There are many divergent views about what the share market might do in the next 12 months.
Some experts are expecting a global recession, while others are convinced the bull market will resume after a short pause.
So really there is only one certainty: uncertainty.
In that case, the team at Wilsons reckons avoiding loss-making companies is the way to go.
"The prospect of higher interest rates makes both debt and equity funding more expensive. Critical, as loss-making businesses typically require external funding," its memo to clients read.
"The double whammy for loss-making companies is the impact of higher bond yields, which lowers the valuation of long-dated growth cash flows."
Considering this, Wilsons analysts dug up the most profitable businesses out of their Wilsons Conviction Insights list.
The set represents their best small-cap ideas on a 12-month view to consider at the moment:
Profitable small-caps that are looking good
Not only are these 4 Wilsons picks profitable, but 3 of them also give out dividends:
- Collins Foods Ltd (ASX: CKF): 3% 12-month forward dividend yield
- Ridley Corporation Ltd (ASX: RIC): 4% 12-month forward dividend yield
- Readytech Holdings Ltd (ASX: RDY)
- City Chic Collective Ltd (ASX: CCX): 1% 12-month forward dividend yield
Of that group, Readytech and City Chic held the most buy conviction for Wilsons analysts.
Technology services provider has "strong cash flow" and an "undemanding valuation", the memo stated.
"Easy 2H earnings guidance to achieve top-end of revenue guidance."
The Readyteach share price has plunged 18.4% for the year so far.
City Chic stocks have had an even worse time, falling more than 38% in 2022 and almost 50% since November.
Wilsons analysts are keeping the faith with the fashion retailer though.
"Inventory and, therefore, balance sheet risk has increased. We believe the inventory will clear over an expected strong summer in the northern hemisphere."
The Wilsons team admitted Collins Foods has had its work cut out in recent times.
"KFC franchise owner has been impacted by macro-related news [from] QLD/NSW floods, EU exposure with Russia/Ukraine, and chicken shortages have weighed on the share price," read the memo.
"Key peer Restaurant Brands New Zealand Limited (ASX: RBD)'s poor margin performance has also weighed on the stock. We think this news is captured in the 40% fall in the share price."
The Collins Foods share price has shed almost 25% for the year so far.
