There’s no fear factor quite like it.
I’m talking about the moment you seek a specialist over a sudden and unknown health issue.
They check you out, take a fluid sample, or do a scan (or more).
Then, at some point, you discuss the results with the doctor.
(In the last few years, I’ve had an MRI for my brain and almost lost hearing in one ear.)
You don’t know what’s coming but it might not be good.
Something like this happens every August with the share markets.
Unfortunately, it’s a necessary evil…but at least it tells you a lot! Exactly what is it?
I’m talking about when companies release their full (or half) year results.
This is the moment of truth…or the acid test for your portfolio.
There’s no pretending now that it was just market “noise” or “volatility” in the last 6 months.
Like the doctor, the market will review the results and deliver its judgement. Sometimes it’s merciless, especially if the market is unhappy. In this case, both the company and your portfolio cop a hearty spanking.
Take travel operator Keslian Group [ASX: KLS] this week, as an example. The share price took a flogging on Monday, plunging by over 20%.
Kelsian’s whacking came after it revealed a huge uplift in expenses from construction costs.
Analysts didn’t see this coming. Hence the savage sell off.
KLS will likely stay in the doghouse for a long time now.
No doubt you’ve read about other wild swings, both up and down.
Of course, the reverse is also true: the market can lift a stock 10-30% on the day, depending on whether the news exceeds previous expectations.
Now that’s fun!
On that note, I’m pleased to say that, generally, the recommendations for Australian Small Cap Investigator ended the day positive as they release their results.
Several positions even rallied strongly after their announcements.
One reason is that, where possible, I try to find shares where expectations are low. That reduces the chance of the company taking a hiding.
One result really sticks out for me
this time around
It’s from Judo Capital Holdings [ASX: JDO]. I recommended this back in February.
Judo rallied about 20% after the release of their full year results on August 20.
That’s a barnstorming move.
Why is this notable?
Judo is a business bank!
Think about that for a moment. For so long we’ve been battered with bad news about the Aussie economy, business failures and consumers under the pump.
Judo actually reported its loan book is growing, businesses are investing and Judo has plenty of runway to keep going.
Great!
However, you need to back up even further to see how this opportunity formed.
Judo came to the market in November 2021. This, in hindsight, was just before the market really tanked in 2022.
Judo’s share price took a hiding. It was only late last year that it bottomed out.
See here…
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| Source: Market Index By that stage it was down well |
You know the reasons. Recession fears, high rates, cost blowouts…you name it. Judo’s share price factored those in.
But over the long term, there was a lot to like.
Now…
Since last year I’ve been telling you that small cap shares were suppressed and cheap.
Things only needed to improve for share prices, generally, to rally as the market priced in a “less bad” scenario.
Now you’re seeing it happen right in front of you, at least as far as Judo is concerned.
I can’t guarantee all small caps will all do this, or Judo will continue its great run either.
Who knows for sure what Judo might achieve over the next 2 years?
Not me…but I do know I’m excited to find out.
We know that bear markets are no fun…but that’s what we got between 2021 and 2023 in the small cap space.
There is one saving grace though, as hard to believe as it can be. They offer up very cheap share prices to consider…and therefore huge long-term buying opportunities.
I’m not telling you to buy Judo. To make an informed decision requires you to have read my original report where I lay out the risks and potential reward.
But the recent share price move points to the latent potential in the small cap sector.
A lot of shares were hammered down between August 2021 and November 2023
But some are clearly springing back to life as they deliver, and/or exceed, on their targets.
There’s no reason for this to stop tomorrow. I expect the sector to run for years from here.
Here’s the other thing. A lot of small cap shares were hammered from their previous highs. This offers you a great entry point while expectations are still middling to low.
As I said before, this reduces the risk of a hiding because their valuations aren’t overly inflated.
In other words, modest downside with lots of potential upside.
If you’re excessively worried about the “economy”, the move in Judo might suggest your views are unfounded.
All in all, I’m excited for the next 12 months.
I can’t guarantee a successful outcome, but the odds still look very good indeed.
Best,
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Callum Newman,
Editor, Small-Cap Systems and Australian Small-Cap Investigator
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