We spotlight some of the best small-cap ideas from top professional stockpickers.
This month, we make our third visit to the small-cap universe to see which exciting smaller companies are being backed by our 'Expert Eight' stockpickers.
Our pro pickers generally take a medium- to long-term view on their investments but, as we did with the mid caps last month and the blue chips the month before, let's have a quick look at the early performance of the smaller companies we've highlighted so far.
|Company||Highlighted share price||Gain/(loss) (%)||AIM index gain/(loss) (%)|
|CSF Group (LSE: CSFG)||65p||(40.0)||(1.0)|
|OPG Power Ventures (LSE: OPG)||62p||(46.8)||(1.0)|
|William Sinclair (LSE: SNCL)||150p||6.7||(1.0)|
|Weatherly International (LSE: WTI)||5.75p||(28.2)||(1.0)|
|Andor Technology (LSE: AND)||551p||(0.7)||(14.8)|
|Endace (LSE: EDA)||558p||(28.9)||(14.8)|
In contrast to the impressive early performances of the blue chips and mid caps, the smaller companies have made a generally poor start. As a group, our minnows are looking decidedly green around the gills!
To understand what's been going on with these smaller companies, it's worth looking at the group picture a little more closely.
Three of the six firms are based in emerging markets: CSF (Asian data centres), OPG (Indian power plants) and Weatherly (Namibian copper mines). These three are showing an average loss of 38.3% compared with a 1.0% loss for the AIM index.
The other three less exotic companies -- compost supplier Sinclair and tech firms Andor and Endace -- are showing an average loss of 7.6% compared with a 10.2% loss for the index.
Small caps can be volatile at the best of times, but in nervous markets, perceived riskier investments, such as our emerging markets trio, can really suffer -- even without considering company-specific news.
In such circumstances, successful investors -- if they remain confident about a company's prospects -- will often be courageous enough to buy more shares. Have any of our Expert Eight been brave buyers of any of their super-sold-off smaller companies? I'll tell you the answer to that later.
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As you may recall, three of our pro stockpickers run dedicated smaller company funds, while a further two have a definite small-cap bias. In a universe of more than 1,000 FTSE Small-Cap and AIM companies, the 19 stocks in the table below are those owned by more than one manager and where at least one of the managers has the company in his top 10 holdings.
Despite the roller-coaster market of the past nine months, most of the above companies will be familiar from previous quarters' tables.
I said last time that recent buying activity had seen technology firms and niche manufacturers very much in favour. That theme has continued this quarter. Several managers have added to some of their existing holdings in these areas, and there has been the odd new addition, which, in the case of one manager, includes Fool discussion board favourite Lo-Q (LSE: LOQ), a developer of virtual queuing systems for leisure parks and the like.
However, the two companies I'm going to highlight this quarter are: first, a firm that has become a great 'averaging-down' opportunity for courageous contrarians; and second, one of the companies held by three managers in the table above.
1. CSF Group (39p)
Of the six smaller companies highlighted in previous articles, a 40% share price fall coupled with further recent buying -- at above the current level -- by one of our pro stockpickers, makes CSF well worth highlighting again.
This Malaysia-based data centre company was floated on AIM in 2010, when Richard Penny (L&G UK Alpha) and Mark Slater (Slater Growth and Slater Recovery) participated in the IPO at 55p per share.
The investment case for CSF evidently remains intact as far as Penny is concerned. Following a trading update from the company last month, he upped his stake substantially on a day when the shares traded at 47p-50p.
2. Cupid (179p)
Online and mobile dating services firm Cupid has traditional-dating, casual-dating and niche-dating sites. Since its flotation on AIM in 2010, the company has gone from being a predominantly UK business to a fast-growing global player.
Richard Penny and Paul Marriage (Cazenove UK Smaller Companies) have been holders of Cupid for some time, but Mark Slater has recently joined the party.
Slater bought his shares in March, and it's safe to assume he did so in a placing at 180p per share conducted on 8 March. He was attracted by Cupid's strong cash generation and prospective earnings growth that made a price-to-earnings multiple of 12.5 look very generous.
If small-cap growth companies are too high risk for your taste, look out for next month's article when we'll be revisiting the FTSE 100 in search of some blue-chip bargains.
Let me finish by adding that more share ideas can be found within "Top Sectors For 2012" -- a Motley Fool study of three favourable sectors that could offer potential opportunities for long-term investors. The report is free.
Further investment opportunities:
> G A Chester does not own shares in any of the companies mentioned in this article.