The hottest biotech Avacta, the gold frenzy of Greatland, and the tech superiority of Tekcapital. Consider the catalysts for all three.

The joy of the FTSE AIM market is that unlike the FTSE 100 — where the common advice is to buy an index tracking ETF and enjoy the dividends — you need to pick individual small cap stocks to return a profit. For context, the AIM market has now nearly halved since mid-2021 and at 675 points is coming close to the pandemic mini crash low of March 2020.

But where there’s weak sentiment, there is almost always also serious opportunity. While this piece is not advice (and with the caveat that all small cap investing is riskier than blue chips to a degree), the following three AIM shares appear to boast strong fundamentals but have been depressed by weak market sentiment.

Let’s dive in.

Tekcapital (LON: TEK)

Tekcapital shares continue to fall into deep value territory, but this conviction play has several arrows in its quiver. Its university spin-off portfolio companies are driving significant strategic growth in sectors including electric vehicles, food technology, healthcare, and smart glasses.

Possibly the most promising portfolio company is MicroSalt — in which TEK has a 87% shareholding. The company has developed a novel type of salt which contains 50% lower sodium than in typical table salt, and therefore has huge health and food tech implications.

While the company’s long-awaited IPO launch has been delayed — a shrewd move given the state of the markets — the company’s closest comparator is OptiBiotix, which has developed a similarly advanced sugar substitute. Shares in this company quadrupled overnight in July, and MicroSalt could IPO at a high valuation if it continues to win commercial contracts.

Tekcapital also owns 11% of AIM-listed Belluscura, 100% of Guident and 40% of NASDAQ-listed Innovative Eyewear. Belluscura’s continued contract wins are positioning the portable oxygen unit developer for significant long-term growth, while Guident’s technology within both the EV and autonomous driving space will likely yield concrete results soon.

For context, CEO Harald Braun has hinted that the company is testing with a leading tyre manufacturer and is also in deep conversation with various EV manufacturers. Finally, there’s Innovative Eyewear, which has signed brand deals with the likes of Reebok, Nautica and Eddie Bauer — and smart products covered by these licensing agreements are set to hit the markets shortly.

Given the growing popularity but restrictive price tag of competitors such as those on offer at Meta Platforms, there is a decent chance of growth here too.

Overall, CEO Dr Clifford Gross considers that the entire portfolio is hugely undervalued — arguing in the recent UK Investor Magazine Virtual Investor Conference that each company will eventually generate multiple millions in revenue.

And at the current share price, TEK looks excellent value.

Avacta (LON: AVCT)

Avacta enjoys, by some margin, the most dedicated retail investor base on AIM. There are some good reasons for this — its flagship clinical trial candidate AVA6000 is delivering some frankly astounding results for a phase 1 trial — and a company attempting to deliver chemotherapy without side effects will deservedly enjoy investor devotion.

November will almost certainly see Avacta release the hard numbers for Phase 1A — and it’s this data which could start to see research platforms increase the likelihood of success from the standard 10% to a more realistic 40%+.

Investors questioning why this data isn’t published yet should understand that from a trust perspective, the company gets one shot at a first impression: any mistakes, no matter how small, would require a rectification. This would be a disaster from a PR perspective, when you have a company attempting to convince the wider investing public that it can deliver such an extraordinary medical advancement.

Fortunately, it seems that CEO Alastair Smith understands the need to be careful when starting to engage with the mainstream media. The other facet to consider is financial; while Avacta has multiple funding options open, including non-dilutive, the company will need access to significant cash to deliver the next clinical trial phase.

It seems inevitable that a tie-up between Avacta and a pharma major is coming down the tracks — if nothing else, the company simply does not have the financial firepower to engage in logistics such as mass manufacture and transport of its treatments.

I suspect that the favoured partner will be Novartis — apart from its large cash position and appetite for merger activity, its head of innovation of Global Drug Development, Janet Munro, recently issued a ‘personal view’ on LinkedIn concurring with Smith that AVA6000 may very well be a ‘paradigm shift.’

Of course — and I’ve made this point before — Avacta is still in the early days. No biotech, no matter how promising, is a sure thing. But the risk-reward ratio remains very attractive, even If you could have picked up shares for less than £1 a few short months ago.

Greatland Gold (LON: GGP)

Greatland Gold shares appear to be recovering some positive sentiment after months in the doldrums. It’s hard to see why the share price has fallen so hard from a fundamental perspective — but it’s key to understand that the market is driven by sentiment.

