Five small cap trends for 2014

The small caps sector continues to lag the broader market, but see why 2014 will be their year.

Summary: The small caps sector has lagged the broader market for some time, but the tide could finally change in 2014 thanks to a confluence of multiple factors. These include a rebound in the resources sector, a falling dollar, increased mergers and acquisitions activity, a rotation to industrials, and event-based investing.
Key take-out: Eureka Report’s Uncapped 100 stocks have generated a total return of 21.5% on a market cap weighted basis since January, compared with a 6.1% loss by the S&P/ASX Small Ordinaries Index.
Key beneficiaries: General investors. Category: Shares.

The Uncapped 100 is on track to close the year with a solid lead over the market, even as equities struggle to finish the last month of 2013 on a positive footing.

Eureka Report’s collection of the most exciting emerging stocks has generated a total return of 21.5% on a market cap weighted basis, or 7.5% ahead of the ASX All Ordinaries Index including dividends.

However, the Uncapped 100’s strong showing belies the tough year for most market juniors, with the S&P/ASX Small Ordinaries Index chalking up a 6.1% loss since January.

The sad truth is small cap stocks are entering unprecedented territory as they lag the S&P/ASX 200 Index by a whopping 19% in 2013 following last year’s 11.4% underperformance to their bigger rivals. Never before has the Small Ords fallen behind the top 200 benchmark by double-digits over two consecutive years, and you need to go back to 2000 to find a worse relative annual outcome for the juniors.

The underperformance isn’t all driven by small resource stocks either. The S&P/ASX 200 Industrials Index’s 15.7% year-to-date jump is nearly twice that of their smaller counterparts.

Passing the baton

But it is this woeful result that is partly fuelling my belief that 2014 will be the year for small caps. Besides the “reversion to the mean” argument, there are fundamental reasons to suspect that the New Year will provide some tailwinds to the embattled sector.

For one, the expected pick-up in economic growth bodes well for small cap stocks. Economists believe that Australia’s gross domestic product (GDP) has troughed in the September quarter at 2.3% and will accelerate in 2014, as shown in the chart below.

What’s interesting is that the Small Ords has outperformed the large caps in four of the last five cases when the quarterly GDP figure rebounded from below 2.5%. The average capital gain in the four quarters from the trough in GDP since 2000 for the Small Ords is 2.15%, compared with the S&P/ASX 200’s 1.12%.

What’s more, there’s room for upside earnings surprise among small industrials stocks as the median earnings per share (EPS) consensus estimate is forecasting growth of 10.5% in 2013-14 compared with the five-year average of just over 15%.

If the economy is re-accelerating, I would expect to see stronger EPS growth rates given the operating leverage and the fact earnings are cycling off a relatively low base. This doesn’t mean it’s carte blanche for small caps. Some are better placed to run ahead than others.

Five themes to watch for

I am bullish on risk assets for 2014 and Shane Oliver made a compelling case for growth assets last week. I believe embattled cyclical stocks will finally feel some love from the market as rising prices in the large caps push investors up the risk curve in search of value.

So, while next year will likely be far kinder to small caps, 2014 will belong to emerging resource companies if things play out to expectations (see Tim Treadgold’s article on December 6).

1) Junior miners returning from the cold: I am not calling the return of a golden era for this out-of-favour sector, but I expect a large chunk of the pessimism drowning these stocks to subside given the 46% crash in the ASX Small Resources Index so far this year. This is the biggest loss since the dark days of the global financial crisis in 2008.

Sceptics should remember this – it’s dangerous to bet against commodities (and, by extension, mining equities) when global growth is picking up pace. Economists are forecasting growth of 1.96% in calendar 2014 for the G10 countries (the world’s 10 largest economies), which would mark the fastest economic expansion for the group since 2010.

This doesn’t mean junior resource companies will be able to completely shake off funding fears, as capital for new projects will still be hard to come. This will be particularly so for high-cost mines due to the ramp-up in supply of a number of hard commodities in the coming years from the mining majors.

This is why I have, and continue to favour, well capitalised emerging miners with low-cost operations that are transitioning from an explorer to a producer.

The two from the Uncapped 100 that check these boxes are African copper miner Tiger Resources (TGS) and gold and base metals producer YTC Resources (YTC). Gold producer Beadell Resources (BDR) is also well placed, although the outlook for gold is harder to read given that the price of the precious metal isn’t generally bolstered by economic activity.

