some CDV.TO here at a bit under $5.0. I have traded this name in and out a few times in the past. It appears to me that it is being dragged down by energy stocks on the TSE. I believe the decline is over-done and I am very comfortable with it under $5.0. If this bounces to $5.5 level, I probably will trim.

Energy stocks have fallen by more than 10% in the past six sessions. While I have been warming up to energy names, I am not pulling the triggers yet as I believe the crude still have some down side risk. But the energy names look more and more interesting.

Position: Long CDV.TO

WebTech Wireless Inc. (TSX-V:WEW)

I am considering to open a small position on WEW.V (0.5%), a very small, Vancouver-based, wireless location service provider. It has a lot of characteristics of a fast growing company: strong top- (65%+) and bottom-line growth, improving gross profit and operating profit margins, meaningful new additions of customers, penetrating new markets (Europe and South America), expanding into new markets. While speculative, it is profitable and cash flow positive. Management appears to be focused and disciplined. There are a few positive catalysts as well. It just recently gets into automobile industry, which obviously is much more scalable and has greater potential to grow. Management also indicates that there might potential large size contracts announcement in near term. The stock has weakened a bit since early this year and current level appears to provide strong support. (Order filled @1.1).

Position: Long WEW.V