Tiny Stocks and Big Catalysts

Friday, 28 August 2020
Melbourne, Australia
By James Woodburn

There’s a big reason why some shares — as if from nowhere — rocket like a surface-to-air missile…

It’s not always earnings reports, or economic data. It’s not a ratings upgrade or technical trends, either.

No, one thing that always seems to make stocks go shooting up is a big, positive news story.

Take Splitit Ltd [ASX:SPT]

On Thursday, 18 June 2020, this tiny obscure international payment company’s share price jumped 125% inside a single day.

What happened?

Big news on the financial newswires: SPT announced a multi-year deal with Mastercard to offer its international payments system.

The result?

A picture says a thousand words, as the saying goes. Take a look:


Port Phillip Publishing

Source: Optuma

[Click to open in a new window]

There was another example from just this morning…

A small company called PointsBet spiked 62% again in a single day after inking a partnership deal with NBC and raising $300 million.

Check it out:


Port Phillip Publishing

Source: Google Finance

[Click to open in a new window]

But here’s the thing…

Typically, you only hear about these stories after they’ve happened, after the money is already made.

In the case of Splitit, the stock doubled from 66 cents to $1.49, just hours after the announcement. At one point they went over $1.90. Just a few weeks later, the shares had reached $1.70. They remain around that level now.

Point is, after that announcement it was practically impossible to get in at a good price.

But here’s a question for you…

What if you’d been able to learn about these shares before this moment…before thousands of investors all scrambled at once to buy, driving the price up? (And I’m not talking about any form of insider trading.)

I don’t need to spell it out — you’re looking at a huge gain on your investment in a very short space of time.

Well, these are questions I want to ponder for you today. How can you take a position before these kinds of stories break? Is it even possible? Is it a viable strategy? Is it risky? Is it possible to manage those risks? And can you make relatively short-term trading gains anticipating these big, positive catalyst events from the smallest stocks in Australia?

My long-time friend and colleague Callum Newman says emphatically: YES IT IS POSSIBLE.

And this is why I’m delighted to announce a long-awaited event Callum and I are hosting next week. It’s called The Medici 2020 Trading Event — and you can now officially sign-up for free, right here.

What’s with the name?

Well, you’ll find out when you sign up, but in order to explain a little more about what’s in store, I asked Cal to sit down with me for 20 minutes or so for a conversation on how he utilises the biggest advantage private investors have at their disposal over the bigger market players.

(It’s an advantage some of the wealthiest families and multi-generational dynasties have always known for centuries, hence the name of the event.)

So, as well as signing up (remember it’s free — and it also culminates in a free LIVE trading recommendation from Callum) do check out our convo by clicking on the play button in the screenshot below:


 

Woody:

How you doing, Cal?

Callum Newman:

I’m good, mate. How are you?

Woody:

Yeah, good. So you got your office all set up in your shed now, right?

Callum Newman:

Well, it’s a bit more than a shed, I would have thought, but it is separate from the house. Yes, absolutely.

Woody:

Yeah, right. So you’ve got tons of books in the background, and I know you’re an avid newshound and a real avid reader. So what’s happening in the news at the moment that you’re looking at?

Callum Newman:

Well, I am an avid reader of the news. I should say though, I don’t make my trading or investment decisions based off what’s in the news or on the front page. Often, it’s a sign to go the other way. But I do scour the papers for clues. Very occasionally, I pick up hints about what some of the funds are up to, what they might be looking for, what they’re avoiding.

Callum Newman:

A news generation thing at the moment, probably the biggest thing is the shift to clean energy and away from fossil fuel stocks, that’s a very consistent thing I’m seeing. From a trading perspective, that’s a little bit harder to monetise, but it certainly would suggest that volume and interest is going to keep pushing towards that sector of the market and away from the other one.

Callum Newman:

And goodness knows, if you saw the results from Whitehaven recently, their profit’s down 95%. Now, that’s a coal stock so there’s little interest in coal stocks at the moment for anyone. So it can, for things like that, there’s no reason to go looking in coal at the moment.

