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3 Small-Cap Stocks with BIG potential

by , 24 July 2019
3 Small-Cap Stocks with BIG potential
Landing winning stocks doesn't have to mean investing in small, high-risk operations. Even big companies offer the potential of rich returns over time. But some small businesses will turn into tomorrow's biggest winners and create massive wealth for investors that got in at the right time.

Small-cap stocks, or the penny shares we invest in, are generally companies with market caps of less than R10 billion, or with share prices less than R10.

Many of these companies are distressed, or going nowhere slowly.

But every so often one of these companies shoot upwards. And when that happens 100% returns could be achieved in a matter of days!
 
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'Why I think these shares could make 2019 the most profitable year of your life...'
 
Why these stocks could make 2019 the most profitable year of your life
Get clued up right now and you could bank profit after profit after profit!
 
Gold Play # 1
Gold’s $100 dollar rally could make you a 94.4% return this year!
 
Gold Play # 2
This SA Producer’s Gold Windfall is about to Pay Off Big Time – Get in Now!
 
Small Cap Play # 3
He built a R140 billion empire then retired… Now this 70-year-old retiree is looking for a new challenge – He’s already taken a R100 million company to R4 billion
 
Small Cap Play # 4
Shares in this company could double thanks to this ‘backdoor’ opportunity!
 
  
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Right now there are three small cap shares ticking the right boxes on my radar
 
Small Cap Stock #1 – Adapt IT
 
Adapt IT’s current revenue in SA is R1 billion per year. The market size for the services it currently provides is around R5 billion. The total IT services market in SA however is R48 billion. That means Adapt IT only has around 2% of the total market share in SA, and there’s a LOT of possible growth it can still lock in…
 
Adapt IT’s clients include: Illovo, Rio Tinto, Coca Cola SA, Eskom, Ceres, Anchor Yeast, Sibanye Stillwater, Hatch and more. One of the company’s strengths is that it isn’t dependant on only 5 or 10 clients, but it has a VERY diverse client base.
 
While there’s a lot of growth opportunity still in SA, the company is looking offshore. It plans on conquering Africa (already gaining market share in Kenya and Botswana), as well as establish and grow its foothold in Australia specifically.
 
Adapt IT currently trades on a PE of 8 and the company is a dividend payer. What’s more, it’s all time high of around R16.50 was achieved in November 2016 while the company’s revenue and earnings was nearly 50% lower than what it is today. So – while the share price is down – the business is still growing rapidly. And that ultimately means that somewhere the share price will play catchup with the growth of the business.
 
Small Cap Stock #2 – Argent Industrial
 
Argent Industrial released results for the year ended March 2019 earlier in July.
 
In the past year the company’s done a lot to release value for shareholders and to improve its business. From a 205cps loss in 2018, the company’s turned around to a 101.2cps profit for 2019!
 
Based on the profit figure – Argent now trades at a PE ratio of 5.13. At the very least the company should be on a PE of 7.5 – 9.5. That means a target share price of around 961c – compared to the current 520c.
 
What’s more – the share’s net asset value is 1305.4c. So the share price trades at a 60% discount to the value of the assets Argent owns.
 
The company invested close to R100 million in a UK based business – which is set to make big money for it in coming years. Management has also indicated that they are considering further offshore investments to diversify the business further.
 
Argent shares are REALLY cheap at these levels. The company is also a dividend payer – and dividends in the coming year should improve further.
 
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Small Cap Stock #3 – Pan African Resources
 
Pan Af is a gold producer. The company has always been a low cost producer with a good safety record.
 
In a recent operational update the company noted gold production from continuing operations increased by 54.1%, while total gold production is up 7.5%.
 
The biggest chunk of growth is from its newly completed Elikhulu project. The project was completed in September 2018 and has now gone into full blown production. The project processed 10.85 million tonnes of material, producing 46,201 ounces of gold in the latest period. And in the coming year it will add around 55,000 ounces of gold production to the company’s bottom line.
 
The company also announced that it has made a “gold loan” to restructure its debt. That means it has sold 20,000 ounces of gold at R633,000/kg to RMB – ahead of producing this gold.
 
So the company receives cash to pay off its debt and save on interest – and only later mines and delivers the gold to the bank.
 
This helps if the gold price remains the same or falls – as it locks in the high price of gold at present. It also takes a lot of uncertainty off the table.
 
It is significant because of Pan Af’s cost of production. At its newly opened Elikhulu operation Pan Af can produce gold at roughly R300,000 per kg. That means this gold loan locks in a profit of R333,000 per kg of gold for the company.
 
Additionally the company will embark on two expansion projects. The first is the Evander Pillar mining. Pillar mining is a complex, yet cost effective way of mining the last gold left in a mine.
 
Basically, when initially mining pillars of gold containing rock is left in a mine for extra support. When the mining operations come to an end, these pillars can be systematically mined for their gold. The nice thing with this is these pillars often contain high grade gold deposits. There are also very little development cost as they are easy to reach. The downside is that safety risks are high – so mining has to be done very responsibly.
 
Pan Af has always had a good safety record, so I am certain it can do this project without taking unacceptable risk. This will add 30,000 ounces of production at around $900 an ounce and mining will be around three years. The total capital needed for the project is R70 million – and around R1.64 billion worth of gold will be extracted at an average profit of around R485 million!
 
These three stocks numbers speak for themselves… To find out more about them, and other stocks I love – have a look at my Red Hot Penny Shares newsletter.
   
Here’s to unleashing real value,
Francois Joubert,
Editor, Red Hot Penny Shares 


3 Small-Cap Stocks with BIG potential
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