10 Small Caps to Buy

Richard Hemming

Diversify your portfolio

After the COVID-19 health emergency is behind us, one of the lessons investors will take away is the importance of ensuring stocks that you own in a diversified portfolio are exposed to a variety of different sources of revenue. 

To learn how to structure a diversified portfolio please look at our Small Cap portfolio strategy.

Accidental tourists?

Under the Radar Report is analysing companies that own the brands you know but have found themselves in our Small Cap universe. Can they make their way back to the big end of town, or are they value traps? Over the next three weeks the team at Under the Radar Report will analyse TEN of them. The good news is that we’ve found one Small Cap Stock that we think can withstand COVID-19 and broadcast well into the future. 

After the stock market rout since late February, there are companies that have found themselves in the unusual position, having previously been Big Caps with multi-billion dollar valuations and members of the ASX200 Index to being classified Small Caps, with valuations of less than $600m.
 
These companies all have highly recognisable brands, which is the focus of our hunt to find out whether these stocks can leverage their brand once again and make current investors big profits.

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Small Cap stocks to watch  

The TEN companies we include in this week’s Best Buys list are all companies that we believe will weather the COVID-19 storm. But we re-iterate that there will be continued volatility at least until the much talked about curve flattens in Europe and the US; and that you don’t chase stocks when they are racing upwards.
 
There has been a long period of time where diversification was an abstract concept (achieved simply by owning an ETF) that led many investors to ignore the need to expose their portfolio to a range of different drivers of revenue.

You might like to see our best performing small cap stocks to see what Small Caps can do for your portfolio.

PE only means something only if you get a handle on E.

The average of all the companies’ PEs is the market. People talk about the market like it is a company. It’s not. You can invest in the market through index linked securities like ETFs, but this is very different from investing in companies. Investing in companies is ironically safer during times of increased volatility, because there are marked differences between those companies and their ability to handle the current conditions.
 
The key point is that there is increasing dispersion, which means that there is a widening divergence between the premiums or multiples investors are paying for the haves (consumer staples and the like) and the have nots (consumer discretionary stocks like travel agents).

A variety of revenues sources

Hence if you are buying a company you need to think about whether customers are still using its service or product. In this environment, more than any other time, revenues are the key, costs will be what they will be.

Looking into “accidental tourists”

We are at an unprecedented time when many of the companies that have been in the ASX200 Index are now actually Small Caps. These include producers of brands that you are familiar with. In the next few issues we’ll be looking at TEN of these “accidental tourists” to work out whether they are buying opportunities. We’re pleased to say that in tomorrow’s issue we cover three, one of which is a spec buy. 

Our only incentive is to make you money

Things are moving quickly, but you can be confident that Under the Radar Report's team of analysts are always looking for opportunities for subscribers to profit. Our only incentive is to make you money.
 

About the Author

Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (AFSL: 409518). The author does not own shares in any of the stocks mentioned.

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