Woody:

OK. Well, let’s backtrack a little bit. Because the reason why I wanted to get you on this Insider video this morning is that today we’re announcing a really interesting event that we’re taking place. Me and you are doing an event together, showcasing the strategy that you employ for your readers of your service, which is quite, I’d say, it’s quite little known. We never actually officially launched it, yet you’ve been doing it. You’ve been making trades over the last year and it’s been officially live since February. So we’re opening the doors to that today. So yeah.

Woody:

So since February, what have you been doing? What is your strategy all about? Because it’s related to the news, isn’t it?

Callum Newman:

When we say news, we talk about company news, not so much-

Woody:

Sorry. That’s what I meant. Yeah-

Callum Newman:

…media news. Absolutely. Well, it was an inauspicious time to start. So we began Catalyst Trader in early February. Now every single person watching this knows that the market collapsed two weeks later or two or three weeks later. So it was a interesting way to start. So obviously, for that period, I was on the sidelines for a while there.

Callum Newman:

So we didn’t really, from my view, get going until it was clear that the market had stabilised and there was some semblance of going back to normality, but it’s been, in a sense, it’s thrown…COVID-19, if you get a fresh start at it, like we have, it threw up and still is throwing up a lot of interesting trading opportunities because obviously, it’s just caused a massive shift and everyone is still trying to work out, who wins? Who benefits? Obviously, it’s become obvious now, like last mile logistics is booming. I just got a letter from Australia Post, they can’t deliver here…because I’m in Victoria, so are you. They can’t deliver it fast enough, because everyone’s ordering online. So there’s winners there. Stock, like just one off the top of my head though, Pental is one I’m following and they’re booming because they sell White King cleaning products, then there’s the big losers.

Callum Newman:

But having said that, another one that I’m following for my guys, just put out an update. Now, that was hurt really badly by COVID-19 in the last quarter of the financial year. But in the next 12 months, it’s actually got a really exciting outlook. They’ve just got to get their old momentum back. And if they do, it is going to be a ripping trade, or potentially, I should say, potentially a ripping trade to get on because there’s some, some really big announcements.

Callum Newman:

So you mentioned news, company news. All right. So I’m looking for companies that are primed to-

Woody:

That’s what really sets you apart from any other editor; you track the company news announcements.

Callum Newman:

Yeah, absolutely. And we’ve got a really good example. It wasn’t a trade of mine, but I’m sure most people watching this if they do follow the business news, would have seen that a company called Zip Co jumped 25% yesterday. It’s in the buy now, pay later sector, and why did that happen? Well, they came out and said that they’ve done a deal with eBay Australia, and they’re going to integrate their operations in some way.

Callum Newman:

Anyway, the market loves when a smaller stock does a deal like that because it just expands the growth outlook for them. Buy now later’s been a classic. Splitit came out earlier in the year and said it’s done a deal with Mastercard and that shot up a hundred percent on the day. You can’t get them all because there’s obviously hundreds and thousands of stocks on the market. But if I’m going to trade a stock, I want it to have that potential to come out and say, ‘We’re doing a deal with an…’ It could be Amazon, eBay, Apple, Adobe. If it’s in mining, BHP, Rio.

Callum Newman:

An example, I was hunting a stock called Cassini for a while. We were a day late. I couldn’t get the buy alert out fast enough, but they came out and they got a takeover offer from, I think it was, OZ Minerals off the top of my head. Again, the stock jumped up 25% in a day.

Callum Newman:

So there’s all sorts of ways to implement this strategy in all the sectors and it can be fast. So again, there’s no reward for patience or longevity when you’re doing this. You can get in…like we had an example with Family Zone recently. They’ve been building the business for four years and we ripped 150% out of it in three weeks.

Woody:

Yes, insane. So I guess, what we’ve been talking about recently is that there’s all manner of different kind of risk management philosophies when you’re making a trade, but one of your big ones is, you try and stay in a trade for as short a time as possible. Correct? And I think your motto is…what did you say the other day? ‘The longer you’re in a trade, the more risk you’ve got.’ Do you know what I mean?

