This is the stuff of legends. The smaller player overcomes the odds to beat a larger rival.
It’s a story we all know well.
We often link ‘David versus Goliath’ encounters to the sporting field. At other times, the battle may pit an individual against a big corporation.
But is a match-up between seemingly unequal opponents relevant to stocks?
I think it is. You see, the best performing stocks will often be outside the major companies.
I read an interesting article recently. It was by Tactical Wealth Editor Kris Sayce, and published in Port Phillip Insider, the free daily newsletter for all our paid subscribers.
Kris made an excellent point. He says retail investors have an edge over investment firms.
Their edge is that they can buy meaningful stakes in smaller companies.
Big investment funds can find it difficult to trade in and out of smaller stocks. Many of the funds narrow their focus to the ASX 200. This naturally leaves many opportunities behind.
I agree — I think Kris is spot on. You can make fortune finding small companies that get bigger.
Have a look at the list below. It’s the ASX 300’s top 10 performers for the last 12 months:
- Impedimed [ASX:IPD] +395%
- Australian Pharmaceutical Industries [ASX:API] +239%
- Liquefield Natural Gas +190%
- Qantas [ASX:QAN] +123%
- Nanosonics [ASX:NAN] +129%
- FAR [ASX:FAR] +126%
- Mantra Group [ASX:MTR] +123%
- Northern Star Resources [ASX:NTS] +117%
- Altium [ASX:ALU] +104%
- RCG Corporation [ASX:RCG] +98%
Most of these stocks aren’t household names. Not one of them makes the ASX 50. Qantas is the only company to come close.
They are mostly relatively small companies. I suspect few traders — or brokers for that matter — would have even heard of some a year ago.
But there are big rewards for finding these stocks early. It’s the type of opportunity I look for; small to medium size businesses with the potential to get a lot bigger.
An emerging company will naturally have stronger growth potential than most big businesses. That’s why share price performance can be stronger.
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Ask yourself this. Which stock is more likely to double in the next two years — a company in the ASX top 50 or a rapidly growing medium size business?
A subscriber to my Quant Trader service recently made a suggestion. He said Quant Trader should just track the ASX 200…why bother with stocks no one knows.
Quant Trader does bother. It looks well beyond the top 200, into the depths of what are effectively anonymous businesses. This is where many of the best opportunities exist.
You may find this interesting. The best performing long signal to date is health products provider Blackmores [ASX:BKL]. It was up 111% at Thursday’s close.
Have a look at this chart.
There was also a second and third signal. The trigger for these was simple…the stock was going up. The respective gains for signals 2 and 3 are 83% and 63%.
So how big is BKL?
Quant Trader uses a custom algorithm to rank stocks. It gives a similar result as if ranking by market capitalisation.
BKL’s rank was 414 at the time of the buy signal — not high enough to make the ASX 300.
The second best performing stock is medical imaging company Pro Medicus [ASX:PME]. It’s up 101%.
This is what the trade looks like.
The algorithms gave a buy signal on 18 November at $1.09. There were two more opportunities to buy in January.
PME is also outside the largest 300. It came in at 549.
In third position is AMP Capital China Growth Fund [ASX:AGF]. It’s currently up 84%.
Let’s have a look at the chart.
Quant Trader gave the first of three signals on 27 November at $0.90. There were additional signals in December and January.
And guess where AGF ranks…309. You won’t find this in the main indices either.
I could go on. There are more like these in Quant Trader’s portfolio.
The fact is this. Small to medium size stocks ARE identifiable. And they can make you a lot of money.
The key is to find a screening method. You need to sort the gems from the dirt — and there is a lot of dirt to sift!
But the rewards are there. You can do very well in stocks without buying a single blue chip.
2015 will produce a new list of top performers. I’ll be watching with interest to see how many Goliaths make the honour roll.
My bet is it will be similar to the last 12 months. The weight of numbers should easily favour the Davids.
I’ll be closely scanning the ‘unknowns’ for movement!
Editor, Quant Trader
Editor’s note: Jason’s trading system — Quant Trader — has just identified an opportunity. It’s an emerging business in a growing sector. The company is outside the ASX 300. So you probably won’t read about it in your broker’s reports. This could all change in the coming months. But the shares may be a lot higher by then.
This developing situation got interesting this week. The All Ordinaries was down 4.6% at Thursday’s close. In the same time, our emerging stock was UP 5.9%. This could be just the start. Find out more here.