Small and mid-cap stocks tipped to lead gains in 2017
Posted January 11, 2017 13:24:18
Share analysts predict the recent run for larger blue chip companies will not continue in 2017, with the best returns to be found amongst smaller listed firms.
A resources rally over the second half of 2016 and better sentiment towards previously beaten down Australian banks saw the big, blue chip sector of the ASX post solid gains late last year.
However, star stock picker Charlie Lanchester - formerly of Perpetual and now managing an Australian equities fund for global investment giant BlackRock - said the shift towards big-cap stocks had exposed value amongst some smaller firms.
"There's been huge rotation out of some mid-cap and small-cap stocks in the Australian market, as people have gravitated towards the better-performing resource stocks and, to some extent, banks in recent months," he told Business PM.
"We're finding some opportunities in those mid-cap and small-cap spaces, where perhaps one or two big funds have sold out of those positions."
It is a sentiment echoed by Kunal Sawhney, the founder and chief executive of stock research firm Kalkine.
"Think small, think of the mid-cap space, look for value," he advised Business PM.
"People fall in that dividend trap and look for 6 to 7 per cent dividends, but don't look for the value in that stock."
Kalkine's top 12 stock picks for 2017:
- ChimpChange (CCA)
- Freelancer (FLN)
- TPG Telecom (TPM)
- Bank of Queensland (BOQ)
- Spotless Group (SPO)
- Magnis Resources (MNS)
- Infigen Energy (IFN)
- Onevue Holdings
- Pilbara Minerals
- Vocus Communications (VOC)
- Insurance Australia Group (IAG)
- Praemium (PPS)
This recommendation carries through to Kalkine's picks of the most promising stocks for 2017, a listed dominated by companies outside the ASX top 20.
Kalkine's list contains quite a few tech stocks, some at the more speculative end of the spectrum, as well as telcos and a couple of financials.
Mr Sawhney said many small self-managed investors have been lured into some larger companies by their relatively high dividend yields, but that this could prove to be a trap.
"Some companies have been cutting dividends, so the big question is, 'is the dividend sustainability there?'," he said.
"The banks are still able to sustain their dividends, but can they do it in the future, that's a big question mark."
Mr Lanchester is also negative about the big four Australian banks this year.
"They are reliant on offshore funding and, whilst they are very good businesses, the property market is probably the biggest risk, I think, as we look into 2017," he said.
"I think many people have seen it as a risk for a number of years but my view as an investor is that everything is cyclical.
"And when people start to talk about assets that never go down, you start to worry."
Topics: stockmarket, futures, markets, telecommunications, electronics, banking, housing-industry, australia