Callum Newman:

Yeah, well, absolutely. So generally I’ve found…because I focus on the small-cap sector, right? And every stock is different. So I don’t want to dismiss long-term investing. There’s some stocks that I’d happily put in a drawer and see how they go. But when I analyse past trades I’ve done and sector, the key thing to remember with the small-cap sector is most of the stocks aren’t profitable. So it takes a lot of good news, a lot of good news flow, big markets to keep pushing them up.

Callum Newman:

What usually happens is that they’ll come out with a kind of announcement, like whether it’s Amazon or whatever it is, the exciting one, and it’ll jump up. That might run for a few days or longer, or just sometimes beyond the day. But they often sell down after that, because what happens is usually they come up with the announcement, the market likes it, the day traders pile into it, that pushes the stock up. But again, at some point, the market, depending on the announcement and the scale of it, has to go, ‘Oh, OK, this company’s still not profitable.’ And usually, you get profit taking and that type of thing.

Callum Newman:

So some of them, of the stocks, will have what I call potential for a string of catalysts. So you might stick with the trade if there’s another one coming up. But if we position for, say a takeover offer, as Cassini might have been, well, obviously on the day, you’re like, ‘Well, that’s happened.’ So you look to take your profit then and there.

Callum Newman:

But in terms of risk, what can happen again with small-caps is, if for some reason the trade doesn’t go as you expect, then you need to get your money out. There is literally no point sticking around because that’s when you can get big losses because small-caps can lose. Well, every stock can lose a hundred percent, but you can, on the wrong side, go down, sometimes be holding a position where it might go 30, 40, 50, 60, 70, 80%. Now, you don’t want that. So if for any reason, you’re in doubt, you’ve got to get out.

Callum Newman:

And I just was telling you earlier, I had an example with a stock called Cooper Energy recently, where I thought they were primed to release a good news announcement. A sort of glitch that the company really didn’t have any…well, it still doesn’t have any control over, threw a spanner in the works, literally. So it took away the catalyst. So we cut the trade. Now, it wasn’t a great penalty for us doing it at the time, but since then, it’s still got this glitch. And so, the stock is just grinding down now because there’s nothing to essentially to prop it up because it’s not a profitable stock.

Callum Newman:

So you’ve got to be really conscious of why you’re buying. And that’s where the background work comes in and say, ‘Well, how much money did this stock have? Who’s running it? Is it profitable? Does it even have revenue?’ Some small-caps don’t so, yeah, there’s a lot that goes into managing each position.

Woody:

So it’s just one of the more, really super-exciting strategies that we’ve got amongst our stable, because you’re literally going for this announcement that’s coming up. Now, part of the event, we’ve called it the Medici 2020, and it’s open today. It’s completely free to sign up to. And obviously, it culminates with the presentation with yourself and myself, but where does that historical element to come in? It gives it a bit of sparkle, a bit of pizazz. We mentioned the Medicis, we mentioned the Rothschilds. From what I get from it, they all kind of take advantage of the same thing, and that is new information. And that is where these catalysts tend to come from, don’t they?

Callum Newman:

Absolutely. So the main thing is to remember is always that the share market is always looking ahead. But if someone comes to you and tells you about a stock, usually, what they’re talking about is priced in. The market is fairly efficient at pricing in a lot of things, but less so in the small-cap sector, in my view. And that’s what we look to exploit. But again, often with pure technical analysis, or even a stock that maybe a broker report, they’re telling you about what’s already happened usually, or what the company does or who runs it and all that is helpful and necessary. But what really matters is what’s coming up. So the key for me is to analyse the stock and work out whether it has the potential to release really exciting news. And if it doesn’t, well, I’m not interested in it, I don’t care what the story is or if it’s in a hot sector or-

Woody:

Or if the technicals look great.

