|Summary: Eureka Report has further broadened its offering to subscribers with the launch of the Uncapped 100, a refined list of 100 small cap stocks that meet a range of key selection criteria. You can follow the performance of the 100 stocks every Wednesday in Eureka Report.|
|Key take-out: Companies in the Uncapped 100 include those that have solid business and growth prospects, and some of which have recorded a robust increase in share price over the past 12-months. The Uncapped 100 will be published weekly.|
|Key beneficiaries: General investors. Category: Shares.|
Ever since I started writing for Eureka Report readers have been asking, ‘what stocks do you follow?’ or ‘how do you identify what to cover when there are 2,000 small caps?
Today I’m going to answer those questions and go one step further. I’m publishing my Uncapped 100 … it’s ‘the universe’ of stocks I intend to concentrate upon at Eureka Report and I will publish every week with my column.
The idea is you and I together can delve into the Uncapped 100 for the best investing ideas … indeed my feature today (Three small caps striking core values) takes three stocks from the list which I believe could be a part of every serious small cap investor’s portfolio.
For a start we’ll produce the Uncapped 100 in a similar fashion to John Abernethy’s weekly publication of his portfolio (click here), and though I will regularly write and feature stocks on the list I only intend to make an official resetting of the list four times a year – the first ‘rebalance’ will be in September.
Take a quick look now at the Uncapped 100 at the bottom of this feature.
Ok, now that you have an idea what’s on the list I want to tell you about how I came to create this list and my criteria for stock selection.
First of all, these stocks are ‘small’ and not actively considered by the herd of stockbroking analysts who spend the vast majority of their time following the ASX 300.
Of the 1,978 listed companies on the ASX, 1,650 of them have modest market capitalisations that are under $800 million.
There are a number of important points readers need to bear in mind when looking at the Uncapped 100.
The vast majority of companies in the index have proven business models, with 70 of them posting a profit in the last financial year, and roughly half of these stocks have grown their earnings per share over the past three years.
Here’s my criteria for inclusion in the Uncapped 100:
- A market capitalisation of between $50 million and $800 million;
- A free float (percentage of total shares on issue that can be traded freely on the ASX) of at least 70%;
- A robust increase in share price over the past 12-months, or the company has strong institutional shareholder support (this can be seen via substantial shareholder notices and company annual reports);
- A big pipeline of expected news releases that can be in the form of production milestones, corporate activity, etc;
- Qualities that make the stock an ideal “core” portfolio holding now or in the foreseeable future (see Three small caps striking core values);
- In the midst of a significant turnaround in company fortunes.
At any given time stocks in the Uncapped 100 will need to meet at least four of the six conditions before they can be considered.
Uncapped 100 members are not picked on valuation grounds; in other words, just because it is in the list does not automatically make it a ‘buy’ because some stocks may have rallied beyond what I consider fair value.
Back testing would suggest the Uncapped 100 has outperformed the S&P/ASX Small Ordinaries Index and the S&P/ASX 200 Index over the past three years.
Over the three years the Uncapped 100 has generated a total return of 49% compared with an 11.5% loss by the Small Ordinaries and a 10% gain by the top 200 benchmark.
In designing the Uncapped 100 I have geared it towards investors with a medium-term investment time horizon. As we move forward I intend to highlight short-term trading opportunities, as they occur, but recommendations given to stocks will generally be done on a two- to three-year view.
A lot of work and thought has gone into the selection process, and feedback from our readers is always welcome. You can email me directly at firstname.lastname@example.org.
The rest of 2013 is going to be an exciting time for small cap stocks as I believe they are poised to outperform large caps in the months ahead.
