The uncertain investing environment continues to make stock-picking a hazardous task.
However, buying ASX shares that represent prudent business models increases the chances of making money in the long run, after riding out shorter-term bumps.
This is especially true of small-cap companies, which have been heavily discounted over the past 12 months. They are often high beta, meaning that while they lose heavily in dark times, they can also gain spectacularly as conditions recover.
The team at QVG Capital this week named three small-cap ASX shares that it holds and explained why they have such faith in them:
The resiliency of this business is still under the radar
Imdex Limited (ASX: IMD) is a stock not often mentioned, but the business has been quietly plugging away serving clients in a very profitable sector in Australia.
The company provides technology, equipment and services to the mining industry.
It seems investors are starting to notice, with the Imdex share price climbing 4.9% in October after a 14.3% climb in September.
"Imdex reported September quarter revenue 22% ahead of the same quarter last year and 12% ahead of the June quarter," read QVG Capital's memo to clients.
"This was greater than our and consensus expectations."
The cyclical nature of mining makes investors anxious about buying into companies like Imdex, but the analysts insisted this was not a concern.
"Fears around… cyclicality cause investors to under-appreciate the operational changes that have gone on within Imdex to make it a more resilient business," read the memo.
"This and significant investment in R&D make us very bullish on the long term outlook for the company."
A fundies' favourite at the moment
Investment software provider Hub24 Ltd (ASX: HUB) similarly gave a positive performance report, according to the QVG team.
"HUB24 had a very strong September quarter trading update, which showed resilient inflows on to the platform," read the memo.
"Given the nature of financial markets, we were impressed with the strength of HUB's flows. Commentary around revenue margins and operating cost growth were also encouraging."
The Hub24 share price has fallen 15.2% since the start of the year, although it has returned more than 180% over the past five years.
Stocks for the investment platform seem to be a bit of a darling among professional investors at the moment.
According to CMC Markets, nine out of 13 analysts currently rate Hub24 shares as a strong buy.
Not love at first sight
The QVG Capital team admitted it was not a fan of US family safety app Life360 Inc (ASX: 360) when it first floated three years ago.
"Due to the company being loss-making and high churn in the user-base we were initially slow to warm to the 360 story and did not participate in its IPO."
But now the analysts like what they see.
"In the three or so years since the company listed it has made good progress in improving the product, reducing churn and moving towards profitability," read the QVG memo.
"The announcement of significant price increases for the monthly subscription saw a strong re-rating in October as the market came to understand the [company's] latent pricing power and implications of this for an accelerated path to profitability."
The team also noted Life360 already boasts a significant user population and a paying customer base.
"The app is particularly popular in the US with over 40 million free users and over 1.3 million paid users."
After losing as much as three-quarters of its valuation this year, the Life360 stock price has now recovered to be 35% down in 2022.
