Small-cap stocks tend to be under-researched by professional investors. This makes them a potential source of great returns for private investors like me who can buy before they catch on more widely. With this in mind, here are two that I’d be willing to begin building a position in today.
SDI
SDI (LSE: SDI) designs and manufactures scientific and technology products for use in digital imaging and sensing and control applications. Like FTSE 100 health and safety giant Halma, it’s actually a collection of businesses that all contribute to the bottom line. The shares are up over 300% in the last 12 months! That’s despite the business being impacted by Covid-19-related shutdowns.
Full-year (FY21) numbers are due in mid-July. Based on what the company had to say in May, I don’t think those already invested need to worry.
In its most recent update, SDI said that revenue and adjusted pre-tax profit of roughly £35.3m and £7.4m, respectively, would likely be reported next month. Importantly, these were improved estimates from those given in February thanks to “robust” sales in March and April. This is impressive considering the company had reported that it would already exceed analyst predictions two months earlier.
Any drawbacks? Well, the shares don’t scream value. A forecast price-to-earnings (P/E) figure of just under 30 means that SDI has its work cut out to keep impressing the market. Then again, I do wonder if management’s decision to not change its expectations on FY22 despite recent momentum could see it surprising on the upside next month. After all, the lifting of restrictions will surely allow the company to pick up even more business in the months ahead.
Regardless, an investor like me shouldn’t let a single report on trading dictate whether I buy or not. As such, I’d be happy to start buying this small-cap stock today.
Agronomics
Alternative food companies are hot right now. In the US, stocks such as Beyond Meat have grabbed investors’ attention, as has the recent (successful) listing of Oatly.
As a UK investor, I’m not exactly spoilt for choice in this area. However, one option I like is Agronomics (LSE: ANIC). It’s focused on owning companies that specialise in cultivated meat. This is grown in a lab from cells rather than taken from slaughtered animals.
In addition to addressing concerns about animal welfare, this process is far more environmentally friendly. As things stand, almost 50% of the water used in the US goes on raising animals for food. They also consume 80% of all antibiotics due to being kept in less-than-ideal conditions.
Agronomics believes its companies (including Blue Nalu and Mosa Meat) will help disrupt the $7.3trn global meat, poultry and seafood market. That’s a bold claim and I suspect getting people to eat ‘clean’ won’t be a smooth process. The fact that it’s a small-cap stock also means the share price could be volatile. It’s already down over a third in value since hitting a high of 37p only last month.
Notwithstanding this, I do find the investment case pretty compelling. The fact that Richard Read (founder of Innocent drinks) and entrepreneur Jim Mellon are on the board is particularly encouraging.
Like SDI, I’m not sure I’d go ‘all in’ right now. However, I’d have no trouble taking a small stake in Agronomics today.
