Five microcap stocks to watch
It pays to do your research before investing in microcaps, and the recent annual Australian Microcap Investment Conference was a good reminder of this lesson.
Looking at the list of companies that have presented at the conference since 2010, it is hard to determine which were successful ventures, as many are no longer listed.
Vocus Group, no longer listed as it was bought out by Macquarie Asset Management and Aware Super, was one of Australia's leading telecommunications companies.
Another that impressed me in the early days of the conference was Vita Group, which operated T Telstra stores, Fone Zone, and the Next Byte Apple stores, amongst other enterprises.
Sadly, this was acquired only this year and is no longer on our exchange.
Others that have done well since first presenting at the conference are Jumbo Interactive, Praemium, Hubb24, and Australian Ethical Investments.
Timing is everything in the microcap space, as history has shown that some have stellar rises based on speculation over a few years only to fall back to where they started, whilst others can take a little while to get going, like Atlas Pearls.
I saw them present many years ago and was impressed by their story, but in my mind, it was too early to invest.
Since mid-2020, this stock has risen nearly 2000%. However, it is still a microcap, and that means be careful, as what goes up fast can come down just as fast.
What is a microcap?
Microcaps are companies with a market capitalisation of less than $500 million that are listed on the Australian stock exchange (ASX).
They can be faster-growing and more innovative than large cap companies.
Five top microcaps on the ASX
Ai - Media Technologies (ASX:AIM)
Ai-Media Technologies is a captioning, transcription, and translation provider to the global broadcast television market.
It uses the latest sophisticated AI technology called LEXI, AIM's proprietary speech recognition solution. Staggeringly, LEXI delivers real-time coherent live captions on broadcast video content using advanced algorithms with enterprise-grade accuracy of 98.7%.
The company was founded in 2003 and floated on the ASX in September 2020.
On the first day of trading, AIM rose to $1.49, which is still its current all-time high. As with many IPOs, it fell after that, losing 85.5% of its value, finding support at $0.215. This seems to be a significant level for this stock.
Since May of this year, the price has failed to rally over $0.33, which suggests there is not much buyer commitment. However, there is strong support around the low of $0.215 if the price were to trade below this level.
I suggest sitting out of this one until we have confirmation that the price has bottomed. Given their presentation at the Australian Microcap Investment Conference, this is expected to occur soon as they make good inroads into expanding their client and revenue base.
Altech Batteries Ltd (ASX:ATC)
Altech Batteries Limited is in the process of commercialising a solid-state sodium chloride battery facility in a joint venture with the German institute Fraunhofer IKTS.
Preparing for a more electrified and battery-dependent world, Alltech Batteries has been busy developing patented technology, including a patented battery materials coating technology that's proven to increase EV battery capacity by 30%.
This stock is in a high-demand area set to grow exponentially, which is why I am excited.
ATC floated on the ASX in 2010 but didn't start to gain traction until mid-2015, when it had a nice run of 489% up to the peak of $0.26 in 2017.
What I like about this stock is that it turns at key price levels and now looks to be finding support at one. I am further excited by the fact that volume has increased since January 2021, which shows support is increasing and adds a bit more liquidity to an overall speculative stock.
If the price can hold over $0.064 and get through the previous resistance levels to break above resistance at $0.12, it could return over 100% before it hits the at $0.26.
I believe this stock will test these levels again, but the question is when? I must warn you that this stock is not for everyone, as it can have wild swings to the upside and downside.
EMVision Medical Devices Ltd (ASX:EMV)
EMvision Medical Devices Limited specialise in medical imaging technology, focusing on developing a portable medical imaging device.
As strokes are estimated to account for 34% of all healthcare expenditure globally, this neuroimaging device will be used to improve the diagnosis and treatment of stroke and other medical conditions. Given this, EMvision is well-placed to solve a current real-world problem.
It's not often you come across one of those businesses where you say, wow, I really hope they achieve their objective as it will improve the lives of millions of people.
It's also not often you see a company float on the ASX and trade 1369% higher in less than a year! This is exactly what EMV did as it reached $4.20 in November 2020. Price has since been slowly trending down and seems to have found support around $1.10.
If we draw a simple but powerful technical analysis tool like a trendline down from the and do so on the monthly chart, we can see that the price has now traded above the trendline, which is a good sign.
However, we still need to exercise caution as I am interested in a pattern unfolding on the weekly chart that suggests short-term weakness.
Price has found support, at least for now; if this significant level at $1.40 is broken, I'd be putting my feet up and waiting for another opportunity.
On the other hand, if the price respects this level, starts to trade up with conviction, and moves above $1.88, it will justify a nice entry. This is one to watch closely.
Hazer Group Ltd (ASX:HZR)
Hazer Group Limited is a clean technology company founded in 2010 by the University of Western Australia. Utilising the 'Hazer Process', the company has developed a low-emission hydrogen-producing process that uses iron ore as a process catalyst, which is much cleaner than fossil fuel-based hydrogen production.
With hydrogen production becoming increasingly important, this company will be very exciting to watch over the coming years.
The company is currently constructing a Commercial Demonstration Plant in Perth that is set to produce 100 tonnes of low emission Hydrogen per year.
On a great note, HZR was not one of the IPO's that flopped straight after listing on the ASX. Instead, the price rallied 247%, indicating there is broad support for this company.
That said, it fell over a few years to a low of $0.19, which has become very strong support. Care needs to be exercised as this is a more volatile stock that is subject to wild swings on the upside and downside.
This is where we must be aware of our emotions, as we could make bad decisions by giving in to fear and greed.
The good news is that the stock is currently at what seems to be a 'normal' level of volatility for this stock.
Furthermore, the price has found support multiple times around $0.45. If HZR manages to find support around this level, it's possible it could easily trade up to at least $1.10. Given its volatility, I would deem it mandatory for anyone entering this stock to have a stop loss and solid exit rules.
Raiz Invest Ltd (ASX:RZI)
Raiz Invest is a micro-investing and fintech platform that operates in Australia and Southeast Asia.
Its attraction is that it allows users to 'round up' their purchases and automatically invest the difference into a fund; users can also set up recurring investments. These funds saved are invested over a range of diversified portfolios, which a user can pick.
As of August 31, 2023, Raiz had $1.9 billion AUD in funds under management.
Technically, the stock had a stellar rise from the COVID low in March 2020 to reach a new all-time high of $2.20 in February 2021. Since then, the price has fallen heavily to a new all-time low of $0.29.
This is strong evidence, as are the other stocks mentioned, as to why I always urge investors not to adopt a buy-and-hold strategy, especially with these microcaps.
If you had invested right at the COVID low and held your investment over the past three years, your investment rose by 620%! only to fall below your buy price, which is roughly where it is now.
RZI found support around $0.30 before rising over 80%. The current pattern on the weekly chart is bearish, and I suspect this is just a re-test of the $0.30 low. We need to wait to see if it finds support or breaks through to trade lower to the next support level at $0.22.
If the level holds, this could present a good opportunity. While I like this stock's future prospects, I wouldn't be too excited until it trades above the high of $0.54. So, for now, I'd be sitting on the sidelines in a wait-and-see mode.
Hopefully, the above stocks give you some insights into where there are growth areas in our market. What I know is that areas of opportunity in the market ebb and flow, and this is especially so in the microcap space.
The early years of the Australian Microcap Investment Conference saw more themes around biotechnology, data and informational technology.
While biotechnology was represented at this year's conference, we have seen fintech come into the picture and it could be the tip of the iceberg.
AI will play a bigger role in our future, so keen investors should start studying this area and look to companies paving the way with exciting innovation.
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