Should you buy high-flying stocks (screaming demons) making new 52-week highs in a bull market right now? Or should you buy beaten-down dogs in the resource sector? These are in a sector that seems to be firmly in a multi- year up trend? Why not both?!
Small growth stocks-the kind we prefer to scout for in Australian Small-Cap Investigator-are rarely beaten down value stocks. There is such a thing as small-cap value, of course. But we’d prefer growth at this stage, especially new companies in the energy and mining services sector racing to meet growing demand. These companies have the greatest potential to grow gross sales and net income and, of course, experience the biggest share price gains.
The risk with smaller stocks is that many of them will fail. So much depends on good management, and finding out whether a firm has good management takes time and real effort. The resource sector, with larger companies, is an easier call. And here you might look for beaten down value. Right now, we have our eye on coal. It’s what we’re writing about in Oustsanding Investments.
Your probably already familiar with the story for coal demand. But there’s also the little fact that coal transport might be getting cheaper, which should stimulate demand even more. “The cost of shipping coal and iron ore is about to decline as the supply of cargo vessels overwhelms demand,” writes Alaric Nightingale in today’s AFR (what a great name!)
It turns out China and South Korea are building huge new shipping fleets for dry goods, probably the same way the Spanish cranked out galleons to haul the spices and gold of the East back on the annual Manila Galleon. Only in this case, China is after the raw materials of civilization. The gold it can buy from gullible European central banks (or mine in Mongolia.)
Markets and Money