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Three Microcaps to Consider

Three Microcaps to Consider

One of the advantages that retail investors enjoy over institutional investors is that they can more readily invest in smaller and less liquid issues.  While the larger fund managers may have a relatively limited set of companies into which they can deploy meaningful chunks of capital, enterprising small investors are free to roam, and roam they should: research indicates that their investment returns can be significantly enhanced by focusing some attention on the smaller end of the market.

The challenge for the enterprising retail investor is sifting through large numbers of lackluster small companies to find the few that deserve their investment capital. Good broker research at the smaller end can be scarce, and the company names (as well as their products or services) may be unfamiliar.

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Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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7 Comments

  1. Another small cap to look at, MGM Wireless (MWR). Sends personal (but automated) text messages to parents about their kids, regarding absenteeism, attendance, sporting events etc.

    Easy to understand business (pay for text messages about your child), capital light (text messages and online training for schools) great ROE (well above 30%), managers with high stake in the business (over 20%) and blue-sky potential (only 10% of schools nationally currently signed up, potential to leverage model to child care centres, change to each parent subscribing rather than current ‘school pays for all’ model.

    Would love to see other opinions on this one

  2. mynetfone is one I bought into a month or two ago and have obviously been pleased I did. It seems to have huge potential and is perhaps a seek or carsales in the making? Let’s hope so anyway.

    • Hi Steve,
      MNF certainly has impressive financials, including a very high ROE. I however am struggling to find what it is (the moat) about this business that allows it to generate such high returns, compared to its peers. Perhaps you could help by shedding some light on my problem?
      Cheers,
      David

  3. Michael Messinesi
    :

    I am interested to hear the panel’s thoughts on CCF (Carbon Consious). This company is tiny with a market cap of just over $4mil and seems to have some short term funding issues. During the AGM it was decided that $2mil of debt will be repaid in a part conversion to shares.

    That said, all other aspects of the compnay seem strong. The balance sheet is good. Cash flows positive. Debt low. Book value is almost triple the share price and EPS growing. Most importantly, it is currently trading at an extreme discount to Intinsic Value (just over 1.4 PE and 95% discount to Intirinsic Value) with an expected leap in EPS and Intrinsic Value in future years. It also has a degree of monopoly as there is only one competitor in the Australian Market C0Z (Co2)

    My intial concern when looking at this stock was Tony Abbot’s “No Carbon Tax”. It seems on further inspection that Direct Action, the Liberal alternative Carbon reduction strategy, would mean that the government would need to buy the carbon credits rather then the big polluters. Am I right in thinking that this is a good buy and that the market has misuderstood the liberal stance or have I made an error?

    • Setting aside any debate about the merits or otherwise of the carbon tax and any alternative plans, I would always be very wary about investing in any company whose fortunes are so closely tied to political decision making.

      Buyer be(extremely)ware!

  4. Given your comments about small and micro caps does this mean that the Montgomery fund will not invest in this asset class?

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