'Essential' Smallcap Stock Recommendations

Jan 8, 2021

Editor's note: In this editorial published last month, Richa Agarwal wrote about how smallcaps were rebounding strongly and why it's a good time to buy the high quality ones. In this highly volatile market, I believe it's a good time to revisit this piece and explore your options among smallcap stocks. Read on...


Richa Agarwal, Research analyst

Yesterday, I sent out my monthly report along with the performance review of the smallcap stocks under my research coverage to my Hidden Treasure subscribers.

It was heartening to see 17 stocks in open positions gaining 15% and more in a period of just one month.

To be precise, 5 stocks have gained over 30%, and 7 stocks have gained over 20%.

The comparative gains with the smallcap index and the Sensex are 11% and 6% respectively.

In fact, since the lows in March 2020, the smallcap index has gained 98%.

The sharp rise is reeling enough to make one nervous about the possible correction, like the one that happened in January 2018 when the smallcap index peaked.

--- Advertisement ---
READ: FULL Transcript of Our Urgent Broadcast

The full transcript of our urgent broadcast on India's Revival is available for a limited time now.

In case you missed watching our broadcast LIVE...

You can see all the important highlights from our broadcast in this transcript.

Please note that we may take this transcript off the internet any minute.

So it is highly recommended you read it immediately.

Click Here to Read the Transcript NOW
------------------------------

While caution is indeed warranted, I think there is still a lot more steam left to this rally.

For one, the gap between Sensex and smallcap index is still huge.

In January 2018, the smallcap to Sensex ratio was 0.57 times, versus a long term average of 0.44 times.

At present, this ratio stands at 0.37 times, well below the long-term average.

The possibility of a convergence between growth and value is a lot higher in the smallcap space, than in the large caps.

And then here are some other interesting facts.

Historically, the smallcap index, after a sharp correction, has risen up to 300%.

So far, the smallcap index is up 98% since March. If you have not joined this rally yet, it might still not be too late.

--- Advertisement ---
[Watch Now] 3 Little-known Stocks We are Super Bullish On



Click Here to Watch Now
------------------------------

But there are some caveats...

Post the covid shock, the smaller companies and businesses across industries are in a consolidation phase.

The strong are getting stronger and the weak are getting weaker.

While picking stocks, ask yourself if you would be comfortable holding the stock in case it falls 50% or more due to something external or unprecedented like covid.

Second, if there is a second wave (and my city has indeed gone for evening curfew as I write this), or a delay in the launch of the vaccine, will the business be critical enough for the economy or its clients to survive.

These are the questions that we have been reflecting on post the covid shock in March 2020.

JUST IN: Limited-Time Access to Full Transcript of Our Urgent Broadcast on India's Revival

It indeed has served us and our subscribers well. Our first batch of essential stock recommendations have offered robust returns so far.


While the margin of safety in valuations has come down in these stocks, I'm glad to say that yesterday we have added another stock to this list.

This company is the world's largest player in a niche segment. Its product falls in the essential category.

This global leader enjoys unique competitive advantages that are hard to replicate by its peers.

With its unique asset light model, tech expertise, and pricing arrangements with its clients, the company has been able to sustain and even grow its margins in a business which is otherwise commoditised.

It's at an inflection point in its journey. The company is moving from mainly being a B2B (business to business) to B2C (business to customer) player.

Going forward, we sales and margins to grow on the back of incremental capacities and addition of value-added products.

Hidden Treasure subscribers received the report last evening and can access the recommendation here.

We are committed to bring more such value and growth opportunities for you in the smallcap space, amid the ongoing rebound. Keep following this space for more such updates.

Warm regards,

Richa Agarwal
Richa Agarwal
Editor, Hidden Treasure
Equitymaster Agora Research Private Limited (Research Analyst)

PS: Get access my top essential smallcap stock recommendations here.

Recent Articles

11x Bankruptcy to Bluechip Stock: A Rare India Revival Story April 16, 2021
There is no stopping this 11-bagger stock from significant upside.
A Stock with 700% Return Potential Comes with Additional Payoffs April 15, 2021
Narayana Murthy was one of the first unicorn founders to get the backing of this entity...
Don't Write Off This Sector Yet April 14, 2021
Will apps like Netflix deal a death blow to theatres? Find out here...
The Next Set of Smallcap Winners April 13, 2021
Price is the only due diligence one might require to buy this business.

Equitymaster requests your view! Post a comment on "'Essential' Smallcap Stock Recommendations". Click here!

1 Responses to "'Essential' Smallcap Stock Recommendations"

VIJAY ARULDAS

Jan 8, 2021

The latest Hidden Treasure report is not available online

Like 
  
Equitymaster requests your view! Post a comment on "'Essential' Smallcap Stock Recommendations". Click here!