However, don’t expect sentiment to turn markedly for the sector in the short run. Mining heavyweights Rio Tinto (RIO) and BHP Billiton (BHP) will have to rally by at least 30% from their July lows before we will see greater investor interest in mining minnows. We have an “outperform” on the three stocks.

2) Northern exposure: Companies that generate most of their sales in the United States and Europe will be in a sweet spot for two reasons.

The first is the falling Australian dollar. If you thought the upside from the exchange rate is largely factored into stock valuations, you’d be wrong. Most analysts are still using rates that are close to parity to the US dollar in their models, but there’s good reason why they are slow to react.

While the Australian dollar has tumbled sharply to around US90 cents, most companies will not feel the impact for a while yet as sales are booked on an ongoing basis throughout the year. The 365 day moving average for our dollar is still hovering around US99.2 cents, or 10% above where the spot price is.

The other factor is economic growth and it appears that the US, Europe (including the UK), and maybe even Japan will be leading the charge. It is the change in the rate of growth I am referring to, and not the absolute growth number.

These economies are in the midst of rebounding from rock bottom levels and their reawakening heralds a pretty exciting moment for companies leveraged to these markets.

While most small cap companies tend to be more domestically focussed, there are a handful of Uncapped 100 stocks (outside of commodity producers that typically sell their products in US dollars) that are well placed to benefit from this thematic.

Consumer financing company ThinkSmart (TSM) is arguably the most exposed now that management has agreed to sell its Australian and New Zealand operations to rival Flexigroup (FXL) so it can concentrate fully on its UK expansion.

The market’s attention has been captured by the dramatic drop in the Australian currency against the US greenback, but the local dollar’s fall from grace against the British pound is just as pronounced as the exchange rate is around a near four-year low of 54.8 pence.

The chart looks ominous for the Aussie and our dollar could trade lower given that the UK economy has been recovering strongly. That’s good news for ThinkSmart, which will generate almost all of its profit in pound sterling after it signed deals with a number of leading UK retailers to provide financing solutions to their customers.

Other Uncapped 100 stocks with material exposure to this thematic include communications equipment maker NetComm Wireless (NTC), medical disinfection device developer Nanosonics (NAN), property owner Astro Japan Property Group (APA) and global payment solutions company eServGlobal (ESV).

We have an “outperform” rating on Nanosonics and eServGlobal. We do not have a recommendation on NetComm or Astro.

3) Barbarians at the gate: Predicting an increase in merger and acquisitions (M&A) activity won’t come as much of a surprise as we have seen a 63.6% surge in the value of announced deals in the current quarter to $23.7 billion compared with the September quarter. This trend is likely to continue into 2014 as M&A activity is still low by historical standards.

I suspect private equity buyers will be helping fuel takeovers too as the spate of initial public offers by private equity vendors will leave these deal makers cashed up and hungry for the next opportunity, particularly while interest rates are still hovering around historical lows.

The area that these buyers are likely to be active in is mining services. Private equity has a long history of playing in this sector and they know the industry well. Bradken (BKN), which made a takeover bid for Austin Engineering (ANG) last night, used to be owed by private equity before its market float in 2004.

Further, many mining services firms are under pressure due to the drop-off in project work and are trading materially under their net tangible asset values.

It isn’t wise to invest in a stock just for its takeover potential, but a number of mining services companies are looking good value despite the risk of an earnings downgrade, and their share prices could just get a kick next year from takeover speculation.

Mining services stocks in the Uncapped 100 with an “outperform” recommendation include LogiCamms (LCM), NRW Holdings (NWH) and WDS (WDS).

4) The great rotation: We are likely to see some capital rotated out of better-performing industrial stocks and into beaten-down cyclical names as confidence towards global growth improves next year.

One small cap sector that could be used as a funding source is telecommunications. Many in the sector have generated enviable total returns in 2013 and similar returns are unlikely to be repeated. Stocks like Vocus Communications (VOC) has delivered a total return in excess of 80% this calendar year, while M2 Telecommunications (MTU) and Amcom Telecommunications (AMM) have delivered a more than 40% total return to their shareholders.

The yields on most of these stocks are close to the bottom of their five-year averages, and if interest rates start to rise next year as some economists are expecting, their appeal could tarnish – although maybe less so than industry giant Telstra, given that the smaller telcos have better growth options.

Having said that, I am resisting changing my “outperform” recommendation on M2 for now as the stock has come off its highs, has a higher expected yield than most of its peers, and is trading at an undemanding one-year forward price-earnings of around 12 times, or a 30% discount to its five-year average.

