Magnifi Communities

It’s been a solid year so far for the major market averages, with the market up 7% year-to-date, a solid rebound after what was a brutal year in 2022.
However, the small-cap universe hasn’t fared nearly as well, with the Russell 2000 Index (IWM) barely in positive territory.
I attribute some of this underperformance to the relatively high weighting of regional banks in the index, which were hit hard following fears of bank runs.
Fortunately, this underperformance has left some small-cap names trading at deep discounts to fair value, and one has been stuck in the mud despite the significant metals price increases in the precious metals sector.
In this update, we’ll look at two small-cap names becoming more reasonably valued, and where I see their ideal buy zones.

Buckle Inc. (BKE)
Buckle Inc. (BKE) is a $1.7 billion company in the Retail-Apparel industry group that was one of the market’s best performers last year as it raced towards its multi-year highs near $50.00 per share.
However, the stock has since pulled back over 30% from its highs, and found itself back near key support at the $30.00 level.
For those unfamiliar, Buckle has over 440 stores in the United States and specializes in jeans, other apparel, footwear, and accessories.
The company released its Q4 2022 results (three months ended January 28th) last month and reported net sales up 5.5% year-over-year to $401.8 million. Meanwhile, quarterly earnings per share were up 3% to $1.78, while full-year EPS came in at $5.13, down just 1% from the year-ago period.
Despite this performance being impressive given the sharp decline in earnings we saw from several other retail names, the focus appeared to be on the weaker than hoped February sales numbers, with Buckle reporting a 6.9% decline in comparable sales.
However, it’s important to note that the company was lapping near very tough comps with a 33% increase in the February 2022 period.
Plus, commentary on the Q4 Call was not bad as Buckle noted in its prepared remarks that it is managing inventory well, it continues to work on store remodels and technology upgrades, and it plans to open six new stores in FY2023, pushing its total closer to 450 stores.
Just as importantly, Buckle continues to benefit from full-priced selling with minimal promotional activity, a positive sign relative to some peers which have had to liquidate inventory to make up for misjudging consumer demand last year.
Unfortunately, annual EPS is forecasted to decline this year slightly after it nearly doubled from FY2020/FY2021 levels, with current FY2023 estimates sitting at $4.85, translating to a 6% decline year-over-year.
While this isn’t ideal, and it’s often best to stay away from stocks that have seen peak EPS and it’s now rolling over, Buckle is currently trading at just ~7.1x forward estimates and that’s not including ~$290 million in cash ($5.80) and over $340 million returned to shareholders last year.
So, with industry-leading shareholder returns (regular dividends and special dividends), a significant discount to its historical multiple (7.1x earnings vs. 11x earnings), and a strong balance sheet, I would view any pullbacks below $31.60 as buying opportunities. Even using a lower multiple of 9.0x earnings, I see a fair value for the stock of $43.65.
Gold Royalty Corporation (GROY)
Gold Royalty Corporation (GROY) is one of the more newly listed names in the precious metals market, having had its IPO debut in Q1 2021 during a difficult period for the Gold Miners Index (GDX).
The stock has since sunk over 70% from its highs above $6.60 per share, a decline that has shaved more than $400 million in market cap off the stock.
However, I see this decline and underperformance having more to do with the stock being overvalued post-IPO debut because of high interest in a new royalty/streaming company available to invest in, and less to do with its fundamentals.
In fact, royalty/streaming companies have never been more attractive from an investment standpoint for investors looking to increase their exposure to precious metals given that the inflationary environment has eroded the profits of many producers.
However, royalty/streaming companies like Gold Royalty Corporation have net profit interests [NPI] or net smelter returns [NSR] on several mine projections, insulating them from inflation on operating costs and capital expenditures.
Meanwhile, they are lower-risk given that they’re more diversified than operators, with Gold Royalty Corporation having over 200 royalty assets and five in production, with the latter figure likely to increase to closer to 15 by 2029.
To put this in comparison, even the larger gold producers typically have less than 8 gold mines and they have seen margin compression because of rising labor and consumable costs, meaning that royalty companies provide exposure to gold and silver without the risk of inflation.
In Gold Royalty’s case, the company has two cornerstone assets held by the #2 and #3 largest gold producers, with these assets being the Ren deposit and Odyssey Underground in Ontario and Quebec (Canada), respectively.
The royalty ground on each mine could ultimately have over 5.0 million ounces of gold combined attributable gold, translating to over $200 million in future revenue from these two assets alone. Hence, if this weakness persists, I would view GROY as a potential takeover target.

