Buy Hold Sell

Buy Hold Sell: 5 small stocks with big catalysts on the horizon

Fri 03 May 24, 3:17pm (AEST)
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Source: Nick Sladen from LSN Capital and Justin Woerner from Elston

Key Points

  • Future events such as product launches, acquisitions and new markets can impact company valuations
  • Relying on catalysts alone is risky but they can provide a kicker for share prices.
  • Nick Sladen and Justin Woerner discuss five stocks with potential catalysts on the horizon

Just as in science, catalysts are the starting point for major change or action in life. It may be a whistleblower whose revelations lead to significant systemic change, or an enzyme that helps speed up a chemical reaction.

In investing, however, catalysts trigger a drastic change in a stock's share price trajectory. And while no one can know the future, the prediction of catalysts to come can help investors profit over the short term.

This could be new management, an earnings report, a new product/service announcement, legislative change, mergers and acquisitions, broker ratings changes, and for the short sellers out there, short reports.

So in this episode, Livewire's Ally Selby was joined by Elston's Justin Woerner and LSN Capital's Nick Sladen for their analysis of five small stocks with big catalysts on the horizon.

And for those looking for some spicy stocks for their portfolios, only one of these stocks is rated as a sell by one fund manager - and the other believes it is a buy.

Note: This episode was recorded on Wednesday 24 April 2024. You can watch the video, listen to the podcast or read an edited transcript below.

Edited transcript

Ally Selby: Hey, how are you doing? And welcome to Livewire's Buy Hold Sell. I'm Ally Selby and today we'll be taking a look at five small stocks with major catalysts on the horizon. To do that, we're joined by LSN Capital's Nick Sladen, and Elston's Justin Woerner.

First up today we have Imdex. It's a drilling equipment and software provider. Nick, I'm going to start with you today. What's the catalyst there and is it a buy, hold or sell?

Imdex (ASX: IMD)

Nick Sladen (BUY): It's a buy from our perspective. Over half of its business is exposed to copper and gold. Gold prices and, more recently, copper prices have had a really strong run and we would expect that to drive tailwinds in terms of exploration. And that's obviously a key component of their business and what they do. Equally, they've put themselves in really good shape with an acquisition of Devico in 2023, which has further strengthened their market position and we think the outlook going forward into FY25 is really good.

Ally Selby: Its share price is up around 13% since the beginning of the year. Justin, over to you, is it a buy, hold or sell?

Justin Woerner (BUY): I'd agree with everything Nick said. It's a buy for us as well, Ally. I think in the short term there are a lot of those catalysts, which Nick was talking about. And then probably more medium to longer term, we're looking at product development, mostly in the form of BLAST DOG. That's been something that they've been talking about for a while - they've been trialling it for a while. Over the next couple of halves, we'll really be looking for additional commercialisation of that BLAST DOG product. We think that'll drive their production-based revenues and just give the market more confidence about an additional growth leg within the business.

PWR Holdings (ASX: PWH)

Ally Selby: Next up today we have PWR Holdings. This is one for F1 fans. It designs advanced cooling products and solutions for the motorsport industry. Justin, staying with you, what's the catalyst there and is it a buy, hold or sell?

Justin Woerner (BUY): This one is a buy for us as well. I really think that the catalyst is the North American market and more specifically, aerospace and defence - which are very large industries. They're very similar in terms of the client's needs and wants. We think PWH is really well positioned to be able to break into that market. Over the next few halves, we're probably expecting to see more defence-based contracts announced. And then within aerospace, we think something like vertical takeoff and landing aircraft is something that provides a really strong opportunity for the business.

Ally Selby: The share price is up around 18% in 2024. Nick, over to you. Is it a buy, hold or sell?

Nick Sladen (HOLD): We're a hold on this business, but a buy on any weakness. It's a really, really good business. It's founder-led, although he did sell some stock after the first half result, which is always notable. It's a really specialised business. They started in F1, obviously, and have moved into defence and aerospace. It's adaptable in terms of other industries which we really like and think it'll drive growth. But just right here, right now, the valuation is a bit expensive for us at this point in the cycle.

IPH Limited (ASX: IPH)

Ally Selby: Last up today we have IPH, which is an intellectual property services group. The share price has really underperformed the market in 2024 and is down 22% over the past 12 months. Nick, last one for you today. Is it a buy, hold or sell? And what's the catalyst there for that to turn around?

Nick Sladen (BUY): It's a buy from our perspective. It's a downtrodden growth stock. It's traditionally had - and still does - a really strong market position in the industries it operates. It's made a range of acquisitions both in Australia and Canada over the last 18 months. And those acquisitions have been in integration mode. As they get closer to completion, we're expecting integration to start to deliver earnings growth. And we think that the business is considerably under-earning and considerably undervalued. And we look forward to that driving improvement in the performance of the stock price and some deleverage in the balance sheet.

Ally Selby: Five brokers cover the stock and all of them rate it a buy. Do you agree? Is IPH a buy, hold or sell?

Justin Woerner (SELL): No, we disagree, Ally. We're going to put a sell on this one. I think as Nick was saying, it's been very acquisition growth-led. We probably try to stay away from acquisition-led growth. We much prefer to see organic-based growth. Regarding acquisitions, we're just more cautious around integration and cultural risk. And then organically, I think even with this business we've probably got concerns around underlying volumes within the industry and then also the ability for the business to maintain market share over the medium term.

Guest picks

Ally Selby: We asked our guests to bring along one small stock with a major catalyst on the horizon, a stock that they're buying today. Justin, what have you brought for us?

SiteMinder (ASX: SDR)

Justin Woerner (BUY): Today I'm going to talk to SiteMinder. SiteMinder is a SaaS-based business that sells software to medium to small hotels and accommodation providers. They've done a really good job of building a global subscriber base, so they've got 40,000 plus subscribers and growing.

We really think the catalyst for this business though is product development. There are two products that they've got scheduled to come out mid to later this year. And we think both of those products are really well positioned to leverage that underlying subscriber base to drive transaction-based revenue. This will give them another leg of growth and really show the market that there's more upside in this business.

Ally Selby: Nick, over to you. Your time in the hot seat. What small-cap stock has a really exciting catalyst on the horizon and why are you buying it today?

Southern Cross Electrical Engineering (ASX: SXE)

Nick Sladen (BUY): We like Southern Cross Electrical Engineering. We think that given the amount of work going on in energy transition and renewables across commercial, industrial, and mining - there's a huge amount of work that is going on. They've been successful recently with contract wins in data centres. They've been successful with other work in infrastructure in Western Sydney Airport and other areas.

The valuation is compelling. It's currently got about 20% of its market cap sitting in cash, so we would potentially expect further industry consolidation. And they are very well-placed to participate. There's a lot of work that needs to be done in this space and they're as well positioned as anyone to participate in that market.

Ally Selby: Well, I bloody loved that episode and I hope you did too. If you did, why not give it a like? Remember to subscribe to our YouTube channel. We're adding so much great content just like this every single week.

Written By

Buy Hold Sell

Buy Hold Sell is a regular video series where Australia's leading professional investors share their views on Australian and Global Shares. This content is produced by Livewire Markets and has been syndicated to the Market Index website.

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