Australian Small Cap and Big Cap Stocks
Whenever you hear a version of the Mark Twain quote “the report of my death was an exaggeration”, you can be pretty sure that it’s come from a conversation with a contrarian investor, such as myself.
Financial markets are characterised by reports that emphasise despair one minute and euphoria the next. By my way of thinking the ability to keep a cool head by not planning a visit to the morgue, or conversely, not mortgaging yourself to the hilt, can lead to a very happy investing life.
Australian Small Cap: Tassal (TGR)
Let’s take the salmon producer Tassal (TGR), which we went positive on last October, knowing that a negative story about it on a national current affairs show was just around the corner. Back then its shares were trading at $3.93. The show came out and was damaging as expected (although we had envisaged that it could have been worse).
The stock sold off to $3.70, which we declared to our subscribers was “exactly what a buying opportunity looks like”. Just at that time I happened to be
on a company road show when a high profile broker laughed off my support of Tassal, loudly declaring “that stock is not going anywhere because they’ve
got environmental issues and bad press!” It was then that I knew I was onto something, remembering the Mark Twain quote.
Top Stock Tips
Fast forward to today and the results season has just concluded and one fish that showed signs of life is the Tasmanian salmon producer, even though its net profit was up only up just under 10 per cent on declining revenues. At $4.50 its shares are now up 21 per cent since those dark days for the company last November and our ardour on the stock has cooled. They were up more than 30 per cent when we backed off and downgraded, and what do you know, the group had a capital raising, which we discuss in our early March issue.
The good news from the reporting season just gone is that it has provided fodder for more profits to be made from investors over-reacting. We have a couple of big issues coming up, showing you just why.
This week we have our BEST IDEAS review and then we have our RADAR RUNDOWN, in which we list all the companies we cover, their metrics and our views. Tim Boreham, also comes up with a NEW AUSTRALIAN SMALL CAP share tip we haven’t covered before, which he reckons has more potential than Tassal.
What about Big Caps like Telstra?
At the big end of town, brokers were pretty much united in their gloom in the wake of Telstra’s first half profit numbers and its subsequent 9 per cent price decline. In reality the giant telco only just missed its earnings numbers by 0.5 per cent, so to us it looks like an over-reaction.
Brokers were left unimpressed with its mobile profits as well as an overall reduction in its profit margins, caused in no small part by the rollout of the National Broadband Network.
They have some good points, but its only when there is a great deal of negativity that we can start seeing a scenario where value starts to emerge. We have made profits on numerous occasions when this was the case, and there is no reason to believe that we can’t do it again when the time is right for Australia’s giant telco.
Mark Twain was not successful at business, although from some accounts he made a lot of money in Australia. He was definitely contrarian on many issues in 19th century America. He was a vocal critic of slavery, an anti-imperialist, a lover of unions and something of a revolutionary. He was also a darn good novelist. In short, he was a winner.
Under the Radar Report