What makes good investors great?
Is it the ability to find penny stocks which are tomorrow’s next big thing or the meticulous pursuit of uncovering value in the market’s favourite blue-chip stocks like Commonwealth Bank of Australia (ASX: CBA) and Woolworths Limited (ASX: WOW)?
Although the latter is a much more predictable investing strategy, time has shown, both are honourable investing pursuits and can reward you in the long-term. I know which I’d prefer and I’ve let my portfolio do the talking with two the following three small-cap stocks. They’ve performed exceptionally well for me but could hold more gas in the tank for like-minded investors.
The first of which is Liquefied Natural Gas Limited (ASX: LNG) (“LNGL”) and, as the name suggests, it is involved in the resources sector. LNGL is a small-cap stock currently pursuing the development of an 8 million tonne per annum (Mtpa) LNG liquefaction export facility in Lake Charles, Louisiana, USA – called Magnolia. There are still a number of significant hurdles to be met in the next 18 months before the company can begin construction.
However if management can pass these hurdles the shareholder rewards could be sensational. In coming months LNGL hopes to sign binding tolling agreements with its major gas partners, secure FERC approval, DOE approval to export gas to non-FTA countries and sign a bankable development contract with its construction partner SKEC Group. I first recommended Fools buy LNGL at $0.33 per share, however if the hurdles are passed before mid-2014, LNGL’s share price may go well-beyond its current $0.63.
The second company which I believe is a great speculative investment for the long-term is Admedus Limited (ASX: AHZ). Admedus – formally Allied Healthcare – is a small-cap diversified biotechnology stock involved in the development of specialised medical devices. It was one of the top performing companies listed on the ASX in 2013.
Admedus’ flagship product, CardioCel, is a patch-like application which has passed major clinical trials and has recently been cleared for distribution throughout Europe and the US. When I first recommended the company in October it traded at $0.09. Then it climbed as high as $0.19 but is now trading for as little as $0.125. I know I’m not the only investor who is considering adding more shares to my brokerage account. Ballieu Holst and Morgans have both put a 12-month price target of $0.25 per share on Admedus – that’s 177% higher than its current price.
For a company which recently experienced a 52-week high at $0.19 per share, received US FDA approval, has acquired a new manufacturing plant to produce its number-one product, has a diversified business model, and has passed the high-risk trial stage of development of its flagship technology, it’s only a matter of time before revenues and earnings jump higher. This will push up the share price in the long term. It’s expected to generate its maiden profit in FY15.
I believe Admedus is an excellent long-term high-risk investment at current prices.
Lastly, in the gold sector Silver Lake Resources Limited (ASX: SLR) is a low-cost producer to watch. In recent years its share price has been walloped (to say the least). Investors shouldn’t be fooled by SLR’s claim to have no debt, it has been issuing shares instead. Nevertheless, with its troubled Murchison operation now on care and maintenance, Silver Lakes’ costs per ounce of gold will drop.
Management recently released its quarterly production report and believes its full-year production from its Mount Monger operations will exceed guidance of 170,000oz and is expected to achieve an (unaudited) All-in Sustaining Cost (AISC) of $1,032/oz. This leaves plenty of room between the cost of production and the current spot price of gold at US$1,300. It will also put the company on a firm footing to generate profit in the next two years. Management said group guidance remains unchanged at between 205,000oz and 220,000oz of gold. At $0.44 per share, Silver Lake could prove to be a bargain.
It is the only company not in my portfolio but it is extremely tempting at current prices.
It’s important to remember these companies are not blue-chips, but are high-risk, thinly traded and boast volatile share prices. However none of these companies will remain anywhere near their current prices if their next 12-18 months goes according to plan. Here’s hoping they do!
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Motley Fool Contributor Owen Raszkiewicz owns shares in Admedus and LNG limited.