Based on ~166 million fully diluted shares and a share price of US$2.15, Gold Royalty Corporation has a market cap of US$357 million, which might make it look expensive at first glance given that it expects to generate just ~$6.0 in revenue this year, leaving it trading at nearly 60x sales.
However, FY2023 revenue doesn’t do the company justice, with it having multiple assets not yet in production that could become significant contributors post-2025. Meanwhile, revenue should increase materially in 2024, with commercial production at Cote in Ontario and Odyssey in Quebec.
Given the significant upside that isn’t reflected in the company’s current financial results (as it has development stage assets that should head into production by 2025), I believe the best way to value the company is on a P/NAV basis.
Using what I believe to be a fair multiple of 1.0x NAV and an estimated net asset value of $510 million, I see a fair value for the stock of $490 million; I see a fair value for the stock of US$3.05. This translates to over 40% upside from current levels, and investors also receive an attractive ~2.0% dividend yield. So, for investors looking for exposure to gold, I see GROY as a Buy if it drops below US$2.00.
Disclosure: I am long GROY
Taylor DartINO.com Contributor
Disclaimer: This article is the opinion of the contributor themselves. Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information in this writing. Given the volatility in the precious metals sector, position sizing is critical, so when buying small-cap precious metals stocks, position sizes should be limited to 5% or less of one’s portfolio.

Editor’s Note: Our experts here at INO.com cover a lot of investing topics and great stocks every week. To help you make sense of it all, every Wednesday we’re going to pick one of those stocks and use Magnifi Personal to compare it with its peers or competitors. Here we go…

According to recent reports, the World Health Organization (WHO) may for the first time include drugs that combat obesity on its “essential medicines list,” which is used to guide government purchasing decisions in low- and middle-income countries.
This will only add to the buzz around these drugs, which is approaching the levels surrounding artificial intelligence (AI) and chatbots like GPT-4.
Despite the hype, we believe investors are right to be excited about the drugs.
These drugs will find a quickly growing market from expanding waistlines. That’s because obesity is growing in tandem with rising global prosperity. A bad side effect of prosperity is that consumption of not-so-healthy foods rises a lot, as does the prevalence of occupations requiring less physical work.
Obesity already affects about 650 million people around the world. America’s waistline is among those rapidly expanding—almost half of Americans will be obese by 2030, a Harvard study found. It also estimated that about 18% of healthcare spending would then go to related conditions of obesity.
No wonder, then, that Morgan Stanley thinks the market for weight-management medicines could reach $54 billion in just seven years—with $31.5 billion of this from the U.S. alone.
Companies behind the new obesity drug treatments are flying high:
Novo Nordisk (NVO) — the dominant player in diabetes treatments — generated $2.4 billion in sales from obesity treatments last year. And it has barely started to widely distribute its new obesity drug, Wegovy. Its shares are up 43% over the past year, and 15% year-to-date.
Eli Lilly (LLY), whose diabetes drug, tirzepatide, should get regulatory approval to treat weight loss this year, has seen its stock price rise 17.5% over the last year, although it is down 7% year-to-date.
So, we thought we’d do a comparison of the companies. The easiest way to do that is to ask Magnifi Personal to do it for us. It’s as simple as asking this investing AI to “Compare NVO to LLY” and selecting a three-year timeframe.
You can do it, too. Want a 90-day free trial? Just click here.
Here’s the result:

This is an example of a response using Magnifi Personal. This image is not a recommendation or individual advice. Please see bottom disclaimer for additional information, including INO.com’s relationship with Magnifi.
As you can see, over three years, NVO comes out on top in terms of both returns and volatility.
This ability to have an investing AI pore over reams of data for you in seconds and spit out an easy-to-understand comparison of two or more stocks is an invaluable tool in deciding where to invest next.
We recommend you try it out. Click here to see how.
Magnifi Personal makes research like this as simple as typing a question. You can easily do this yourself, or ask Magnifi Personal to add other measures to the comparison, including dividend, valuation metrics such as P/E or P/B ratios, gross margin, and more. Just click here to get a free trial!
Latest from Magnifi Learn: As the world becomes increasingly connected online, cybersecurity will become a critical element of personal and national security.

INO.com, a division of TIFIN Group LLC, is affiliated with Magnifi via common ownership. INO.com will receive cash compensation for referrals of clients who open accounts with Magnifi.
Magnifi LLC does not charge advisory fees or transaction fees for non-managed accounts. Clients who elect to have Magnifi LLC manage all or a portion of their account will be charged an advisory fee. Magnifi LLC receives compensation from product sponsors related to recommendations. Other fees and charges may apply.
Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.
Mutual Funds and Exchange Traded Funds (ETFs) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.