I am also expecting some profit taking from the big banks, with the cash being redeployed to smaller lenders trading on a more attractive valuation, such as Wide Bay Australia (WBB). I am recommending the stock as a buy based on the belief that the Queensland regional housing market will rise along with the national market. If that comes to pass, we will see a re-rating of the stock.

5) Event investing to persist: I might have a positive view on the economy for 2014, but I think “event driven investing” will play an ever increasing role in most investment portfolios.

Event-based investing refers to buying a stock on the belief it will run hard if management achieves a company specific event or milestone. This milestone is not directly tied to the broader economy, and even if we were to fall into a recession this should not stop a significant re-rating of the stock.

The most obvious examples can be found in the biotech sector, and while there are risks involved (as highlighted in Justin Braitling’s article this week), the industry has matured remarkably over the past decade. Perhaps the most promising development is the fact that it has become far easier to find capable managers with a proven track record in biotech these days than it was just a few years ago.

Event investing isn’t just about biotechs. It is mainly about commercialising intellectual property in whatever sector it might be and the risk profile for such stocks is similar to investing in an early stage explorer.

The truth is, Australia’s love affair with the mining industry is unlikely to run as passionately as it did before. Even hardened speculators have been taught the importance of diversifying across sectors following the walloping of the junior resources sector. This is one lesson investors aren’t likely to forget anytime soon.

Think big, go smalls!

This is the last Uncapped article for the year. While stocks with my “outperform” rating have returned some of their robust gains in the past few weeks, they are still up 10.1% since we first rated the stocks, or 21.4% on an annualised basis. This is 11.6% ahead of the S&P/ASX Small Ordinaries Index and 7.4% above the S&P/ASX 200 Index. I am expecting 2014 to be a big year for emerging stocks, as you can tell from the positioning of my portfolio, and I look forward to taking you further into the world of small caps in the New Year. Have a wonderful and safe festive season.

Uncapped 100 stocks with an "outperform" recommendation

NameCodeDate of recPriceArticle Name
eBetEBT26-Jun-13$1.130Small cap with biggest earnings upgrade
Silex SystemsSLX03-Jul-13$2.320Why a dog can be an investor's best friend
NewsatNWT03-Jul-13$0.400Why a dog can be an investor's best friend
Tiger ResourcesTGS03-Jul-13$0.190Why a dog can be an investor's best friend
M2 Telecommunications GroupMTU10-Jul-13$6.020Big expectations for small caps
Starpharma HoldingsSPL17-Jul-13$0.940Five bargains for under a buck
ColorpakCKL17-Jul-13$0.725Five bargains for under a buck
GI DynamicsGID17-Jul-13$0.600Five bargains for under a buck
Horizon OilHZN17-Jul-13$0.355Five bargains for under a buck
Collins FoodsCKF07-Aug-13$1.760The next dividend dazzelers
LogiCammsLCM07-Aug-13$1.470The next dividend dazzelers
NRW HoldingsNWH14-Aug-13$1.140A mining services revival?
WDSWDS14-Aug-13$0.590A mining services revival?
ThinksmartTSM21-Aug-13$0.355Biggest smalls earnings surprises
Beadell ResourcesBDR28-Aug-13$0.865Short-selling gold signals
Universal BiosensorsUBI04-Sep-13$0.680Smalls in a sweet spot
Specialty Fashion GroupSFH18-Sep-13$0.930Small cap surprises for 2014
Mint WirelessMNW02-Oct-13$0.180Four new stocks for the Uncapped 100
YTC ResourcesYTC09-Oct-13$0.260Xmas sale starts early for small caps
Ridley CorporationRIC16-Oct-13$0.850Appetisers from the agri stocks field
Wide Bay AustraliaWBB16-Oct-13$5.600Appetisers from the agri stocks field
STW CommunicationsSGN30-Oct-13$1.580Small consumer stocks at Christmas crossroads
Retail Food GroupRFG30-Oct-13$4.580Small consumer stocks at Christmas crossroads
NanosonicNAN06-Nov-13$0.830First profit, first choice for stock pickers
AMA GroupAMA06-Nov-13$0.365AMA chief's double plan
eServGlobalESV13-Dec-13$0.700Calculating Bitcoin's flow-on effects

