Ten Small-cap Value And Growth Ideas For 2023

16th Jan '23 by Graham Neary

15 comments 7499 reads

Hello there! Paul suggested that I provide some ideas for 2023, so here we go! A selection of my favourite ideas from stocks that I've covered in the SCVR.

I have a tendency to stick to familiar sectors, which I find is an important way to build up familiarity with the themes and key issues affecting the stocks I cover. So it was not a surprise, when drawing up this list, that I found most of my favourite stocks were drawn from a few sectors. I've therefore provided four "buckets" below:

Drinks companies
Investment banks
Other financial stocks
Other sectors

It's by no means an exhaustive list, but these are my favourite companies I've studied recently for the SCVR and should hopefully provide you with food for thought in 2023.

Please note that I'm also a big fan of two other sectors: pure-play fund managers and the franchised estate agents.

Fund managers I like include Jupiter Fund Management (LON:JUP) and Polar Capital Holdings (LON:POLR) and I've also been a big fan of Ashmore (LON:ASHM) over the years (that one is not a small-cap). The franchised estate agents include Property Franchise (LON:TPFG) and M Winkworth (LON:WINK) and Belvoir (LON:BLV) . None of these stocks are included below but you can take it as read that I also like those two sectors (and check the SCVR for previous comments on them).

In what follows, the italicised text has been added fresh, while the normal text is an excerpt from the most recent SCVR.

Cheers!

Graham

Drinks companies

A G Barr (LON:BAG) (5 Dec) (2 Aug) - high-quality drinks company that has passed on price increases to customers in 2022, has a cash-rich balance sheet, and was able to fund a £20m acquisition from its own resources in December. Historic numbers are terrific, including during the Covid era, making this a long-term compounder stock. Trades at an above-average earnings multiple that is in my view more than justified. Price/sales is about 2x which is not high in the context of the last 10 years.

Nichols (LON:NICL) (11 Jan) - another high-quality drinks company, the main brand asset at Nichols is Vimto. This stock has a family heritage that dates back over 100 years, and it’s a dividend hero that has…

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Tortoise investor

16th Jan '23

Thanks for posting your thoughts Graham!

On investment banks/brokers I am a big fan of them, like you, when their share prices are depressed as you can usually pick them up close to net asset values during market downturns, with decent cash buffers to protect the downside risk while you wait for the good times to roll in again - usually while you get paid a decent dividend. I also like finnCap (LON:FCAP) (I hold) - unlike some of its peers I think it can potentially multi-bag 200-300% at these levels. Some of its peers are more likely to hit 100% return - obviously also quite decent! The downside of finnCap (LON:FCAP) is, as you say, it actually made a loss during the last half although it has been making cutbacks to staffing since.

I also like Cenkos Securities (LON:CNKS) (don't currently hold) as it pays a divi although it's effectively a competitor of finnCap (LON:FCAP) and I think the best years for Cenkos Securities (LON:CNKS) are behind it (for anyone researching this google Neil Woodford and Cenkos to understand what I am referring to).

With Jupiter Fund Management (LON:JUP) I have only vaguely followed this share mostly in the national news but haven't there been a lot of problems with management and performance (worse than other peers) there?

Rusty2

Thanks Graham, I assume you don't hold any of these stocks?

Graham Neary

You're welcome Rusty, and that's correct - I've not been buying individual stocks recently and so my single-stock portfolio is unchanged.

Thank you for the insights Patrick! Regarding Jupiter, they have a new CEO and I'm expecting him to make some pretty big changes. It's a value idea for me, not based on their good fund performance! Cheers.

Bouden54

Agree that Polar Capital Holdings (LON:POLR) look good - I like their specialist sector focus and they seem very good at spotting trends or themes and adding new teams. Much prefer to something like Premier Miton (LON:PMI) which has a sprawling collection of vanilla equity funds and I struggle to see how these would stand out in a crowded market (I looked and there were about 15 UK equity funds which all looked very similar). The same for Liontrust Asset Management (LON:LIO) - I guess this is the problem with acquisitive groups. Polar tend to add new teams rather than buying entire companies and this gives them a bit more focus.

Michael C

I did very well with Jupiter Fund Management (LON:JUP) when Graham wrote about it after an update, so thanks Graham. The policy they announced of reducing dividends (or just holding them, I can't remember) and spending the money on share buy-backs certainly seemed to put a floor under the share price at the time. I still hold but am keeping a wary eye on it because I see resistance just above today's sp 147p. FY22 results RNS will be 24 February and I think this will determine whether the sp rises above 155p.

Cricketfan

Thanks Graham. Very interesting and your list includes some that I have never looked at. I shall look at Mercia Asset Management (LON:MERC) and Numis (LON:NUM) this afternoon.

Two that you mention I do hold: S&U (LON:SUS) and Belvoir (LON:BLV. Both get really good marks from me for being friendly and open to shareholder questions.

Best

Mark

I like Belvoir (LON:BLV) a lot and it will be a long-term winner but in the short-term I can't see a lot of upside given concerns about the housing sector. It almost doesn't matter if Belvoir (LON:BLV) goes through this year unscathed because I think general sentiment will drag it down. I think there will be a good buying opportunity at some point this year - just not at the current price.

Roger Baron

Premier Miton might well be "a sprawling collection of vanilla equity funds" but does have, according to their most recent update - "82% of funds in the first or second quartile of their respective sectors since launch or fund manager tenure". I hold but probably should reduce and diversify into others in the sector so thanks for the updates above.

Hi Mark, you're welcome! Glad you've found a few ideas worth studying in this list. G

Mark L.

Appologies if it's a bit impertinant to ask, but why would you avoid individual stocks?

Just wondering if it might be that there's hardly any benefit in a self selected stock portfolio compared to getting a few low cost trackers/specialist ETFs etc.

Because looking back at my own portfolio over say 15 years (all UK individual shares), I think I'd have done the same or better by holding a few US and UK trackers.

Yes maybe a bit harsh and it certainly is cheap so not saying it's a bad company. I do think the 82% figure is inflated by survivorship bias - bad funds either get closed or the fund manager sacked. Better to look at 3y and 5y returns and when I last looked these were not so great.

I'm still >90% invested in individual stocks! But due to personal circumstances and goals, it doesn't make sense for me to be 100% invested in individual stocks any more. I imagine that most investors, even Stocko subscribers, have a range of investments - properties, funds, managed retirement accounts, etc.

Edward Croft

18th Jan '23

Great piece Graham.

We do use Trustpilot at Stockopedia for our reviews - and paying for it gives us the opportunity to respond to detractors, send out invites but also publish the Trustpilot logo in printed materials and so on. There's no ability to remove the bad reviews of course!

It's a business model that has the most tremendous customer lock-in, and brand recognition. It is, though, very expensive, and I think they may have trouble getting clients to pay their "list price" - but I guess their strategy is to have a high list price, then discount from that high bar to keep customers satisfied.

There's a Trustpilot logo on practically every advert these days - so their customers basically do their advertising for them. Their brand dominance in the review space does give them an edge versus all the cheap review alternatives which I guess is the biggest biz risk. This should be a very strong business when it comes to maturity - still so loss making though !

19th Jan '23

Hi Ed, glad you liked the article!

And thank you for the fascinating insights on Trustpilot. Sort of confirms my view that there is no good direct competition (hence the pricing power). The 2nd-best product is perhaps the barebones offering from Google Reviews.

I'm very curious to see if Trustpilot can make it to profitability in the next few years - valuation could be so much higher if it crossed that line!

Ten small-cap value and growth ideas for 2023

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Graham Neary

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