Fear market crash 2.0? Watch out for these small-cap stocks in July

Paul Summers picks out three stocks that have all done well since March’s market crash. Will they hang on to their gains after providing updates next month?

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We’ve had the momentous market crash and we’ve had the stonking rally. Goodness knows what July has in store for investors. Next month will, after all, see more companies reporting real, coronavirus-influenced numbers to the market.

Personally, I think things might get worse before they get better. With this in mind, here are three stocks from lower down the market spectrum that I think are definitely worth paying attention to next month.  

Hot stock

First up is infection prevention product supplier Tristel (LSE: TSTL). For fairly obvious reasons, this is a company that has received a lot of attention from investors recently. And despite slipping back in recent weeks, its stock is still up 46% since March’s nadir.

Tristel is a company I’ve coveted for a while. The only problem is that its shares have long felt very expensive. Right now, for example, they change hands for 38 times earnings. That’s punchy when the future looks so uncertain, even for a company in a ‘hot’ space. 

But if there is a significant second wave, the shares could be one of the few winners. If, however, there’s a mass market crash for more economic reasons, some of the recent gains could be lost. 

I’ll definitely be checking out the firm’s latest trading update on 22 July.

Lockdown winner

A second small-cap reporting in July is one I’ve hitherto avoided like the plague: online electrical retailer AO World (LSE: AO). More fool me. The shares are up almost 200% since March’s market crash.

As you might expect, AO has been a huge beneficiary of the lockdown with more people needing tech to work and shop from home. Earlier this month, it spoke of having grown market share and seeing “increased demand and sales across all categories”. The question now is whether the shares can extend their gains or everything is fully priced-in? I’m inclined to think the latter.

As much as it’s made money for opportunistic investors in recent times, I just can’t get excited about a business operating in such a competitive sector. When demand is massive, even loss-making firms (such as this one) can do well. What happens, however, when supply chains at larger rivals get back to normal?

Still, good luck to those already holding. For those who aren’t and fancy a (very-un-Foolish) dabble, I suggest only doing so with money you won’t miss. 

AO is down to report to the market on 14 July.

Calm before the storm

My third pick of shares worth watching in July is an old favourite: insolvency specialist Begbies Traynor (LSE: BEG). If any stock is a compelling counter-cyclical candidate at the current time, this must surely be it. 

Last month, Begbies reported that it continues to trade well “with strong growth in revenue and profit compared to the prior year“. With many businesses still shut, I suspect this situation won’t have changed by the time the company reports full-year figures on 21 July.

But forget the last few months — I think the firm might be flooded with business in the rest of 2020. And even if it takes some time for this to be reflected in the share price (particularly if there’s a second market crash), there will be dividends to collect in the meantime. 

Begbies trades at almost 16 times earnings and yields a forecast 3.2% for FY21.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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