Uncapped 100 - Australia's most interesting small cap stocks

Small cap stocks covered by the Uncapped team
CodeNameRationaleMarket cap ($m)Total return 1-year (%)Sector (GICS)
MTU M2 Telecommunications Group Amazing growth story and well run company. High free float and strong insto support.1,053.8944.77Telecommunication Services
NHF NIB Holdings Only listed health insurer. Widely held. Good performer.1,049.2221.99Financials
GEM G8 Education Only listed childcare operator. Acquisition strategy paying off with stock delivering solid gains.900.91109.54Consumer Discretionary
MMS McMillan Shakespeare One of the best performers since the GFC, but ongoing risk of change to FBT rules will hang over the company.836.90-15.21Industrials
ARP ARB Corp Well covered but good candidate for core holding due to quality management.822.667.14Consumer Discretionary
AAD Ardent Leisure GroupWidely held stock. Earnings more defensive than anticipated. Good yield. Potential core holding.789.8643.65Consumer Discretionary
MRM Mermaid Marine Australia Its strategically located facility on WA coast gives it a key advantage over competition in servicing Gorgon & Pluto projects.703.77-8.39Industrials
BGA Bega Cheese Corporate interest in Australian food companies makes the cheese maker worth following.676.88140.5Consumer Staples
AUB Austbrokers Holdings The insurance broker is a strong performer. Widely held and well liked by small cap investors.673.3338.09Financials
SRX Sirtex Medical A shining star in the biotech space and one of the best performing stocks in 2012. Great product (liver cancer treatment) and bright outlook.625.61-11.66Health Care
RFG Retail Food Group Owns a number of well know franchise brands. Widely followed by instos.607.9350.91Consumer Discretionary
BDR Beadell Resources Will be a very big FY14 for miner as it has to prove it aims to produce 200,000 ounces of gold a year.597.00-26.34Materials
SGN STW Communications Group One of few companies able to benefit from online shift. Widely held and good insto support.589.5941.59Consumer Discretionary
CWP Cedar Woods Properties Property developer with good ROE and earnings growth track record.516.8761.88Financials
AMM Amcom Telecommunications Well covered junior telco but good candidate for core holding.509.9053.32Telecommunication Services
SEA Sundance Energy Australia Analysts have a favourable take on the oil & gas explorer, but stock is still under radar of most. Sundance provides exposure to prospective Eagle Ford shale.468.9625Energy
TGR Tassal Group Salmon farmer is finally turning a corner with an improved harvest strategy and growing demand for product.458.57133.32Consumer Staples
TOX Tox Free Solutions Widely held stock in the waste solutions business. Its unique because it operates in a defensive-growth niche.441.0315.55Industrials
RCR RCR Tomlinson Good first half FY13 result and outlook, but will its fortunes change this year with the mining capex slowdown?434.7080.04Industrials
BRU Buru Energy Substantial size but not often covered by press. Widely held with good insto support.429.69-41.7Energy
MYS MyState Well regarded and could make good alternative to bank stocks. Has good yield and earnings growth over past few years.409.7341Financials
CCP Credit Corp Group Strong price run attracted good investor interest. Leveraged to any rise in loan defaults. Not well covered by press.399.0411.55Industrials
NXT NEXTDC The cloud computing company is an IT sector darling. Fairly widely held and followed.392.965.26Telecommunication Services
MYX Mayne Pharma Group Sizeable generic drug maker with interesting board members.377.52109.38Health Care
HZN Horizon Oil One of better regarded small energy stocks that doesn't receive much media attention.377.33-32.42Energy
ACR Acrux One of the most successful Australian biotechs in recent history. Widely held by instos.373.01-15.97Health Care
SLX Silex Systems Its uranium enrichment technology could become one of Australia's best innovations given its potential to change the nuclear power industry.371.25-24.83Information Technology
IPP iProperty Group Worth watching as it is trying to be the REA Group of Asia.341.03126.51Information Technology
MOC Mortgage Choice Has a good track record and is leveraged to any housing recovery. The stock is also liquid with good insto support.335.4468.96Financials
CCV Cash Converters International Strong performance is attracting investors. It's Australia's only listed pawn shop and pay day lender.332.52-29.37Consumer Discretionary
UXC UXC Company has turned corner and enjoyed re-rating. What's next?330.172.19Information Technology
NWH NRW Holdings One of the better regarded mining & civil contractors with good track record in delivering on projects.326.30-24.4Industrials
TGA Thorn Group One of few retail stocks that is performing well despite its flat outlook for FY14. The Radio Rentals chain owner is also well supported by instos.321.6210.76Consumer Discretionary