The Uncapped 100
|Name||Rationale||Market cap ($m)||Total return 1-year (%)||Sector (GICS)|
|McMillan Shakespeare||One of the best performers since the GFC, but doesn't get much press or analyst coverage. Good management team.||1,253||56.2||Industrials|
|NIB Holdings||Only listed health insurer. Widely held. Good performer.||997||52.9||Financials|
|Breville Group||Well covered but good candidate for core holding due to good track record.||990||86.4||Consumer Discretionary|
|M2 Telecommunications Group||Amazing growth story and well run company. High free float and strong insto support.||960||66.8||Telecommunication Services|
|ARB Corp||Well covered but good candidate for core holding due to quality management.||921||50.4||Consumer Discretionary|
|Mermaid Marine Australia||Its strategically located facility on WA coast gives it a key advantage over competition in servicing Gorgon & Pluto projects.||787||19.6||Industrials|
|Ardent Leisure Group||Widely held stock. Earnings more defensive than anticipated. Good yield. Potential core holding||672||47.4||Consumer Discretionary|
|Acrux||One of the most successful Australian biotechs in recent history. Widely held by institutional investors.||625||-11.3||Health Care|
|G8 Education||Only listed childcare operator. Acquisition strategy paying off with stock delivering solid gains.||621||154.1||Consumer Discretionary|
|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.||613||85.5||Health Care|
|Austbrokers Holdings||The insurance broker is a strong performer. Widely held and well liked by small cap investors.||608||63.0||Financials|
|STW Communications Group||One of few companies able to benefit from online shift. Widely held and good instutional investor support.||596||67.3||Consumer Discretionary|
|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.||564||17.6||Materials|
|Retail Food Group||Owns a number of well know franchise brands. Widely followed by institutional investors.||508||52.8||Consumer Discretionary|
|Cash Converters International||Strong performance is attracting investors. It's Australia's only listed pawn shop and pay day lender.||477||91.6||Consumer Discretionary|
|Tox Free Solutions||Widely held stock in the waste solutions business. Its unique because it operates in a defensive-growth niche.||446||41.4||Industrials|
|Credit Corp Group||Strong price run attracted good investor interest. Leveraged to any rise in loan defaults. Not well covered by press.||444||69.5||Industrials|
|Horizon Oil||One of better regarded small energy stocks that doesn't receive much media attention.||434||41.7||Energy|
|NEXTDC||The cloud computing company is an IT sector darling. Fairly widely held and followed.||416||28.9||Telecommunication Services|
|Buru Energy||Substantial size but not often covered by press. Widely held with good insto support.||414||-56.4||Energy|
|Bega Cheese||Corporate interest in Australian food companies makes the cheese maker worth following.||412||70.2||Consumer Staples|
|Silex Systems||Its uranium enrichment technology could become one of Australia's best innovations given its potential to change the nuclear power industry.||412||-33.0||Information Technology|
|Amcom Telecommunications||Well covered junior telco but good candidate for core holding.||400||55.9||Telecommunication Services|
|MyState||Well regarded and could make good alternative to bank stocks. Has good yield and earnings growth over past few years.||396||57.6||Financials|
|Forge Group||One of the better performers in its industry. Good track record and potential core holding.||388||-5.8||Industrials|
|Unilife Corp||The developer of one-use prefilled syringes is close to an inflection point as the market is expecting the company to announce a major contract with a pharmaceutical giant in the coming weeks.||380||4.5||Health Care|
|Cedar Woods Properties||Property developer with good ROE and earnings growth track record.||377||53.3||Financials|
|Sundance Energy Australia||Analysts have a favorable take on the oil & gas explorer, but stock is still under radar of most. Sundance provides exposure to prospective Eagle Ford shale.||374||59.0||Energy|
|Thorn Group||One of few retail stocks that is performing well. The Radio Rentals chain owner is also well supported by institutional investors.||329||56.1||Consumer Discretionary|
|NRW Holdings||One of the better regarded mining & civil contractors with good track record in delivering on projects.||318||-62.8||Industrials|
|UXC||Company has turned corner and enjoyed re-rating. What's next?||307||91.7||Information Technology|
|Reckon||Fierce competition for cloud base accounting software puts it in firing line.||304||18.5||Information Technology|
