Money Talks: After making 20x with Afterpay, Cyan’s now got its eye on these tech stocks

Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to see what’s hot, their top picks and what they’re looking out for. Today, we hear from Dean Fergie, director and portfolio manager at Cyan Investment Management.

What’s hot right now?

“At the small end, you want to look at sectors that are growing pretty quickly and for us, it’s always just been pretty much IT,” Fergie told Stockhead.

“You can’t really compare too many other sectors, in that if you get on the right story you can see such strong growth profiles in a short period of time.

“It’s not in retail, it’s not in manufacturing, it’s not in industrials or healthcare. It’s in that IT that you really can get the big step-ups in returns.”

Fergie pointed to Afterpay Touch (ASX:APT) as an example of the quantum of gains that can be made when you invest in a small cap IT stock.

The buy now, pay later stock hit the ASX in late July 2017 with a market cap of around $165m at its IPO issue price of $1 per share.

Afterpay is now worth $5.5 billion, with a share price of $22.87.

“It’s not a small cap anymore, but we’ve been invested in Afterpay Touch since it listed at $1,” Fergie said.

“Not everyone has to be a winner, but if you get one Afterpay or one Xero (ASX:XRO) or one stock that goes up 20 or 30 times in your portfolio, it makes all the other ones that you don’t get right just irrelevant.

“So that’s the way you’ve got to look at, I think, small cap investing. You get asymmetrical pay-offs, you can get 10-20 times your money, and you can only lose one times your money if you don’t continue to double up when things go down.”

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Top Picks

Fergie is particularly a fan of video tech companies.

“There’s a huge trend towards video,” he explained.

“You’ve seen it through YouTube and Vimeo and it’s gone from being this sort of niche, cultish kind of thing to becoming a little mainstream, where you’re seeing even companies like ourselves that don’t see ourselves as kind of cool or cutting edge deciding we’ve got to be producing videos.

“So that is, we think, a sector that’s going to continue to grow really strongly and it needs hardware to facilitate that and produce the quality that I suppose consumers are expecting.”

Atomos (ASX:AMS) makes and sells camera add-ons for amateur Instagrammers and professional photographers and is one of Fergie’s top picks.

The junior has a market cap of $145m and a share price of 93.5c.

“That’s a company that’s seen some really good growth, they’ve got some great products that are really well regarded in a niche industry,” Fergie said.

Atomos reported a 32 per cent year-over-year increase in revenue to $24.2m and a 26 per cent increase in gross profit to $10.5m for the first half of FY19.

“They’re doing sort of $50/$60m in sales, but it’s only just about to turn profitable,” Fergie said.

Another pick of Fergie’s is Jaxsta (ASX:JXT).

Jaxsta is building an online platform of official music data. The company’s ultimate goal is to ensure digital music and all its collaborators get the same amount of credit attribution that people once found on a record sleeve.

The company has a market cap of $32.4m at a share price of 25c.

“Again, it’s a really small business and it’s only just listed, but I think they’ve been really clever in finding just a massive sort of information gap in that market,” Fergie said.

“The fact that you’ve got a whole bunch of music out there that just doesn’t have a central repository for all the data behind it and you’ve got a small Sydney-based company that’s trying to build this.

“Clearly not an easy thing to do to get all the music companies on board, but the beauty is they’ve actually signed sort of 80 per cent of them up now.

“So if they’re able to monetise that massive database of information in such a massive marketplace being music, I think that stock has potentially got a great future.”

Dean Fergie has over 25 years of experience in the funds management industry covering all major asset classes. He has lectured for the Securities Institute of Australia and is a graduate of the Australian Institute of Company Directors.

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead. Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.