20 New BUY Stocks a year: 41% average return
Richard Hemming
This financial year we’ve covered 20 new Small Cap stocks, which have produced an average annualised return of 41%. Our average return on all 140 Small Cap stocks we have covered since we started seven years ago is 35%.
We not only keep covering stocks and giving clear Buy, Sell, and Hold recommendations but we also give you new Small Cap stocks for your portfolio.
Read more about Investing in Small Caps. Why we picked these ASX Small Cap gems and their outstanding performance.
Our Value Philosophy
Our success is in no small part due to our value philosophy. When a Small Cap stock is beaten down and there is zero optimism in the price, it doesn’t take much to boost investor sentiment. You get that famous double whammy effect of rising profits and rising earnings multiples; plus you get the possibility of it being taken over.
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16% of Our Small Caps have been Taken Over delivering Big Returns
It's not just us who utilise the value philosophy. Corporates do too and most takeover prospects are at the smaller end. We’ve recommended over 140 small caps, of which 21 have been taken over; a strike rate of over 16%. In 2017 and 2018 this percentage is even higher.
Small Cap Global Construction Services: Returned 50%
In our current issue we cover a stock which produced the double whammy effect and is involved in a merger: Global Construction Services (GCS). In three months we made a 50% return after it reduced debt and gained an impressive foothold on the East Coast. The company has announced a “merger of equals” with fellow contractor SRG. We run our ruler over the deal to see whether there is value.
Ok, So what about all the other Small Cap stocks! How have we gone?
We’ve had a few hiccups on the speculative front, such as Osprey Medical (OSP) and the lithium miner Orocobre (ORE), but we’ve also hit the ball out of the park on stocks taken over such as Billabong International, the contracting services group Programmed, the engineering group Seymour Whyte, Sirtex Medical, BigAir and ASG. Other Small Cap stocks that haven’t been taken over have done well, like online retailer Kogan.com (KGN), the lithium developer Kidman Resources (KDR), and the resuscitated paper distributor Spicers (SRS).
Stocks we've avoided!
Just as important, because we are value orientated, we’ve avoided some of the big blow-ups on the ASX, which have occurred at the so-called “growth” end of the market, which relies on momentum. When the music stops, it’s often carnage. We’ve seen turbulence with WiseTech Global (WTC), which got smacked but it’s climbed back up. Other “growth” stocks that haven’t rebounded include Domino’s Pizza (DMP), BigUn (BIG), GetSwift (GSW), Technology One (TNE), iSelect (ISU), Blue Sky Alternative Investments (BLA). Even the vet pet business Greencross (GXL) is down 32% this year.
We are experts at hunting for value on the share market
Value investing is all about investing for growth, but paying depressed value prices for the stocks you buy. Under the Radar Small Caps is the one place where you can always find opportunities to do that.
If you are interested in learning more about the Blue Chip Stocks and how to invest in this area, read more here.
You'll also be interested in our research on ASX Gold stocks:
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