- Property: still flat and unexciting
- Large cap stocks – boring
- Plus, why small caps offer the most exciting ride…
‘Papa, throw me up in the air! Throw me up in the air!’
My daughter and I were down the beach last night.
Ema was having a wonderful time running around with no clothes on.
It reminded me of the market saying: It’s when the tide goes out that you see who’s been swimming naked…
We’re going through the big reveals right now; companies are reporting their half-year results.
It also shows me why small caps are the best way to make a buck in the market right now.
Today’s Profit Watch explores why…
AV Jennings [ASX:AVJ] is a house and land developer. It reported an underwhelming result yesterday.
It was no great surprise to the market; AVJ had already warned of this happening.
More interesting was the outlook commentary from management.
They see first home buyers entering the market, but consumer confidence remains very low around real estate.
People are reluctant to buy without having sold their current house first. Finance is more difficult.
The uncertainty around the federal election isn’t helping, either.
Point being: We’re still in a flat property market.
None of the ASX-listed building firms are likely to take off soon, price wise.
The Biggest IPO in Financial History
In 2012, Facebook raised $16bn. In 2014, Alibaba raised $25bn. In this Free report, Callum Newman reveals the company that, according to Invests.com, ‘will massively dwarf’ them all in 2019. Plus, get a free subscription to Australia’s newest, most forward-looking daily investment email, Profit Watch. Enter your email address below and click ‘Send Me My FREE Report’.
They may form a base around these levels — do keep watch — but you could wait a long time for them to heat up again.
And mortgage brokers? The Royal Commission’s recommendations have hammered them.
Again, you could make the case for buying a major low like this, I suppose…but you would need to have a very deep understanding of the industry and individual companies to make a play like that work…and a lot of time for that to play out.
A flat property market will likely flow through to modest consumption growth, too.
No one’s going to make a fast buck buying a stock like JB Hi-Fi [ASX:JBH] anytime soon.
So, where do you look?
For 18 months, I have made the case to focus on the resources market. That’s worked pretty well.
But it’s been pretty slow going for the big stocks like BHP Group [ASX:BHP].
However, one of the points I made last year was that good cash flow for these guys would at least give them firepower to fund acquisitions of smaller projects.
At some point, a big miner has no choice but to invest in new exploration and development or buy a new project.
That’s because they’re always running down their existing reserves.
As a result, here’s a major reason why I like small-cap stocks like mining juniors…
Look at this ride!
Look no further than gold stock Bellevue Gold [ASX:BGL].
It took off in October last year after releasing some great results at its gold project in Western Australia.
The good news has kept on coming for this deposit. It has the second-highest grade orebody in Australia.
Now BGL is rumoured to be a takeover target. There’s a lot of gold majors who’d like to own a deposit like this.
That’s because they’re hard to come by these days. Gold grades are falling worldwide.
The point is that BGL has had a cracking run. It’s up over 200% since September last year.
See for yourself…
Now, be conscious of what I told you last Friday. The ‘good news’ around Bellevue Gold is heavily built into the price now.
But it’s a perfect example of what the small-cap sector offers you as an investor…the potential for a big return in a short amount of time.
Note that most of this move happened during the fourth quarter of last year when global markets were pounded.
This is where mainstream, fear-driven headlines can lead you astray. It’s easy to get caught up in the drama.
But your time is much better served learning about individual companies and what they’re working on.
There is always a profitable opportunity somewhere.
Let me point out that I did not catch this move. I spent most of last year going over oil — not gold — stocks. There is only so much one analyst can cover.
However, I now have a strong list of projects that are potentially as exciting as Bellevue Gold has proved to be, just in a different context.
Naturally, there are risks. Deposits can turn out to be duds or less exciting than expected.
But do know that advances in technology are helping explorers and drillers to find deposits in new ways compared to previous years.
Point being: BGL certainly won’t be the last junior stock on the ASX to fly up after announcing exciting results. The stage is set for plenty more to come.