How to Hunt Down Small-Cap Big Winners (Two Examples)

by , 25 July 2018
How to Hunt Down Small-Cap Big Winners (Two Examples)
In today's Money Morning…day 6 of your 7-day course…the hard part is actually finding the stocks…how to find potentially profitable small-cap stocks…and more…

Welcome back to your Penny Stock Profits email course.

We're now on Day 6 of 7.

Today we're going to take everything you've learnt and put it all together.
We're going to go from A-Z on finding and buying potentially profitable small-caps.

OK, let's put all that theory into practice.

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Turn over as many rocks as possible
 
There’s no secret to starting out. You’ve got to grind and look at as many small-caps as possible.
 
I suggest you don’t go through a list of the JSE one by one, although you’re more than welcome, too.
 
Instead, it might be more efficient to have an idea in mind first.
 
Maybe you want to find small-caps that have been growing in sales over the past three years. You could find this by using a free screening tool.
 
There’s a bunch of them available. Moneyweb, Standard Bank Online Share Trading and Sharenet offers stock screeners, share information and more tools that can speed up your search time.
 
Alternatively, you might want to look for opportunities first. For example, if you believe the tech sector will continue to boom, you might want to look in that specific industry.
 
Maybe you think automation or data will be big business.
 
With that idea in mind, you can dig deeper and find small-cap gems ready to explode.
 
Again, it’s not really important how you come across small-cap opportunities, just as long as you do. 
 
So read as much as you can, listen to investing podcasts and watch videos. Try to expose yourself to as many stocks as possible.
 
Legendary fund manager Peter Lynch saw hundreds of stocks each year. He would even hop on planes and fly around the world to find new companies.
 
Lynch figured he’d find one good stock for every 10 he looked at. Of course, that’s just a rough estimate. But it makes sense that the more small-caps you look at, the better chance you’ll have to find more triple digit plays.
 
By the end of his career, he turned millions into billions!
 
The advice Lynch gives to aspiring investors is the same I’m giving to you now. Turn over as many rocks as possible.
 
Now let’s take a look at two small-caps and run them through the gauntlet.
 
Two potential gainers
 
The technology industry has been extremely active in the last decade. You always hear about a new tech start-up trying to disrupt an industry.
 
Whether it is fintech, blockchain or cyber security, technology is always striding ahead. 
 
So how can you profit from tech companies, innovation and a changing landscape? I’d argue investing in a small, but rapidly growing telecommunications and technology business wouldn’t be a bad bet.
 
That’s why I think Blue Label Technology [JSE:BLU] could be an interesting idea. 
 
The company started out with the founders selling airtime from the boot of their car. They eventually developed the vending system that manages and sells virtually all the prepaid airtime, and a huge share of prepaid electricity in South Africa.
 
More recently the company embarked on purchasing a share in Cell C. The company is profitable and sales are growing. From it’s November 2017 financials, net profit attributable to shareholders more than doubled from R545 million to R1.3 billion!
 
Blue Label has very little debt and generated R3.1 billion in cash. 
 
The stock has fallen recently because the entire telecoms industry took a hit. However, the company is benefiting from Cell C acquisition.
 
It just signed a roaming agreement with MTN to ‘piggy back’ on the MTN network in order to improve signal for Cell C customers, and through innovative deals it aims to steal market share from the two giants, Vodacom and MTN.
 
Of course, there’s no guarantee the stock will rocket up over the next few months. But clearly there’s potential for the stock to rise even higher.
 
You could say the same about Insimbi [JSE:ISB].
 
This R615 million company is in the high growth-recycling sector.
 
It recently purchased a business that recycles metals such as copper, zinc, lead and steel.
 
The company grew sales from R1.34 billion in 2017 to a massive R3.49 billion in 2018!
 
What’s more, it grew it’s profits per share from 10.87c to 18.45c.
 
While the group has loan finance for the business they bought, the massive profits it is making will soon repay the entire loan.
 
Since the start of 2018, Insimbi is up from 111c to 150c, 35%. And considering the growth potential and position the company is in there should be further growth this year.


Source: Google Finance
 
Once the hard parts over
 
As you can see, the hard part is actually finding these stocks. Determining whether they’re worth an investment is not necessarily that hard.
 
You’re just looking for small companies that can grow earnings significantly.
 
That about does it for Day 6.
 
Now you should be able to find potentially profitable small-caps all by yourself. But maybe you’re still not convinced small-caps are for you?
 
In Day 7, I’m going to show you why you’ve got to invest in these tiny companies.
 
Until then.
 
Cheers,
Francois Joubert, 
Red Hot Penny Shares
 



How to Hunt Down Small-Cap Big Winners (Two Examples)
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