Callum Newman:

 

Yeah, absolutely. I need a little bit more because I can tell you, when you’re putting thousands of dollars in the market, if things get volatile or it starts, for some reason, maybe it goes down, you want to know why you’re holding that, or you’re going to get under pressure very, very soon. So A, for me, it’s absolutely crucial to be able to hold a position. And if you want a fast gain, there has to be something that’s going to drive the stock up. Why is someone else going to buy it off you? Unless you can point to that. Well, in my view, you need to factor that in.

Woody:

 

Where did this strategy come about, Cal? How did it start?

Callum Newman:

 

Well, it’s been a long process for me. As you know, I’ve been involved now for a long time. In my view, the Aussie market is not like the American market. It’s not, it’s a very unique market. It’s very, very top heavy with miners and banks, companies that we’re all familiar like Telstra. And these companies in general can be really slow-moving. You can wait for an age for anything to…look at Telstra. I mean, it just meanders around. It just doesn’t do anything. Now, if you’re looking for income, a lot of them paid out dividends and people were OK with that, but it’s not like America where they’ve had the big stocks roaring up for years.

Callum Newman:

 

So the action for me has always been in the small-cap sector or even the mid-caps. That’s where you get the growth. That’s where you get the really exciting gains where you can make 20, 50, a hundred-plus percent, sometimes in under 12 months.

Callum Newman:

 

Now, I’ve found over the years, whether it was trading my own account, when I ran the small-cap newsletter, Small Cap Alpha, you have to be highly aware of the announcements. Because that is what drives the share price. If a company comes out and says, ‘Oh, we didn’t make as much money as we thought we were going to,’ or revenue’s down, the share will get hammered on the day. You will take a big hit. If they come out and go, ‘Hey, we thought we were going to…’ These are just examples, by the way. ‘Make 20 million. And we’ve made 30 million.’ Bang. The share price goes up. So for me, it just became a system of like, ‘Well, how can I try and anticipate the stocks that have good announcements?’

Callum Newman:

 

And I’ll give you a good example. Last year, you remember I did a big deep dive into cannabis. There was massive interest into marijuana, cannabis. And I was looking at all these stocks and they’d had previously had massive runs. So they’re really expensive. They’d been driven up, lots of interest. But when I was looking at them, I’m like, ‘Well, they’ve got a little bit ahead of themselves.’ They’re too expensive to what’s coming out. I can’t really see, with most of them, anything that’s going to come out and add an extra layer to that to drive them up again. So on the whole, I sort of said, ‘Well, let’s just bypass here except for one or two that I thought had some potential.’

Callum Newman:

 

So you’ve got to be really in tune to what the market is already pricing in to a certain stock. And in what way, you can add value in a sense to that existing pricing. Now, the beauty of the small-cap sector is there’s so many stocks doing lots of interesting things and it’s basically impossible to cover them all. So there’s lots of inefficiencies in the market. Lots of funds don’t even bother with them because they’re too big or they don’t have the liquidity. So it is prime for the independent investor or trader to exploit that. And that’s what we try and do.

Callum Newman:

Oh, I can’t hear you.

Woody:

 

Sorry, I was on mute there because-

Callum Newman:

 

Georgie?

Woody:

 

We’re all working from home; we’ve got little Georgie. She’s having a bit of fun downstairs.

Woody:

 

But that’s the thing. Nowadays, really, the only advantage that the private investor has, with a single trading account, is you’re not going to get that much new information from the bigger end of town, that the bigger guys, the institutions, the professional investors, don’t already know. And what was the number? I think you said there was like, there was hundreds of thousands of stocks worldwide, at least 2,000 small-caps in Australia, you’d have thought. And how about, there’s thousands, there’s hundreds. And the vast majority of them are just, not just little analyst coverage, zero analyst coverage. And that’s where the advantage is if you have the time to sift through it all.

