|Summary: Eureka Report’s offering to subscribers has got a whole lot better, with our financial services licence enabling us to give specific stock recommendations. We have enhanced our offering, and now you can see all our share recommendations as well as detailed information on every company we track.|
|Key take-out: The primary objective of the team is to pick great emerging growth stocks that pass our qualitative and quantitative selection criteria.|
|Key beneficiaries: General investors. Category: Shares.|
It’s almost a year (July 1, 2013) since Eureka Report received its financial services licence and we took the bold step to go beyond journalism and present you with explicit stock recommendations. Today it’s time to go one step further and present to you – our subscribers – our track record on an ongoing basis.
When you see stocks recommended in Eureka Report there is a substantial process behind the scenes: First the idea must be financially ‘modelled’, second it must pass through our investment committee and finally it is peer reviewed by the Eureka team. In other words, we don’t make our recommendations lightly and we take responsibility for them.
But until now subscribers have only been able to see our recommendations as they were published week by week. Today’s launch of the share recommendation service allows you to see where we ‘sit’ on a range of stocks. You can review our current position on the stock and compare that stance to the price the stock was at on the day we make ‘the call’.
The Share Recommendation list is displayed on the home page under the ‘tab’ across the top navigation bar. To view the Share Recommendations list click here.
As you probably know we have had some very successful recommendations in our first year and we are the first to admit that it has been a good year for the wider market.
Take for example Netcomm Wireless – we originally called the stock at 34.5 cents in February 2014 and we most recently called the stock at 56c in April. Today we are delighted to report the stock is trading at about 71c, which is still some way below our projected price of 86c.
Watching the process from another angle, we recently called the giant Wesfarmers conglomerate a ‘sell’ at a price of $42.89. Today the Wesfarmers price is lower at $42.79 and we would expect it still has some way to fall since our projected price on Wesfarmers is a lowly $29.50.
In getting to understand how our share recommendations work it’s worth knowing that stocks may never actually reach their ‘value’ price (i.e. Wesfarmers may not actually sink to $29.50, but we are confident that at $42.89 it is selling at a price we simply cannot recommend). In a similar fashion we believed that Netcomm Wireless was substantially undervalued when we called it a ‘buy’ at 34.5c.
Occasionally our process turns out to be exceptionally ‘on the money’. We did the numbers on Azure Healthcare a few weeks ago – we originally called it a buy at 30c in March this year and we called it again at 32c two months later. As it turned out a predator company was running the same numbers and a takeover bid was mounted against the company in the days following. Ultimately the takeover bid did not come to pass, but the bid was a validation of our process.
In reviewing the situation at Azure in the wake of the takeover bid we decided that Azure on our numbers remained a ‘buy’ – today it is trading 33.5c against our projected price of 39c.
Indeed, with the acceleration of takeover activity in the market we expect our targets to be mirrored regularly in the market. Our best takeover call to date? Well, back in September 2013 Tom Elliott named Warrnambool Butter as a takeover target when the stock was trading at $4.51 – some six months later the final acquisition price paid by Saputo of Canada for the Victorian dairy producer was $9.40, which was more than double the price at which we pointed out the opportunity to investors.
Of course our track record is not perfect: We have made some calls which have yet to prove themselves as worthy. In addition we – among many others- were seduced by the strong track record and high-quality management standing at Forge Group, but that ‘pick’ was unsuccessful.
But we learnt from that incident. Since then our investment committee procedures and controls have been strengthened to minimise the possibility that we will be lured into an unsuccessful venture again.
More typically, we simply ‘pick’ very good candidates for share price growth and it comes to pass. Brendon Lau recommended subscribers buy eBet in June 2013. In common with all our ‘picks’, Brendon did not just do the numbers. He talked to the management and got a deep appreciation of the business and its products. In the months following this call eBet’s share price rose 135%, more than 13 times the average rise of Australia’s top 200 companies over the same period.
How to we model our stock picks?
The primary objective of the team is to pick great emerging growth stocks that pass our qualitative and quantitative selection criteria. We will always cover the ‘big cap’ stocks that are the backbone of most retail investor portfolios, but where we believe we can really exercise a competitive advantage is in the under-researched area of small caps.
We are particularly focused on the following criteria:
- Competitive advantage / company niche.
- Supportive industry structure.
- Financial health, valuation.
- Risk analysis.
- Catalysts for a market revaluation.
Together, these measures – which blend our ability to understand and assess management with rigorous financial analysis –will help determine what Eureka perceives as appropriate valuations and will underpin our recommendations.
So, how to read the tables? The tables are put together in logical order, reading from left to right: you have the ASX code, the name of the company, the latest price on the ASX, the current call we have on the company, our projected price for the company, and the date on which our most recent call was published. You also get a link to the original article which enclosed the call.
Click on the image to enlarge.
If you examine the extract above on NetComm you can see that its code is NTC, the full name is NetComm Wireless Limited, its latest price at time of publication was 69c, the current call we have on the company is ‘Buy’, our projected price for the company is 86c, our most recent call on Netcomm was made on April 23 (remember we may make ongoing calls on a stock throughout the year), and the most recent article on the stock was ‘NetComm: Rise of the Machines’.
In relation to ‘calls’, we currently have four simple settings: Buy, Hold, Sell or ‘under review’, which means we are currently examining the model for the stock and will pass judgement on the stock at a future date. For the time being it is not under active review.
In the future we hope to enhance and elaborate our ‘call’ system with the introduction of a risk grading for our calls from ‘low’, through to ‘medium’ and ‘high’. The concept behind this gradation of call will be to allow you – the subscriber – to weigh the nature of the call. At its most obvious a ‘buy’ call on a ‘big four’ bank and a ‘buy’ call on a biotechnology company tipped for a medical breakthrough is a very different proposition. The bank ‘call’ might be low- or medium-risk, the biotechnology stock, almost by definition, will be a high-grade risk.
In the months to come there will also be further enhancements to the service, but the key development will be the expansion of our list as we build on our reputation as Australia’s number one investment publication.
In the meantime we wish you every success in finding the share investments that suit you best.