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Small caps to own after jobkeeper ends

Richard Hemming hunts for companies earning export dollars and those with relatively safe income streams.

There have been a number of themes coming through from reporting season, but the most important one is the importance of not playing the FOMO game. There is a great deal of hype in the market evidenced by the US stock  market hitting all-time highs. You don’t have to look far down the track to see that government fiscal stimulus measures such as JobKeeper are being removed or tapered down, before exiting the stage. When confusion reigns, investors will sell non-income producing stocks and revert to value: sustainable earnings, balance sheet strength and dividends. The stocks that don’t look sexy now are the ones to look to buy.

 

What we’re going to see over the next six to 12 months are the real swimmers; those that can produce sustainable profit growth. The momentum stocks that are ticking boxes cannot keep going. You’re playing the greater fool game if you jump on board at escalated prices.

 

What we’re also going to see is a struggling domestic economy. Australia has a small population and tourism has been a growing industry, increasing at annual rates of over 7% a year in the past five years to 2018 and contributing over $50bn to the GDP (3% of the total) while employing over 900,000 people. Until the COVID-19 health and economic crisis. This industry is complete toast, having gone close to zero. The knock-on effects will be considerable, especially to small business and those who depend on them, such as pubs and clubs.

 

As an investor, what do you do? You look for companies earning export dollars and those with secure, or relatively safe income streams.


About the Author
Richard Hemming , Under The Radar Report

Richard is an experienced finance analyst, stock broker and financial journalist, having worked for over 25 years in the finance sector. He has worked as an analyst and stockbroker in Sydney and in London and for the Australian Financial Review, Investors Chronicle and the Financial Times. He had always wanted to start a research newsletter focussed purely on Small Caps because they were simply not covered with any regularity by stockbrokers because they were too small. Small Caps require diligent research and follow up.  The lack of quality research on Small Caps was why Richard started Under the Radar Report with Caroline Mark.