AEU Australian Education TrustWell performing childcare centre property owner. Good yield story and outlook. 312.7331.43Financials
BNO Bionomics One of the larger cancer treatment developers in this market.288.54101.18Health Care
GXL Greencross Acquisitive veterinary group. Good profit growth and share price performance, but gets little press.280.73133.22Health Care
GID GI Dynamics IncLargely forgotten by investors but could attract attention this year as it looks to gain US approval to use its intestinal liner on diabetics.276.8829.09Health Care
RKN Reckon Fierce competition for cloud base accounting software puts it in firing line.275.42-4.22Information Technology
IMF Bentham IMF Litigation funder is unique stock. Stock not liquid but its outlook appears promising given the number of potential class action lawsuits.268.518.44Financials
VOC Vocus Communications Telecom stocks are in favour but Vocus is one of the least covered265.76106.59Telecommunication Services
SHV Select Harvests Noteworthy for turbulent past and exposure to soft commodity market.263.06236.54Consumer Staples
TFC TFS Corp The sandalwood products company offers exposure to both the agri and cosmetics industry. It will start commercial harvest this year.258.17102.27Materials
RIC Ridley Corp High corporate interest in the sector and the shrinking pool of agri listed stocks make Ridley worth following.247.79-21.03Consumer Staples
AJA Astro Japan Property GroupStrong leverage to Japanese economy makes this an interesting stock to watch.233.9020.52Financials
TGS Tiger Resources Future lies in its Kipoi copper mine expansion in the Congo but miner is fully funded with DRC govt holding 40% stake in tenement. Next 12mths will be interesting.231.31-4.03Materials
NWT Newsat Potential large cap if it can launch its own satellite in 2015.227.71#N/A N/ATelecommunication Services
NAN Nanosonics A successful medical tech story. Should be close to turning in maiden profit with its disinfection device.227.6073Health Care
CLH Collection House In similar space as Credit Corp. Strong stock performance has attracted a following and the stock appears to be well placed to run further223.7679.24Industrials
SPL Starpharma Holdings Noteworthy for its good pipeline of innovations. Well run, widely followed.222.00-33.33Health Care
MXI MaxiTRANS Industries Transport equipment maker posted good interim result. Has appealing yield and growth.218.9522.06Industrials
WBB Wide Bay Australia The building society is trying to turn its fortunes around. Also worth watching for its exposure to Queensland housing market, particularly around major resource projects.209.100.72Financials
PFL Patties Foods Illiquid stock but has suite of well recognised consumer brands. Defensive yield.190.63-4.05Consumer Staples
RCG RCG Corp The footwear retailer is one of the best performing consumer stocks as online competition is not a big threat. Company has a good yield as well.188.8679.14Consumer Discretionary
IFM Infomedia Interesting tech play in the car parts market. Strong share price gain but gets little air play.179.1651.69Information Technology
HSN Hansen Technologies Operates in a high potential/growth industry but is not covered by press or brokers.177.4335.94Information Technology
ESV Eservglobal Mobile money transfer company that has been gaining traction. Widely held by instos but low press coverage175.5880.77Information Technology
ACL AlchemiaOne of the few biotechs with revenue stream. Good pipeline of oncology treatments.175.18-1.82Health Care
DWS DWS Will be a big beneficiary if governments start spending on IT again.172.73-8.41Information Technology
CKF Collins Foods One of the few food franchise listed companies.172.2854.05Consumer Discretionary
SFH Specialty Fashion Group In early stages of turnaround. Can the women's apparel retailer sustain the momentum?172.0545.54Consumer Discretionary
DTL Data#3 Well respected IT company that receives little press coverage.160.90-9.39Information Technology
NEA Nearmap A stellar performer with an Interesting business that offers high quality aerial maps to companies & government.159.77900Information Technology
SIV Silver Chef Strong jump in the share price of the equipment financing group has attracted a good following.148.72-3.79Industrials
MLB Melbourne IT A perennial underperformer could be interesting turnaround story as management is in midst of restructuring the business.145.9515.87Information Technology
MCP McPherson's The personal care and household products supplier had been relatively insulated from volatile discretionary spend and online threat, but its latest profit warning shows it's not immune.140.05-14.51Consumer Discretionary
AZZ Antares Energy Liquid with good insto support. Already in production with exploration upside in Texas.133.880Energy
BGL BigAir Group The wireless small cap has gained strong following over past year or two but is often overlooked by investors and the press.133.3532.57Telecommunication Services
