One of the things I like most about investing in Canadian stocks is the relative edge I think I can get with some of these names. To a large extent, many of the best dividend and growth stocks in the Canadian market are overlooked by global investors. I don’t think that’s a controversial statement – some mega-cap companies garner the vast majority of investors’ well-deserved attention due to their size and importance.
But that’s not to say that there aren’t companies in the Canadian market that are worth exploring. Outside of a number of top growth stocks I continue to pound the table on, there’s one small-cap name I think could be poised for astronomical growth that’s worth considering.
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The Metals Company
Vancouver-based The Metals Company (NASDAQ: TMC) is a unique company in many respects. The underlying business model, of siphoning up golf-ball-sized nodules on the ocean floor filled with critical minerals used in battery development, is one that I think investors should probably be more excited about, given the electrification trends that are ongoing (and I think could actually ramp up over time).
This business model is just that at this point — a model. While the company has engaged in some early-stage exploration activity and received permits to mine in certain jurisdictions, there’s more work to be done to start large-scale production.
Accordingly, this is a company with plenty of operational risk right now. Investors can’t be sure if or when TMC will hit its desired production levels, or even what those levels might be.
Of course, that’s the job of analysts and market participants to try to model out what the future looks like for a nascent company in a brand new industry. Deep-sea mining hasn’t been done at scale, so TMC really is a pioneer in this space. I like that.
How big could this market be?
It’s really hard to estimate what TMC’s total addressable market looks like, since the nodules the company brings up contain varying mixtures of nickel, cobalt, manganese, and other key battery minerals. I’d have to say we’re going to need more data to determine what the company can actually produce, and what its ultimately margins will be.
That said, given the rather abundant mineral source on the sea floor that’s ready to be picked up, I wouldn’t be surprised if we see the overall deep-sea mining industry become a trillion-dollar space. If that’s the case, and TMC were valued at roughly one-times sales, its valuation could in theory surge 200-fold from here.
That’s not a prediction; that’s just some back-of-the-napkin rationalization for what the company’s potential is. Undoubtedly, other competitors will step into this space if it’s profitable, so it’s unlikely TMC will reap the entirety of the rewards from any future success. But at a valuation of just around $5 billion right now, this seems like a pretty asymmetric bet.