|RCR Tomlinson||Good first half FY13 result and outlook, but will its fortunes change this year with the mining capex slowdown?||289||36.2||Industrials|
|Mortgage Choice||Has a good track record and is leveraged to any housing recovery. The stock is also liquid with good insto support.||265||74.6||Financials|
|Australian Education Trust||Well performing childcare centre property owner. Good yield story and outlook.||249||50.4||Financials|
|IMF Australia||Litigation funder is unique stock. Stock not liquid but its outlook appears promising given the number of potential class action lawsuits.||249||49.9||Financials|
|Ridley Corp||High corporate interest in the sector and the shrinking pool of agri listed stocks make Ridley worth following.||248||-17.5||Consumer Staples|
|Mayne Pharma Group||Sizeable generic drug maker with interesting board members.||242||55.7||Health Care|
|Starpharma Holdings||Noteworthy for its good pipeline of innovations. Well run, widely followed.||241||-46.4||Health Care|
|Astro Japan Property Group||Strong leverage to Japanese economy makes this an interesting stock to watch.||229||19.1||Financials|
|MaxiTRANS Industries||Transport equipment maker posted good interim result. Has appealing yield and growth.||220||111.4||Industrials|
|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.||217||9.7||Financials|
|Patties Foods||Illiquid stock but has suite of well recognised consumer brands. Defensive yield.||210||-4.8||Consumer Staples|
|Newsat||Potential large cap if it can launch its own satellite in 2015.||205||-43.2||Telecommunication Services|
|Silver Chef||Strong jump in the share price of the equipment financing group has attracted a good following.||202||133.1||Industrials|
|DWS||Will be a big beneficiary if governments start spending on IT again.||201||16.1||Information Technology|
|Select Harvests||Noteworthy for turbulent past and exposure to soft commodity market.||184||144.5||Consumer Staples|
|Data#3||Well respected IT company that receives little press coverage||183||27.2||Information Technology|
|Melbourne IT||A perennial underperformer could be interesting turnaround story as management is in midst of restructuring the business.||183||36.2||Information Technology|
|Imdex||Drilling company is well supported by institutional investors and should benefit from any rebound in exploration activity.||182||-57.1||Materials|
|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.||181||-62.9||Materials|
|Specialty Fashion Group||In early stages of turnaround. Can the women's apparel retailer sustain the momentum?||179||86.1||Consumer Discretionary|
|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 further||175||92.8||Industrials|
|Greencross||Acquisitive vetinary group. Good profit growth and share price performance, but gets little press.||175||119.0||Health Care|
|Vocus Communications||Telecom stocks are in favour but Vocus is one of the least covered||170||17.0||Telecommunication Services|
|McPherson's||The personal care and household products supplier is relatively insulated from volatile discretionary spend and online threat.||167||12.8||Consumer Discretionary|
|Collins Foods||One of the few food franchise listed companies.||159||72.4||Consumer Discretionary|
|GI Dynamics Inc||Largely forgotten by investors but could attract attention this year as it looks to gain approval to use its intestinal shealth on diabetics.||157||-38.9||Health Care|
|Bionomics||One of the larger cancer treatment developers in this market.||156||6.2||Health Care|
|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.||155||-22.0||Materials|
|Infomedia||Interesting tech play in the car parts market. Strong share price gain but gets little air play.||150||157.9||Information Technology|
|Hansen Technologies||Operates in a high potential/growth industry but is not covered by press or brokers.||148||10.2||Information Technology|
|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.||141||70.3||Consumer Discretionary|
|Regional Express Holdings||Well run airline that is overshadowed by Virgin and Qantas.||138||14.6||Industrials|
|Nanosonics||A successful medical tech story. Should be close to turning in maiden profit with its disinfection device.||137||6.1||Health Care|
|Phosphagenics||Sizable biotech with a game changing FY14 year ahead. Good insto following.||133||-25.7||Health Care|
|iProperty Group||Worth watching as it is trying to rival REA Group by replicating US online property company Zillow's features.||130||-35.6||Information Technology|
|TFS Corp||The sandalwood products company offers exposure to both the agri and cosmetics industry. It will start commercial harvest this year.||129||-8.9||Materials|