GHC Generation Healthcare REITOne of the more interesting REITs. Income is more defensive than typical property stock and its greenfield expansion gives it earnings growth potential.133.0630.01Financials
WDS WDS Widely held with strong insto support. Engineering contractor diversified across mining, energy and infrastructure.124.48102.35Industrials
POH Phosphagenics Sizable biotech with a game changing FY14 year ahead. Good insto following but questions of poor audit and governance standard could dog company.112.25-21.43Health Care
SAR Saracen Mineral Holdings Emerging gold producer that is widely held by instos. Hitting milestones and looks cheap. Key asset is close to gold majors, which makes it a potential takeover target.111.61-54.27Materials
MNW Mint Wireless Huge market potential if the mobile card payment solutions provider can gain market traction. Management aiming for $1 billion in transaction value a year.111.061517.65Information Technology
AMA AMA Group Good turnaround story but under the automotive services group is radar of most.110.30-10.37Consumer Discretionary
REX Regional Express Holdings Well run airline that is overshadowed by Virgin and Qantas.98.59-20.09Industrials
IMD Imdex Drilling company is well supported by instos and should benefit from any rebound in exploration activity.97.87-69.24Materials
LCM LogiCamms Strong price performance and reasonable valuation attracting interest.97.5135.68Industrials
RUL RungePincockMinarco IT company to resource industry. Facing tough operating climate with new CEO trying to restructure and turnaround company.94.0020.91Industrials
JIN Jumbo Interactive Innovative small cap facing off industry dominated by giants. Worth watching to see if it can carve out a profitable global business.88.38-17.81Consumer Discretionary
CLV Clover Corp One of the star performers in 2012. Operates in growing but relatively stable niche.84.24-1Health Care
UBI Universal Biosensors IncWell regarded biotech and one of few that's successfully manufacturing in Australia. Struck deal with a few global medical companies.83.09-47.8Health Care
DRM Doray Minerals Widely held by instos. One of the more favoured gold explorers by brokers.82.99-25.48Materials
AOH Altona Mining Noteworthy copper play with Xstrata pull-out of Roseby project in Australia and the good ramp up of its Finnish project.78.50-42.16Materials
EML Emerchants Trying to change way corporates and governments disburse cash with its trackable and controllable debit card offering. If company can get $1 billion in loaded value on cards, the stock will surge.74.80252.94Financials
YTC YTC Resources Next 12-mths will be eventful after YTC secured funding for its projects from Glencore.73.72-29.69Materials
CKL Colorpak The small cap packaging company has grown via acquisitions over past few years.72.5762.19Materials
LGD Legend Corp Electronic parts supplier to utilities and other industries. Stable earnings with good yield. Often overlooked.72.4413.89Information Technology
CAA Capral An aluminium manufacturer that is actually holding up relatively well given that manufacturing is on the nose. 70.99-6.25Materials
TAN  Tandou The only direct equity exposure to cotton prices. Also trades water rights and receives little press.68.7216.72Consumer Staples
PEN Peninsula Energy Widely held by instos and large free float. It's the only uranium miner on the list.65.48-47.56Energy
TSM ThinkSmart Potential turnaround story worth keeping eye on.58.43105.71Financials
BOL Boom Logistics Crane hire group is riding out the downturn in construction.  It's widely held by instos and is very liquid.56.98-54.72Industrials
KOV Korvest The construction products and services supplier has been hit by project delays and deferrals. But its relatively high yield could give it some support.54.92-2.24Industrials
FGE Forge Group Good track record has been marred by a recent shock downgrade and capital raising. How long will it take to redeem itself?52.35-86.43Industrials
OTH Onthehouse Holdings Alternative small cap to online property leader REA Group. It is trying to use more timely housing data as a competitive edge against REA.46.84-16.18Consumer Discretionary
GXY Galaxy Resources Good upside potential if it can get its problem-prone Jiangsu plant back on track. Won't be easy to right this ship.45.19-83.68Materials
EBT eBet Potential alternative to star performer Ainsworth Tech. Has exclusive deal with US poker machine maker WMS.41.53167.02Consumer Discretionary
NTC NetComm Wireless Under appreciated small IT hardware maker that is punching above its weight. Hardly covered by press.39.2569.44Information Technology
CUV Clinuvel Pharmaceuticals Interesting skin disorder treatment developer that has done reasonably well over past year38.22-46.09Health Care
UML Unity Mining Growing Tassie gold producer with high free float. Valuation looks compelling too.32.29-64.62Materials
PGC Paragon Care Emerging hospital equipment supplier that has been ignored by market.20.9788.43Health Care
Source: Eureka Report, Bloomberg

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