At open this morning, I glanced at the performance of my three most recent stock picks and was chuffed with their performance in 2014.
Currently I love searching and researching small-cap stocks. Primarily because they’re cheap and have underperformed the rest of the market in recent years making 2014 more likely than not to be the ‘year of the small-cap.’
Despite a very strong start to the year, it can be concerning when a stock you own jumps 10%, 15%, or even 20% in one day without any material news. But, I suppose, it’s better than falling by the same amount!
The small-cap stocks I identified as standout buys going into 2014 were Cash Converters International Ltd (ASX: CCV), Newsat Limited (ASX: NWT), Collins Foods Ltd (ASX: CKF), Global Health Limited (ASX: GLH), LNG Limited (ASX: LNG) and Donaco International Ltd (ASX: DNA).
Respectively, since 12 December 2013 they moved higher by 27%, 26%, 7%, 61%, 32% and 51% – probably my best performance in any three-month period ever.
Although they are promising results, it’s surprising to see who has done well and who hasn’t. Collins Foods – the owner and franchisor of KFC and Sizzler restaurants throughout Australia and parts of Asia – was doing exceedingly well until it released below-average results and said it expected 5% profit growth for 2014.
I was disappointed and its share price dropped 18% in one day, whipping any substantial gains it had made. Nevertheless it remains a great long-term company with exciting prospects.
The star performer of my recommendations has been Global Health, my top stock pick for the month of January, up 61%. It’s a healthcare software developer which uses cloud computing for easy access from its growing customer base of medical professionals.
With 1,053% gains in the year-to-date (after a higher rate last year), I believe it would be naïve to expect similar rates throughout the remainder of 2014. To buy above 60 cents per share is risky unless you’re in it for the long-term. I sold my shares in December last year at 38 cents and kicked myself for not holding on longer. Still I was more than happy with its performance.
Newsat’s 26% share price performance is the result of hype and the fear of missing out. Investors are eagerly anticipating the launch of its Jabiru satellites. I am as well, but it’s important to understand that no share price move will be material until it has launched into orbit. Keep that in mind before purchasing.
Cash Converters is the safest bet of the stocks listed. Easily the most established business with a huge runway for improvements. Despite rising 27% since December (a great time to buy in) you’d be mistaken to believe the group’s performance has set records. It hasn’t.
It reported a 50% fall in earnings as a result of changes to the legal environment around small loans coupled with cost increases. Fortunately, I knew that when I bought in, its share price had previously dropped from $1.40 to below $0.80. I believe long-term investors who buy in now will be rewarded.
Donaco is a casino operator which, like Newsat, has been the beneficiary of anticipation, but can back it up with solid results. In its half-yearly report to 31 December it recorded 80% revenue growth and 9% profit growth. Instead of reinventing the wheel, see my article for reasons behind why I think it was, and still is, such a great buy.
Lastly, LNG Ltd is speculative buy with a difference. It has risen 44% since I recommended it on 1 March (yes, less than two weeks ago). It’s a junior gas explorer with its key Magnolia project in Louisiana. It boasts the potential to produce eight million tonnes of gas per annum.
Its share price has grown because a tolling agreement was signed with AES group, the US government authorised the full production potential of the mine to be exported to FTA countries, and a stock research company issued a buy rating on the company.
If 2014 is the year of the small-cap, you won’t hear me complaining because many would consider eight of the 10 ASX companies I own to be small companies – with market caps less than $600 million. Out of these six companies, the one which makes me most nervous is Global Health at current prices. I would also consider LNG, Newsat and Collins Foods to be extremely risky but potentially very rewarding.