|Universal Biosensors Inc||Well regarded biotech and one of few that's successfully manufacturing in Australia. Struck deal with a few global medical companies.||120||12.2||Health Care|
|Alchemia /Australia||One of the few biotechs with revenue stream. Good pipeline of oncology treatments.||117||-18.2||Health Care|
|Clover Corp||One of the star performers in 2012. Operates in growing but relatively stable niche.||100||70.3||Health Care|
|AMA Group||Good turnaround story but under the automotive services group is radar of most.||98||117.9||Consumer Discretionary|
|BigAir Group||The wireless microcap has gained strong following over past year or two but is often overlooked by investors and the press.||95||54.0||Telecommunication Services|
|Altona Mining||Noteworthy copper play with Xstrata pullout of Roseby project in Australia and the good ramp up of its Finnish project.||93||-28.6||Materials|
|Eservglobal||Mobile money transfer company that has been gaining traction. Widely held by institutional investors but low press coverage||90||63.6||Information Technology|
|Saracen Mineral Holdings||Emerging gold producer that is widely held by institutional investors. Hitting milestones and looks cheap. Key asset is close to gold majors, which makes it a potential takeover target.||89||-72.2||Materials|
|LogiCamms||Strong price performance and reasonable valuation attracting interest.||89||23.9||Industrials|
|Antares Energy||Liquid with good insto support. Already in production with exploration upside in Texas.||86||-30.2||Energy|
|Peninsula Energy||Widely held by institutional investors and large free float. It's the only uranium miner on the list.||86||-17.1||Materials|
|Capral||An aluminium manufacturer that is actually holding up relatively well given that manufacturing is on the nose.||79||17.7||Materials|
|Clinuvel Pharmaceuticals||Interesting skin disorder treatment developer that has done reasonably well over past year||76||14.3||Health Care|
|Doray Minerals||Widely held by institutional investors. One of the more favored gold explorers by brokers.||76||-33.2||Materials|
|Nearmap||A stellar performer with an Interesting business that offers high quality ariel maps to companies & government.||74||411.1||Information Technology|
|RungePincockMinarco||IT company to resource industry. Turnaround potential under new CEO.||72||33.6||Industrials|
|Jumbo Interactive||Innovative small cap facing off industry dominated by giants. Worth watching to see if it can carve out a profitable global business.||64||20.0||Consumer Discretionary|
|Tandou||The only direct equity exposure to cotton prices. Also trades water rights and receives little press.||58||6.7||Consumer Staples|
|Colorpak||The small cap packaging company has grown via acquisitions over past few years.||58||19.3||Materials|
|Legend Corp||Electronic parts supplier to utilities and other industries. Stable earnings with good yield. Often overlooked.||57||-11.8||Information Technology|
|Boom Logistics||Crane hire group is riding out the downturn in construction. It's widely held by institutional investors and is very liquid.||54||-50.0||Industrials|
|Unity Mining||Growing Tassie gold producer with high free float. Valuation looks compelling too.||53||-40.0||Materials|
|YTC Resources||Next 12-mths will be eventful after YTC secured funding for its projects from Glencore.||52||-37.5||Materials|
|WDS||Widely held with strong insto support. Engineering contractor diversified across mining, energy and infrastructure.||52||-23.9||Industrials|
|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.||47||29.6||Industrials|
|ThinkSmart||Potential turnaround story worth keeping eye on.||45||40.0||Financials|
|Onthehouse Holdings||Alternative small cap to online property leader REA Group.||34||-4.9||Consumer Discretionary|
|ISS Group||Good turnaround story from 2012 but the resource industry software developer under the radar of most. ISS has received a takeover offer since it was included in the Uncapped 100.||30||40.0||Information Technology|
|NetComm Wireless||Under appreciated small IT hardware maker that is punching above its weight. Hardly covered by press.||30||107.4||Information Technology|
|eBet||Potential alternative to star performer Ainsworth Tech. Has exclusive deal with US poker machine maker WMS.||21||130.0||Consumer Discretionary|
|Mobilarm||Unique product that could change global maritime safety practices with its man-overboard location beacon.||13||10.0||Information Technology|
|Paragon Care||Emerging hospital equipment supplier that has been ignored by market.||11||34.1||Health Care|