Experts on small caps
by Peter Switzer
The night before I had some of the country’s hot shot small company pickers on my show and they agree that there’s value out there if you know how to find them. These guys actually travel around the country, go to the companies, ‘kick the tyres’ and find out whether the numbers match the business. This not only gives them insights, it gives them confirmation about a company’s potential.
My first guest was legendary investor Geoff Wilson from Wilson Asset Management or WAM, which is a listed company that buys good value companies.
So when you buy this share you are buying into Wilson and his team’s judgement calls on the companies they like based on their valuation methods.
Geoff said he liked the old Rams business, RHG, which he thought was oversold when they sold their brand name to Westpac but retained their book of loans, which have come good as we did not go into recession, which would have pushed unemployment up along with defaults.
He bought them at 12 cents and he says he’s still buying them around the 60 cents level and it simply gets down to the assets that back the company. He thinks the stock has a dollar in it. Steve Johnson from Intelligent Investor has been a supporter of this stock as well.
Wilson said they took a punt on some companies that had a lot of debt but would survive. He nominated Everest Financial Group, which has the ghosts of Babcock & Brown in it!
Stock market rise
On the same show I had John Campbell and Jeremy Bendeich from UBS who run the company’s Australian Small Companies Fund.
Since 2004, they pointed out that $10,000 invested in the S&P/ASX 200 would have netted you $15,000 but if you were on board with them you would have pocketed $25,000.
These guys follow the same kinds of processes to find great Aussie companies that don’t have the blue chip tag but have good quality businesses.
They argue that the share price of smaller companies might be more volatile but it doesn’t mean the companies aren’t quality performers, and that’s what they look for. They look for companies outside of the top 50 stocks in the index.
One of the two companies they shared with me was Monadelphous, a mining services company, that they argue will be less sensitive to changing commodity prices and are well-placed to capitalize on the burgeoning resources boom.
Generally they like financials but their pick was the Bank of Queensland. This comes as RateCity.com.au put out a press release yesterday telling us that smaller lenders are expected to give the big banks some competition on interest rates. In fact, yesterday, CUA cut its interest rate on its home loan to 6.37 per cent while the big bank’s equivalent rate was between 6.74 per cent and 7.01 per cent.
Big picture-wise the UBS guys were more bullish on the overall market than Geoff Wilson. And finally remember that these guys would hold at least 20 stocks in their fund reducing their exposure to any one stock to five per cent.
No crystal ball
In tipping stocks, no one has a crystal ball but provided the company is assessed as being a quality performer, even if the share price fell in a panic, they should have a high likelihood of coming back. But of course, if you want guaranteed returns, stick to fixed deposits at a reputable bank.
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Published on: Thursday, March 25, 2010blog comments powered by Disqus