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The ‘special' segment of the JSE I'm rushing to invest in right now…

by , 22 March 2016

I get it… This has been a tough start to 2016.

Between 28 December 2015 and 21 January 2016 the JSE handed you a ‘New Year's' gift of -11% and the market is still down year to date.

And when you look at the largest companies on the JSE, the concerns don't magically disappear…

Intu Properties reported a 10.6% decrease in earnings for the year, Liberty Holdings profit dropped about 2%, Discovery saw a 52% decrease in earnings and the world's largest diversified miner, BHP Billiton, is now a loss-making company.

Overall, I've seen more of the JSE's largest most well-known companies report bad earnings this year than good ones…

But that doesn't mean the JSE isn't investable.

You just need to invest in another place.

Small Cap shares are set for a great 2016…
 
Small-Cap shares are showing enormous promise for 2016.
 
Unlike the larger companies that are reporting big drops in earnings there are a score of smaller companies making massive profits.
 
Since the start of February there’s Adapt IT that increased its earnings per share (EPS) by 42.71, Mix Telematics grew EPS by 100% and Jasco grew EPS by 850%!
 
These aren’t the only ones. More small companies that have seen positive earnings growth for the past year are KAP Industrial Holdings, Super Group, DRD Gold, Italtile, ARB Holdings, Rolfes Holdings, Pan African Resources and Blue Label Telecoms.
 
Right now is the perfect time to buy undervalued, underappreciated Small-Cap shares

The Small-Cap index is trading at a 5% discount compared to January 2015 and a 13% discount compared to May 2015.
 
But the companies I mentioned above grew their profits this past year.
 
So while their prices have fallen, they now make more money and are able to pay you bigger dividends!

Why this special class of shares comes out at the top – every year

Most brokerage firms and institutions simply ignore some of these shares even though they are among the fastest-growing companies on the JSE.

That’s because institutions have billions to invest and a company of only a few hundred million is just too small for them. But a hundred million is more than enough for a retail investor like you and I…
 
As a result, these institutions leave some of the very best trading opportunities on the table. Businesses with tremendous potential trading for virtually nothing.
 
These smaller companies can also adapt to the changing marketplace and react quicker than their large-cap peers. Think about it this way: It’s a lot easier for a R150 million company to double its profits than it is for a R50 billion company to do the same…
 
The best way to find the small shares with the very best potential
 
it’s true that there are some of the small shares that are high risk. But many of them have millions of cash in the bank, earnings growth rates of 100% and immense potential.
 
And I find the very best small cap shares for my Red Hot Penny Shares subscribers each month.
 
I’ve made great returns over the past five years:
  • 2011: 29 Shares sold 13.52% average gain
     
  • 2012: 24 Shares sold, 23.18% average gain
     
  • 2013: 18 Shares sold, 30.11% average gain
     
  • 2014: 18 Shares sold, 41.74% average gain
     
  • 2015: 18 Shares sold, 43.03% average gain
     
  • 5-year weighted average returns: 28.19% per year
To find these great opportunities I use my PowA! Strategy. If you want to do the same, here it is:
 
Profits! – When I evaluate companies, it’s more than just understanding what they do and how they do it. I want to be sure they’re making money or at least have the prospects of making big money in the near future. Not just showing paper profits. Profits are possibly the most important part of my strategy, but they can also be misleading if you don’t combine them with the rest of my criteria.
 
Open Communication! – It’s all about finding the Truth. I’ve seen so many great penny shares stumble because the truth is hidden. That’s why I look deep into all aspects of the company to expose any lies there might be.
 
Wow Factor! – I only tip shares that stun me. There’s always a reason a share’s price shoots through the roof. I need to know why it’ll make more money tomorrow than it’s making today.
We all know how earnings growth affects share price movement.
 
Assets! – A company that doesn’t have the money to back its ambitions doesn’t mean much to me. That’s why I look for companies with strength in the balance sheets. I also like companies that use small amounts of assets to produce huge profits!
 
So, whenever I review a company I check that it meets all of these criteria. If it does, it earns a spot in my portfolio.
 
If it doesn’t, I keep it on my watch list – monitoring it continuously should the company’s situation change.

Applying my PowA! strategy will help you find stocks that have low risk and lots of upside. This strategy has worked for me for more than five years and could lead you to a bountiful fortune. Especially right now, that small companies are selling at cheap levels with increasing profits…
 
Here’s to unleashing real value
 

Francois Joubert
Editor, Red Hot Penny Shares


The ‘special' segment of the JSE I'm rushing to invest in right now…
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