Callum Newman:

 

Absolutely. It’s a lot of legwork. So that’s where I can come in and go, ‘Well, is anyone looking at this stock? Probably not. Or even if they are, are they going to be able to move the market in a big way, like a big fund would? Probably not.’ So I can tell you from personal experience, sometimes, I’ll be researching a stock. And I might, sometimes, I have to look around and go, ‘Can nobody else see this? This is just prime to go. And nobody seems to be paying attention.’ So it’s really exciting. It can be really lucrative. They can come fast, but absolutely, there is definitely a niche in this sector of the market for someone to come in, and by all means, you can do do your own research, but it does involve a lot of legwork.

Callum Newman:

 

And again, we talked about Family Zone. I’ve been following that stuff for years. And even Cassini, the other one I mentioned. Because again, there’s a question of timing with all this. I mean, I can follow a stock for months and go, ‘Now’s not quite right. I’m not happy with the risk-reward.’ Then something happens. Some shift, the world’s always shifting. So then something…like COVID’s a big example, pulls something down, you’re like, ‘Oh. Well, that’s where we can get in.’ Where the risk is much lower than it was before. But the upside now becomes enormous. So there’s lots of examples like that, all the time.

Woody:

 

Well, this is what this event’s all about. So you said you had a trade that you’re putting out at 11:00 this morning, we’re recording this, by the way, full disclosure, on the Thursday, because it’s too much of a mission with the publishing schedule on Friday, but you said you’re putting out an alert at 11:00?

Callum Newman:

 

Yeah, it’s a sell alert. So just by way of example, it’s not a big gain. Our position in a stock just this month that I thought would come out with a very positive update in its full-year results. And it has come out with an update, a positive update with its results. We’ve got a little 8% jump in the stock, which is OK, but it’s not a massive one. So from my view, when I analyse the stock now, I don’t think there’s going to be much left in the tank for the…not for the business, but for the stock, in the short term. So we’re a short-term trading service. So we’ll close that one out. We take a little win. And again, I emphasise, the beauty of this system is if a trade works, as in you’ve got a gain, or for some reason it comes out and it doesn’t, you move on. You go, ‘OK, that catalyst either worked or it didn’t,’ or this one was, you’d say it was neutral. OK. ‘Let’s allocate our capital to something else.’ So you’re not tying up your money in some stock that’s just meandering around doing nothing while you wait for the company to come out and say, ‘Oh, well, this might be good.’ Or what have you, or for some story.

Callum Newman:

 

I used an example in Profit Watch today. There’s a kind of meme in the market at the moment that Australia, driven by the government, is going to have a gas-led recovery. Now, that may or may not be true, but that doesn’t help you make money out of gas stocks. What you need for a gas stock to go up is usually either strong gas prices, good margins on their existing production, or an exploration program where they add more reserves. So it’s not enough to buy into some sort of narrative. You need a specific thing in the stock that’s going to drive it up.

Callum Newman:

So yeah, in the example today, we’ve got our little catalyst. It wasn’t as big as I’d anticipated, we make a small gain and we move on.

Woody:

 

But the point is right now, it just feels like…I’m just like, I get many emails each week and each day, I just feel like I’m just getting loads of Catalyst Trader emails pop up. So there’s lots of activity, there’s lots of opportunities to look at at the moment. And I guess that’s the whole point of this event that people can sign up to for free right now. We’re going to explore it in a lot more depth and take people through to see how they can get-

Callum Newman:

 

Absolutely. I’ve been following the small-cap sector for years and investing and trading and recommending. And there is always activity in this sector. It’s just, it never stops because companies, they have to innovate. They have to invest in their business. They have to grow in some way. So it just never stops.

Callum Newman:

 

So I can tell you, in 2016, it was lithium. In 2017, it was last mile logistics, which is coming around again now. This year, it’s buy now, pay later, and we’ve had massive runs in gold. It’s just rich. Here in Australia, we’ve got copper, uranium, nickel, tech, medical. There’s just so…cannabis. So there’s lots of sectors, all of them in their own little cycle. And again, I emphasise my opinion and I invest my super along this. The Aussie market index is not going anywhere, I don’t think it’s going back to all-time new highs anytime soon.

