Market meltdown? Phooey. It’s time to grab a bargain, say analysts
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The stockmarket is officially in correction — but it’s not time to sell, analysts tell Stockhead.
In fact it might be an ideal time to snag a bargain.
That sentiment was backed by a positive start for Australian indicies this morning following a rebound in US markets overnight after a series of positive earnings results.
The Dow Jones regained 1.6 per cent after dropping 2.4 per cent on Thursday. The S&P 500 (up 1.8 per cent) and NASDAQ (up 3 per cent) also made up much of the ground they lost yesterday.
Thursday’s Wall Street sell-off pushed the ASX 200 into correction territory — dropping 2.8 per cent to 5664. That’s down more than 11 per cent since the end of August. A correction is a drop of at least 10 per cent.
The ASX Small Ords — a measure of small cap ASX stocks — is down almost 12 per cent in the same period. The small cap index fell 3 per cent or 78 points to 2562.
>> Scroll down for a list of ASX small caps that fell 10 per cent or more on Thursday
So what should small cap investors do?
Michael Glennon of Glennon Capital reckons it’s time to get the wallet out.
“There is volatility and short-term noise but it is a great opportunity to buy some stocks cheaper than what they were a few months ago,” Mr Glennon told Stockhead.
“[That’s] if you like the business and you’ve got some conviction and you know what you’re doing.”
Chris Robertson of Arthur Austin Advisory shares that view.
“While the broad small cap market return maybe poor, there is always return-generation potential that exists within the small cap sectors and individual companies,” Mr Robertson said.
“There is no need to avoid investing because the market is falling — just be more selective.
“At times like these focus on companies with proven management, good industry positions, strong cash flow and solid balance sheets – these are trading at lower prices and some bargains can be found.
“These companies can also typically withstand market turbulence better.”
Should I sell?
John Hannaford, founder and director of View Street Partners, says it’s not the time to be selling.
“I wouldn’t suggest selling. You would be selling into a very illiquid market and you’re going to take a loss to start with which doesn’t give you the best outcome,” Mr Hannaford said.
“The markets have gone down before and always tend to rebound.
“We’re likely to see governments around the world putting out reassuring statements and policies which will boost sentiment.
“It’s a good opportunity to get assets cheaper.”
Beware of IPOs
While it might be a good time for stock-picking, several analysts warned investors should be wary of Initial Public Offerings in the current market.
“I would be reluctant to be chasing IPOs,” said Robert Swarbrick of Tamim Asset Management.
“I think it’s going to be a lot harder to raise capital in the small cap space. Tread carefully — don’t go chasing the blue sky.”
Mr Hannaford said there was “very little happening on the IPO market” anyway — and some companies that had held off raising money due to fears of a trade war now found themselves in strife.
“Brokers have almost shut up shop,” he said.
“People who were raising money in the junior space decided to hold off, thinking they would come back and raise money before Christmas. But things have turned out to be a worse set of circumstances and now there is a mad scramble to get deals done.”
Of the 1700 or so ASX stocks under $400 million, only 230 made gains today while 770 fell and another 700 sat it out.
The ASX Small Ords is still out-performing the ASX200 and All Ords indicies on a 12-month measure — but only just as this Yahoo Finance graph shows:
Compumedics (ASX:CMP) was among the big losers today after its much ballyhooed deal to sell its “Somfit” sleep-tracking device into China got derailed.
The stock rocketed 75 per cent to 72c at the time of the announcement — but today closed down 13 per cent at 34c.
Compumedics also moved to “rejuvenate” its board — today booting an 18-year veteran director at its annual shareholder meeting.
Elsewhere, Cobalt Blue (ASX:COB) plummeted after it told investors it would miss a deadline to take full ownership of its 70 per cent owned Thackaringa cobalt project.
Cobalt Blue fell 27 per cent to 22c by the close.
Cannabis stock Cann Group (ASX:CAN) slumped 11 per cent after telling investors it had signed a three-year research deal extension with CSIRO.
After two months of silence investors had been hoping to hear more about progress on Cann’s major building works at its Melbourne Airport project or any other commercial activities.
Here’s a table showing 100-or so ASX small cap stocks that lost at least 10 per cent today:
Swipe or scroll to reveal full table. Click headings to sort. Best viewed on a laptop
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.