How can Small Caps help you pay for your retirement or your first house?15.11.2017

 

If you want to pay for that house or your retirement, you can’t rely on the overall market, let alone dividends. You need what the market boffins call “alpha”.  Richard Hemming talks to you about investing in the stock market and how small caps can help with your portfolio.


What part do dividends play in Small Caps?

Dividends aren’t the reason you invest in stocks, but their ability to pay dividends is a crucial factor.

New subscribers to Under the Radar will see that we’ve established a number of portfolios. Two that we’ve done in the past two years have been based on this thematic and have returned close to 30% a year, which is more than double the performance of the All Ordinaries.

Dividends and more importantly, the capacity to pay dividends, reduce risk in your portfolio.Under the Radar’s portfolio’s deliver GROWTH AND DIVIDENDS.

We’ve created another dividend portfolio, which I would urge subscribers to check out.

Does the ASX200 Index Breaching 6,000 mean anything?

On the one hand in Australia you’ve got the markets hitting record levels.

On the other hand, you’ve got the Reserve Bank not raising rates and signalling that the domestic economy remains stuck in a funk, as Australian consumers remain up to their eyeballs in debt.

Unlike even 12 months ago it’s being shown in research that the correlation between stock price moves and the overall market a year ago was much higher than it is now.

When the correlation is high it doesn’t matter what stock you buy, the likelihood is that your stock will move in line with the market. This correlation has broken down and these day’s it’s a stock picker’s environment.

Picking winners in Medical Technology (MedTech)?

We’re in the middle of covering something like a dozen biotech companies. On average we’ve doubled our money on the stocks in this sector.

Two stocks we’ve been buying have appreciated about a third in recent months.

Nanosonics (NAN) has the Trophons device sterilisation technology. We bought it after its stock got heavily sold off after the Australian dollar strengthened against the Greenback. About 90% of its revenues come from the US market, so it benefits when the US dollar is strong, but really the exchange rate isn’t material in the longer-term.

This stock trades on about 11 times sales, so the underlying value of this group is not determined by the exchange rate, but you can take advantage of its moves.

We’re holding on to Medical Developments (MVP) which has also climbed about 33% in the past few months. This is another example where you don’t need sexy science to make money! I would argue that the more complicated the science, the greater the regulatory risk.

It has the famed green whistle or Penthrox, which is an analgesic used on a felled Brazilian jockey in Flemington on Melbourne Cup day.

It’s significant that this group hasn’t raised capital; it’s getting global sales; and UK authorities have recently authorised Penthrox to be sold in every ambulance there.

It’svery expensive, but we’re glad we haven’t taken profits.

Other areas where Under the Radar is generating Alpha? The Lithium Report

We’re a big believer that electric cars are only going to increase, and of course this means that batteries will be needed in bigger and bigger supply.

Based on our calculations, you would need 35 times the capacity of one Tesla gigafactory to supply the world’s electric vehicles in the next decade.

That’s a lot of lithium. And Australia is in the box seat because we’ve got some mines that in production or are nearing production. There are technical difficulties in this sector, so it’s important that you read our report, but we do have a number of buy recommendations.

 

 


About the Author

Richard Hemming

Investment analyst and Editor of Under the Radar Report

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