Callum Newman:

So if you want to make money in the stock market, you have to be active. You have to be looking at areas showing strength and ones that can can move. And for me, that’s small-caps or mid-caps. I don’t expect big gains from the top end of the market.

Woody:

Well, there you go. Let’s try and help our readers and find those small-cap gains if we can. Sign up. There should be a link below this video. If anyone watching, check it out, it’s called the Medici 2020 Event.

Woody:

Finally, we are showcasing Callum’s awesome trading service, and I can’t wait to get with everyone.

Callum Newman:

And don’t forget, Woody, when they get to the event, they’ll get a very good idea of how I go about it because we have the live trade as well. So-

Woody:

Oh, of course, it culminates with a live trade.

Callum Newman:

By all means, you can see how that goes and see how the methodology works for you.

Woody:

Cool. Thanks, Callum. Really appreciate it, mate.

Callum Newman:

Pleasure.

From one small-cap maestro to another…

The small-cap sector is really firing right now. It’s where you’ll find the vast majority of opportunities. And let me be clear, I’m not for one second ‘cheerleading’ a raging bull market.

It’s like Greg said in The Insider on Wednesday. It’s about recognising what is happening and intelligently making hay. As he put it:

More than ever you need to know WHY you’re buying stocks, what your risk is and what your exit strategy should be…Speculation is fine. But it needs to be intelligent speculation.’

That’s what Callum’s approach is all about, as is Ryan Dinse’s.

Both are finding more trades than they know what to do with.

You’ll learn all about Callum’s super-fast-paced approach above (or again, click here). But I thought I’d recap the past few weeks of Ryan’s momentum system.

It’s been a jam-packed introduction for the new members of Small-Cap Momentum Alert. Ryan’s latest update yesterday summed it up nicely…

  • 23% gain in Boss Resources (after two weeks)
  • 300% gain in Silver Lake Resources
  • 105% gain Bellevue Gold
  • 121% gain Ausquest

He also advised cutting Ioneer for a 17% loss. No one’s perfect I guess! And small-caps are risky.

Still, just like with Callum, fantastic performances lately with lots of action.

And the open portfolio of live trades looks like the action will continue:


Port Phillip Publishing

Source: Port Phillip Publishing

[Click to open in a new window]

We’ve had some great emails in from readers, too…

77 responses in fact.

I’ll be reporting on those in the weeks ahead once we’ve sorted through them. But here are just a random few from a quick dip:

Thanks to Ryan I have made quite a lot of money on his suggestions, percentage’s range from 20 to over 500 to date and still rising.’

David

Hi Ryan, I have followed your advice on many small caps and made (i.e. taken good profits) — Archer Materials — made a 100% profit and took the reward—- Imagion Biosystems — still in for $20k and going great (so far) — didn’t do that well with Clean Seas and Food Revolution, and exited when stop loss triggered Overall, you advice and candor is much appreciated…’

Graham

At this stage they’re all well ahead with BRN currently up around 200% from the 10.5 cents I bought it at on 14th July. The only sale I’ve made was earlier this week selling a 3rd of my BRN shares at 34.5 cents. So it tripled in about 5 weeks and I have all of my original investment back, which is perfect timing as I’m trying to build up a kitty for the Small-Cap Momentum Alert, which also appears to be a great service (but it’s very early days for me in that one).

Shane

To be honest guys I haven’t placed a trade through following port Phillip Publishing as a subscriber has been invaluable which in turn through my own due diligence have now in a short time with precious advice from services on offer let’s just say life changing presently myself my daughters positioned to cherry pick thanks to eye opening material Sam Volkering Ryan Dinse, Greg Canavan and one other favourite Shae Russell, Jim Rickards, James Woodburn like having your very own team very happy subscriber since Jan Feb 2017 ‘2018.

Cvetko

I can’t tell you how great it is to read these kinds of emails. It’s why we do what we do.

We’ll be hoping to reopen Ryan’s service later next month. Let me know if you’re interested at letters@portphillipinsider.com.au.

In the meantime, get your name down here.

Cheers,
Woody