Value in microcaps: Contango
There is tremendous value to be had in the small and microcap section of the Australian Securities Exchange, according to microcaps specialists Contango MicroCap.
"In our view markets are ridiculously cheap", said Bill Laister, portfolio manager of Contango's $180 million portfolio.
He said this applies to all sectors, and Contango has been carefully buying selective stories, but not aggressively. "We can't ignore that there is still a high degree of risk out there and that prices are jumping around."
He said the cyclical stocks are the cheapest, and the mining stocks in particular and anything leveraged to global growth had been hit hard. Many of these are quality companies with good earnings, low price to earnings ratios and a high growth outlook. "Some have just been slaughtered," he said.
"Never mind Hyper-volatility, we see Micro-volatility. Some people are either giving up altogether or are possibly being forced out by [contract for difference] providers and margin lenders."
He said there are risk elements, including a potential slowdown in China and India, but much of the volatility may be resulting from overly bearish commentary within the media. Anecdotal reports suggest some mum and dad type investors had sold their positions recently, which may explain some of the last month's trading, Laister said.
"That's not to suggest the market will recover or earnings can't be downgraded - we don't know what will happen, and Europe does need to get its act together. But when you consider the underlying fundamentals of these companies, one is entitled to ask how responsible some of the fear mongering is," he said.
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