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Three small cap growth stocks

Richard Hemming shares his four steps to building a growth portfolio and three stock ideas.

In the current “risk on” environment investors are looking at the more speculative investments with a glass is half full view. But if you do take the plunge, it’s important to know what you’re letting yourself into. First up, I cover four stocks we think have growth criteria: they can grow faster than the market. You have to remember that there are only so many companies that can grow at rapid rates sustainably. The Amazons, the Facebooks of this world are an anomaly.

Fortunately, when you’re small, the world is big. Growth is possible at faster than average rates. But you have to know when to fold! First I cover four stocks that have that growth potential, there stocks having appreciated quite a bit since we first tipped them. Then I look in detail at another, in order to give you an idea of how to invest.

 

Growth Stock 1: Hazer (HZR)

Hazer is at the most speculative end of Under the Radar’s risk spectrum. The company’s intellectual property relates to the processing of biogas from water waste treatment plants, turning methane into hydrogen and graphite. Methane’s chemical structure is comprised of one carbon atom and four hydrogen atoms. Hazer’s process teases each out to make hydrogen for use as a low emission source of energy, as well as synthetic graphite (carbon), which has industrial uses in electric vehicles through powerplants and batteries.

 

Growth Stock 2: SomnoMed (SOM)

Considering that dental activity has been restricted to essential operations during the fourth quarter, SomnoMed’s revenue showed great resilience. The company makes an oral device to treat sleep apnoea, which is fitted by a dentist. It is important to remember how global SomnoMed is, operating in 28 countries, with sales in Europe, the company’s largest market, North America and APAC. SomnoMed is also launching a new product for North America, its second digitally made, Medicare insurance approved, oral appliance.

 

Growth Stock 3: Splitit (SPT)

This is the Israel based baby brother of the BNPL giants Afterpay (APT) and Zip Co (Z1P). Its proprietary intermediate payment technology utilises the credit card providers’ authorisation via the merchant to allow the customer to easily buy now and pay later in instalments at no cost. The process is similar to what happens when you check in to a hotel and your credit card is used to authorise an amount without actually charging it. Purchasers incur no interest charges or fees payable to the merchant or to Splitit. Normal interest and fees applicable to customers’ credit card still apply. Splitit makes money from transaction fees charged to merchants which use its service.
 

CASE STUDY: Vmoto (VMT)

Our experience with Vmoto, a Chinese based electric scooter manufacturer provides some good lessons. Its stock has sky rocketed almost 6 fold since the sell off in mid-March, going from 10 cents to over 60 cents.  “Blue sky” comes to mind because who doesn’t want an electric scooter in the COVID-19 world of restricted travel?

But it’s been quite a journey as they might say on The Voice. We’ve been covering it since early 2014 when it showed some promise, climbing close to current levels, only to fall into a funk for the next six years, until now.


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.