Thursday, June 17, 2010

The Trouble with Small Caps

Today I sold my holdings in Matrikon Inc (TSX-MTK) stock. This is because this stock is being acquired by another company. I received notice of a special meeting to be held to discuss this, but I have been down this road before. It is being acquired by Honeywell International Inc. and I see no reason why this purchase will not go through. I was very happy with my investment in Matrikon.

I had bought this small cap as a way of soaking up the excess bit I had left in the Tax Free Account. I had bought stock in this company in January 2009 and again in January 2010. According to Quicken, I have made a total return on this company of some 80% per year. The total return included dividends paid. This stock had a good dividend return and it had even given out some special dividend payments.

The price offered is considered a fair one. It is, of course, higher than what this stock had been recently trading at. However, this stock lost over 50% of its value because of the recent recession. The stock price has been higher than the $4.50 offered today. This price is just better than recent prices. I am lucky as I bought this stock at a rather low price and so have made money. Of course, buyouts can happen to much bigger stock, but it is more likely to happen to small caps.

When such buyouts occur, you can usually sell your stock right away, if you care to. When I looked at the price that traders were willing to buy this stock at, I found a good price of $4.49. There were people offering this stock at $4.50, but no one will pay that much, but $4.49 is not a bad price. Whoever bought my shares are willing to wait until the buyout and earn an easy $.01 a share. Note that by selling early, I have to buy a fee to sell my stock. If I had waited until the buyout, there would be no fee to be paid.

Matrikon Inc. is engaged in the sale of software and information technology professional services to industrial facilities. This company has customers in the oil, gas, mining, petrochemical, forestry and power-generation industries. Its web site is here Matrikon.

Now I have to decide what I will replace this stock with. I am looking at the only other dividend paying small cap I own, which is Pareto Corp (TSX-PTO). A new purchase in this stock would fit into my portfolio. However, I do not think that now is the time to buy as the market is on a bit of an upswing. By selling my Matrikon stock now, I can wait for an opportune time to use the money to buy a replacement without having to worry about getting a decent price for my Matrikon stock.

Pareto is a Canadian marketing services and execution company committed to helping clients sell more. They service Canada’s most successful businesses through our network of services; Retail Merchandising, In-Retail Messaging, Direct Marketing, and Incentives. Its web site is here Pareto. See my spreadsheet at pto.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on twitter.

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