Your Chance to ‘Buy low and Sell high’

1. ‘When the tide goes out, you see whose been swimming naked.’

So goes the line from Warren Buffett, at least in popular folklore.

We can flip this idea around too.

When the tide goes out — like now — we can see which stocks are strong!

These are the ones to watch for when the market tide starts rising again.

Take one of my favourite small-cap ideas….telecommunication firm Tuas [ASX:TUA].

Here is a chart of the stock (in green) versus the small-cap index (black)…

You can see the small-cap sector is taking a pasting currently.

Tuas is UP for the year: over 50%.

Think about that!

Oh my goodness, we’ve had a year in 2023.

We’ve had US bank collapses, another China spook and now bond yields surging to highs not seen in years.

Plenty tough, for some!

But…

Anyone invested in Tuas would barely notice unless they picked up the paper.

Tuas is clearly a strongly held stock, and no wonder. It’s getting along just fine.

I don’t think mobiles are going away anytime soon, do you?

How high might Tuas go when the market strength comes back to small caps?

We’ll find out!

I’m getting a lot of glimpses like this.

You see…here’s the thing.

The Aussie small-cap sector has been under the pump since about September 2021. That’s two years ago.

Some of these stocks have been hammered and trading in them has almost dried up completely.

There’s no ‘blue sky’ thinking going on here.

In fact, it’s the complete reverse. You can pick some of them up at incredibly low valuations.

Even when we get big down days, some of the small-cap stocks are not reacting down much.

The day traders and the pipe dreamers and the speculators are long gone.

This gives these stocks a solid base of long-term holders now.

Professional money will begin to accumulate in select names because there is so much value on offer.

Please listen to me on the following point!

The potential for great gains in the next few years is considerable.

The small-cap sector is on the floor…and all you have to do is start picking some up on the cheap.

Here’s the catch: I can’t get anyone interested!

Do yourself a favour and start watching the small-cap sector. I’ve never seen a market fruit so ripe for the plucking.

Where else is the potential ‘buy low and sell high’?

Go here to get started.

2. We are now into October. Thank goodness! Why do I say that?

Many ASX companies will now release their quarterly updates.

This is important.

The stock market right now is heavily ‘macro’ driven.

It’s all bond yields and central banks and inflation dominating the conversation.

Tuas shows us above that individual company metrics matter.

Over the long term, they are everything.

Company updates now mean we can focus on company specific data and see how the market reacts to the news.

Perhaps a company releases a dud three months — but doesn’t sell off. That suggests the bad news is already priced in and it’s what happens from here that matters more.

Perhaps the company releases great news and soars on the day — suggesting the market became too bearish lately.

I’m leaning towards us seeing more of the latter than the former.

The ASX has been under pressure for two months now.

One I’m waiting keenly for is ResMed [ASX:RMD].

This stock took a swan dive when investors panicked over the arrival of weight loss drugs taking the world by storm.

However, the shares seemed to have stabilised.

I expect them to consolidate around this level until the quarterly release later this month.

Oddly, it’s likely to be reasonably good news, I suspect.

That’s because it’s too early for the weight loss drugs to affect its quarterly report. The fear is a long-term one.

The market reaction to that quarterly will be exceedingly important.

As it is now, you’re getting a look at one of the best companies on the ASX sold heavily down…and much of the immediate risk smashed out of it. I bought some for my personal portfolio.

I’ll find out if I’m right — in the short term, at least — later this month.

It’s the kind of alternative idea you should consider embracing right now.

Conventional strategies aren’t working. The market is under too much pressure.

That means getting creative. In the case of small caps, it means stretching out your time horizon.

I don’t know when they will rally. But I do know it’s possible that in 2025 you might be kicking yourself if you didn’t buy some when you had the chance.

Go back in history. What if you bought US stocks in 2009 after the Panic of 2008?

History favours the optimists — and the brave.

Best wishes,

Callum Newman,
Editor, Money Morning