GGP has been hit by two barrels; the collapse of Horizonte Minerals’ share price may have felt analogous as both companies have exceptional deposits, and GGP has also continued to delay both the publication of the long-awaited Mineral Resource Estimate upgrade, as well as the Definitive Feasibility Study, which is now being delayed yet again to Q3 2024.

Now the tide may be turning. Shares in the explorer closed at 8p last week, and backer Wyloo (controlled by Fortescue Executive Chairman Andrew Forrest) recently injected another AU$50 million into Greatland to get that DFS into print next year.

On a wider scale, Newmont’s acquisition of Newcrest has thrown up a question mark over whether the now largest gold miner in the world might now want to dispose of Telfer/Havieron as part its multi-billion-dollar disposals plan.

Analysts disagree on what the plan might be: Newmont has made clear it only wants to keep Tier 1 mines on the books, and as a general rule, these are mines which can deliver more than 500,000oz of annual gold production.

It’s estimated that Havieron will only deliver 300,000oz per annum — but the companies do not yet have the updated MRE or the DFS — and it’s also worth noting that retaining the assets pushes back the necessary shut down costs for Telfer, and that they are in arguably the best mining district in the world.

Regardless, Greatland is now more than 80,000m deep into further drilling since the last MRE update, and if you consider that the maiden resource estimate was 4.2 Moz AuEq in December 2020, and then 4.4 Moz in October 2021 at the PFS Resource estimate, and then 6.5Moz by March 2022, investors are likely salivating at the prospects of another massive increase.

There’s about a thousand different ways this AIM stock could deliver. But my suspicion is that the MRE update is going to blow all previous estimates out of the water. Of course, continual delays may be starting to wear thin on investors — but this is exploratory mining, not Legal & General.

The FTSE 100 was broadly flat on Friday with US stocks firmly in the driivng seat and dicatating trade in Europe.

US stocks fell in heavy volume trade overnight as the NASDAQ once again slid. The NASDAQ closed down 1.7% overnight and the S&P 500 ended the day off 1.18%.

Much better than expected Q3 US GDP had sent markets into a frenzy as traders scrambled to align portfolios with the possibility of another Fed rate hike, and interest rates staying higher for longer.

When US indices lose so much ground overnight, it is very difficult for European shares to start with any meaningful positivity.

However, strong numbers from Amazon after the bell steadied the ship, sparking a rally in US futures and helping support European stocks.

The FTSE 100 was down just 7 points to 7,346 at the time of writing on Friday.

“The FTSE 100 was steady despite more selling in the US overnight as a positive after hours update from Amazon helped improve the market’s mood,” said AJ Bell investment director Russ Mould.

“A steady performance from the e-commerce and, particularly, the AWS cloud business helped reassure investors. AWS is the real profit engine of the group and there was a risk an uncertain economic backdrop might have affected demand from clients. Solid sales and margins here will therefore be positively received.

“Later on the market will be watching the US Federal Reserve’s preferred measure of inflation – personal consumption expenditures – ahead of its next meeting to decide interest rates on 1 November.”

Natwest

Natwest was the FTSE 100’s top faller on Friday after the UK bank said net interest margins fell in the third quarter and Natwest lower NIM guidance for the year.

Natwest rounds off a week of increasingly dire updates from UK banks starting with Barclays earlier in the week. Lloyds Q3 offered minor positivity before Standard Chartered disappointed shareholders with write downs of their Chinese assets.

“The details of NatWest’s third quarter results may initially have been pushed into the background by admissions of failure over its treatment of Nigel Farage,” Russ Mould said.

“An independent review found shortcomings in decision-making and communication, and it comes at a point where market conditions are becoming less favourable.”

“Investors didn’t take long to turn their attention to an equally damaging profit downgrade. Guidance on the net interest margin has been lowered as any benefit from higher interest rates seems to be evaporating.

“Competition for savings and mortgage products, coupled with some regulatory pressure, means the banks are no longer seeing such a big gap between what they charge on borrowings compared with what they pay out for deposits.

Netwest shares were down 10.8% shortly after midday in London. Lloyds and Barclays were down 2.7% and 1.8% respectively in sympathy.

Prudential was the top gainer, rising 3%, on chatter about potential Chinese stimuls.

With many of the FTSE 100’s heavyweights still to report, next week promises further choppiness in London’s leading stocks.