Another of my recent purchases is up 7.5% for the day – also on a hot trading update.
The fact is – small cap shares (and many penny stocks) are scorching hot right now.
But you need to pick the right ones.
Money is fast flowing into these JSE Minnows
Despite the global pandemic ripping through the world, the smallest sector of the SA market is, FLYING.
2021 is the year for stock pickers
Between 2015 and 2020 the market’s momentum was the main force taking share prices up and down with it.
But thanks to financials and fundamental considerations the divide between good and bad companies have gotten huge. Investors can no longer simply ignore the value presented by great companies.
That’s why I expect this year will be a great for stock pickers.
Having the ability to pick companies that are trading below intrinsic value, where the growth outlook is not dependant on the macro economy is a big positive in this environment.
The market is full of opportunities like the one I hopped on to in 2019/2020.
DRD Gold was trading at a torrid level of 265c back in June 2019. Investors had written off the entire gold mining sector due to a weak gold price.
But thanks to a huge expansion project – and a hike in the gold price, I expected a positive run from DRD was on the cards…
Just look at the chart below to see what happened next:
Figure 1A 519% Gain in 11 Months!
Sure enough, by May 2020 DRD’s share price shot up to 1577c a share – and Red Hot Penny Shares readers bagged a 519% gain plus some dividends!
This isn’t an isolated case though. There are many small cap companies that present a great opportunity RIGHT NOW.
South African small cap shares are bucking the trend with soaring profits
You’d expect the economic turmoil around us to translate to big losses, or at least shrinking profits for small- cap shares.
But here’s the thing… They are bucking the trend.
In the last week alone I’ve seen multiple announcements with soaring profits for small cap companies:
On 9 February Trellidor released a trading statement for its six months earnings ending 31 December 2020. The company expects a 17-21% increase in headline earnings per share and a 20-23% increase in earnings per share.
On 3 February ARB Holdings announced it expects a 20-30% increase in earnings per share to around 42.5cps for the six months ending 31 December 2020.’
On 8 February Bowler Metcalf announced its earnings per share are up around 26% to 67.6cps for the six months ending December 2020. The company also declared an interim dividend of 19.40cps. Stacking onto its last final dividend that gives it an annualised dividend of 48.90cps – or a dividend yield of 4.6%.
On 9 February Metrofile’s trading statement confirmed Metrofile headline earnings per share grew +9 to +22% and net debt dropped by nearly a fifth.
On 8 February 2021 Mpact announced that it expects basic earnings per share to increase more than 100% compared to the year ending 31 December 2019!
Mustek announced a 135% increase in first half headline earnings on 8 February 2021. The company expects half year earnings to come in at around 177cps – putting it on a PE of less than 5 if it doesn’t make a sent of profit for the second half of the year!
The list goes on – if you put in the research and time you could’ve uncovered each one of these companies – and pre-empted these profit growth announcements. All the pointers were there.
They’ve already made great gains in the past month – but there’s more to come. In fact, these are just a handful of the opportunities
South African small cap shares present right now – and many of these companies are going up, making profit DESPITE the recession…
Here’s to unleashing real value
Editor, Red Hot Penny Shares