26 Small Caps to look out for this reporting season08.02.2018

What the recent market sell off means for Small Caps

We view the recent market sell off as a positive for subscribers. Moreover, we don't think that this will be the last one.

The idea of being frightened of prices falling may get in the way of making big returns. Another way of stating this is that a fear of market volatility is unhealthy, because it’s actually a necessary condition to profiting from stock market investing.

As subscribers would be aware from reading our comments in the portfolio section, we have been viewing stocks in general of late as too expensive. In particular, the rapid escalation of the 10 Year US Treasury bond yields from 2.41% on 1 January to current levels of around 2.8% was our biggest concern. Stocks are priced on a combination of the risk free rate and a premium to this, and if this goes up, their price (logically) should come down. Logic wasn't in evidence on the equity market, until this week.

Our concerns are reflected in our relatively big cash weighting at 25% of the Small Cap fund’s value. We will be looking to take advantage of this in the portfolio, and we encourage subscribers to revisit our Best Buys list as well as our Performance Tracker, which contains our 100 plus stock coverage.
 

Buying at the best price

What you are continually looking for as an investor is the best price to get a hold of quality companies and then you live with them for a little while. A good example is Medical Developments (MVP): it’s dropped from above $8 to $7 mainly because it’s a hot stock that was accelerating out of reach in the recent bull market, although it’s bouncing back quickly and trades currently at $7.55. You might get another chance to buy if you are interested, and at the very least you should read our research. Another stock in the same sector that’s fallen out of bed is SomnoMed (SOM), which we’re looking at.
 
In many cases the stocks that had previously performed the best have fallen the hardest, which might give you a second bite of the cherry.
 
Valuations have been too high for a long time and they needed to adjust to be attractive for value conscious stock pickers like us. The question whether they’ve adjusted enough is heavily dependent on the upcoming interim profits reporting season, which kicks off in earnest next week.
 

Reporting Season Preview: Tomorrow we cover 30 Companies to watch!

In this week’s Small Cap Report (no 279) we deliver our reporting season preview where we look at what’s coming up for close to 30 companies under our coverage. There are sure to be a few winners out of this bunch!
 

About the Author

Richard Hemming

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