How many people are born famous?
Not many, right?
With a few exceptions, fame is a by-product of success. The spotlight typically only shines on people after they’ve made it.
A successful company isn’t that different.
Most businesses start out with a founder and an idea. They then take time to grow. Once you hear about them, the business is probably a large corporation.
So how do you identify these companies earlier?
How do you buy before the spotlight shines on them?
Well, I’m going to tell you about this in a moment. You’ll see how it’s possible to buy high potential stocks before many people know they exist.
But first, think about this…
Big stocks start small
Buffett, Gates and Branson.
These are among the most famous people on Earth. We link them with wealth and success. You’d have to go a long way to find someone who hasn’t heard of them.
But it wasn’t always this way. They started out as anonymous as the next person.
Take Richard Branson for instance…
His career began selling discount records from a university magazine. The next step was a recording business. Then later an airline and hundreds of other ventures.
Branson’s fame and wealth grew massively over the years. Sources say his net wealth is around US$5 billion. All this from such a humble beginning.
Now, imagine you could put your money alongside Branson’s.
When do you think was the best time to invest?
The answer’s obvious.
You make the most money by getting in early. This is typically when the growth rate is greatest. It’s then a matter of holding on for the ride.
But remember: Branson began as an unknown. The trick was to identify him as a potential superstar before he became a household name.
Share traders face the same dilemma.
The ASX has over 2,000 listings — far too many for most people to analyse. This often causes traders to focus on the larger stocks in the ASX 200, or even the ASX 100.
But there’s a problem…
The best returns often come from outside the big names. These are the emerging stars that few people know about — until of course they become much bigger.
Check this out:
This graph shows the hypothetical gains of Quant Trader’s Overflow portfolio. As always, there’s no allowance for costs and dividends. It also assumes $1,000 on every signal.
While the system’s profits have made a series of new highs, the same can’t be said for the market. The All Ordinaries is still trading near its 2015 peak.
So how big are the stocks behind Quant Trader’s gains?
Well, I’ve done some analysis to find out.
This is what I did…
I took the 50 best-performing stocks from the portfolio. These are ahead by an average of 100.8%.
I then sorted them by their ASX sub-index: ASX 50, 100, 200, 300, All Ordinaries (top 500), and those outside the top 500.
Here’s the result:
Three-quarters of Quant Trader’s best performers are from outside the ASX 100. People solely focusing on the biggest stocks are missing a lot of opportunities.
And to be clear, I’m not talking about tiny speculative stocks.
The companies in the ‘Outside Top 500’ category have an average market cap of $138 million. These are serious businesses with the potential to get a lot bigger.
Have another look at the Overflow portfolio’s gains.
I’m sure you’ll agree, there’s a lot going on outside of the household names. Quant Trader’s strategy, which identifies stocks before they become famous, is paying off.
Three emerging small-cap stocks
So what do these stocks look like?
Well, let me show you three examples from the portfolio.
First is Navigator Global Investments Ltd [ASX:NGI].
Don’t worry if you haven’t heard of it. You wouldn’t be the only one. A lot of the companies in the Overflow are a mystery to most traders.
NGI is an alternative asset manager that specialises in hedge funds opportunities. It’s in both the ASX Small Ordinaries and the ASX 300. But it’s yet to crack the ASX 200.
Here’s the trade chart:
Quant Trader’s entry was at $2.43 on 20 June 2017. The trigger for the buy signal was a subtle shift in momentum. This was after a lengthy period of trendless trading.
NGI is up 123%. This makes it the portfolio’s 13th best performer.
The next stock is lotteries re-seller Jumbo Interactive Ltd [ASX:JIN].
Check this out:
JIN’s market cap of $263 million gets it into the All Ordinaries.
But it’s not large enough for the ASX 300.
You probably won’t see this company in many broker reports. It’s simply not on the radar for many analysts — at least for now. Maybe they’ll notice it if it keeps growing.
JIN is up by 222% from its entry level. It’s been a triumph for traders who’ve been willing — and had the ability — to venture beyond the top ASX companies.
The last stock I’ll show you isn’t even in the All Ordinaries. With a market cap of around $182 million, it’s truly unknowable for many people.
Have a look at this:
Schaffer Corporation Ltd [ASX:SFC] has been in the portfolio since 14 January 2017.
The company’s activities include the supply of automotive leather, building materials, and property investments. The shares are already up 124%, and the trend looks likely to continue.
It will be interesting to see if SFC eventually cracks the ASX 200. That’s often when the mainstream media finally catches on and brings it to the public’s attention.
It’s important to note that Quant Trader doesn’t only find emerging stocks. Around a quarter of the top 50 stocks are in the ASX 100…or higher. These are large businesses.
So don’t worry if you prefer companies with more familiar names. Quant Trader’s job is to bring you the opportunities. You then decide which ones suit your situation.
But keep an eye out for the ‘invisible stars’.
You’ll be one of the few who know them by name.
Until next week,
Editor, Quant Trader
PS: If you want to lay down a little money on the hottest corner of the ASX right now…but you don’t know your way around the small-cap sector, our analyst Sam Volkering’s report ‘Top Three Small Cap Stocks 2018‘ is for you. Get access now (free).