We caught an article in The Edge news today around RHB releasing their annual edition of the 25 best small caps in 2017. Typically when any investment bank releases a report or a "top 25 list" such as this, it does have an impact on some of the equity prices because there tends to be a surge in the stock price if there is enough interest in the specific stock.
This creates an investing issue because a price surge creates a "mental barrier" that delays all action until it is too late. A lot of investors make a dozen or more excuses to "wait and see" before they enter a stock and more often than not, they wait till its too late so typically miss out on this phenomena.
So what is the solution? How can you profit from such scenarios?
The simple answer but hardest solution - get in before the run begins. We know - easier said than done but we have an idea you might be able to apply.
Unless you have insider information (we are not proposing insider trading), you have to look for clues and sometimes those clues could be available in plain sight. For example, if we refer to this specific article in The Edge or once you get your hand on the copy of the book, you will be able to notice some key metrics that they use.
We don't have access to the book but from the article, we captured 3 key criterias - Small Cap, ROE & PE. They even listed the ROE average as 16.9% and PE average as 17.8 times. From here it gives us an idea what numbers to filter for as well.
Sometimes it is a long list but surprisingly for this, there were only 6 stocks once we filtered with this information and it also included AAX which was covered in the article as well. This doesn't mean the other 5 in the list are what they are looking at, but it a likely signal that we could be looking at the right area.
Once we had a look further at the stocks in the list, besides AAX, we only found one other which showed some solid financials - ES Ceramics.
ES Ceramics is a ceramic form company that manufacturers glove and balloon forms. It services typically the rubber industry like rubber gloves manufacturer. Its an extremely competitive market with a lot of competition but its revenue has been growing steady and it margins are actually very good at 24.74% in the latest year results.
Unlike the rubber glove players which are their main clients, its stock price hasn't regressed as much from its 60 sen high. They are now hovering around 0.45-0.50 in the last 8 months.
Of course, this is no guarantee that the stock will move but its a good way to avoid the volatility and be in early in the event that you are right. You can try picking up some key areas in reports from analyst or banks that tend to have an effect on stock prices, see what they are looking at and try to filter some possible candidates.
If you have done you due dillegence, the worse you could do is maybe just be stuck with a good stock or make a small loss if the move doesn't work out. That's not a bad risk to reward trade for possible a generous return.
*Please note that Laburlah has no vested interest in either AAX or ES Ceramics. The article is meant to only provide investing ideas to the readers. Please do your own research before making any investments.
https://www.laburlah.com/single-post/2017/04/20/Identifying-hidden-gems-in-KLCI-small-caps-stocks-before-it-comes-out-into-the-market
