Speculative companies should only ever make up a small part of your portfolio, but when the risk/reward split is favourable, they can more than pull their weight. For example, Global Health Limited (ASX: GLH), Anteo Diagnostics Limited (ASX: ADO) and Vmoto Limited (ASX: VMT) are all up over 40% since I made them my top 3 speculative stocks for 2014, as you can see from the chart below.
That’s some handy profits, although I only hold medical software company Global Health, these days. I’m relying on the fact that the company is continuing to grow revenue. It was some comfort to see that one director bought some shares on market recently, even if he did fail to notify the ASX on time. Meanwhile, hopeful biotech Anteo Diagnostics still hasn’t announced that company-making first deal investors are waiting for, though if and when it does, the share price should soar.
My current favourite speculative stock is Kip McGrath Limited (ASX: KME), a company that owns the eponymous tutoring franchise. The global brand is arguably undervalued by the market, and locally cuts to public school funding will make private tutoring all the more important. Like Global Health, I expect that Kip McGrath will cease to be considered speculative in the coming years, by reporting consistent profits.
Electric scooter manufacturer Vmoto has recently recorded its maiden yearly profit, and was even narrowly cashflow positive in the most recent quarterly report. Unfortunately, Director Simon Farrell has suddenly resigned for unexplained reasons and the company was put into a trading halt because it lacks the requisite number of Australian based directors. While I have reservations about management, the story is compelling because 2-stroke scooters are extremely polluting: their fumes are particularly harmful to humans (more so than car fumes). Chinese cities are keen to encourage electric scooters as a replacement.
Another speculative stock that deserves to be on your watch-list is Analytica Limited (ASX: ALT) which makes and is marketing a treatment for incontinence. Apparently, the problem is more widespread than you might think. I look forward to adding the company to my portfolio if it comes down in price. The capital raising at 2.4c was not fully subscribed, and the remaining shares will be placed (mostly to the chairman).
Part of the reason that I’m low on cash (for investing) is my recent purchase of MGM Wireless Limited (ASX: MWR), a company that specialises in mass communications, allowing schools to contact all their students instantaneously via SMS. The company is not exactly cheap at current prices, but it did recently buy another company that provides online payment and communication capability to schools, allowing parents to order lunch or sign permission slips over the internet. Though there is undoubtedly competition, the acquisition will prove positive if MGM can roll out the platform to some of its existing clientele.
Nanosonics Limited (ASX: NAN) is another interesting biotechnology company. It makes a device that can sterilise ultrasound probes more effectively than the current methods. The system can literally save lives by preventing infection. Nanosonics is a bit too expensive for me, with a current market cap of $210 million, but holds significant potential – especially at a lower price.
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Motley Fool contributor Claude Walker (@claudedwalker) owns shares in Global Health, Kip McGrath and MGM Wireless.