14 new stocks added to the ASX 300 – just 6 profitable!

Aristotle is credited with saying “Nature abhors a vacuum” and one of the first things I learnt as a graduate on the desk of a stockbroking firm was “the speculative dollar must go somewhere”. With this in mind it’s hard not to notice the recent popularity of speculative Uranium stocks.

If the recently announced S&P/ASX 300 entries are any indication, Uranium appears to be The New New Thing. Bannerman Energy (ASX: BMN) , Lotus Resources (ASX: LOTN) and Nexgen Energy (ASX: NXG) are all representative of this trend and unsurprisingly none make money.

For the past few of years, QVG Capital has been writing in Livewire about index changes with a particular focus on the proportion of unprofitable companies entering the S&P/ASX 300. On 1 March there were a jumbo 14 companies added to the S&P/ASX 300. We have previously discussed the lack of quality of 300 entries and this batch is ‘mixed’ with just 6 of the 14 making a buck.

Why the ASX300 is a big deal

For those wondering about the significance of the S&P/ASX 300, it’s the benchmark that index funds such as the $15.1 billion Vanguard Australian Shares Index (ASX: VAS) seeks to replicate. It’s also the pool that many fundamental portfolio managers use as a cut off for their potential investable universe. With a new batch of additions entering the index on the first of March, we felt it was worth reviewing the current crop.

Here goes:

Table: 14 stocks that have been added to the S&P/ASX300 (Source: QVG Capital)

The table above shows the 14 stocks that have recently been promoted into the index. Every 6 months - in March and September - the dark cabal that is the S&P’s index committee gets together and ‘promote’ and ‘delete’ stocks from various indices. There were a higher than usual 14 entries this time as the ASX has seen several takeovers of former ASX300 constituents such as Costa Group, Invocare and United Malt all leaving gaps to be filled.

Lithium stocks and battery minerals companies have dominated recent entries and there are a couple here such as Latin Resources (ASX: LRS)  and Wildcat Resources (ASX: WC8) but given the recent Lithium price these are in the minority.

While most entries don’t make money at least the class of March 2024 at least has a few profitable companies. For example, MMA Offshore (ASX: MRM)  is riding the wave of increasing day rates for its boats, Monash IVF (ASX: MVF) is pregnant with potential, Propel (ASX: PFP) is leaving the competition in their wake while recently-listed Redox is looking in their element.

What to make of all this?

We suggest the following:

If you buy an index product, be aware you’re buying the good, the bad and the ugly.

Fundamentals such as profitability, durability of those profits and efficiency (i.e. how much capital is required to generate those profits) is what drives share prices in the long run.

And finally, stocks with weak fundamentals that are over-valued for technical reasons can present great shorting opportunities; ones the QVG Long Short fund seeks to take advantage of.

How to take advantage of volatile share prices

The February reporting season witnessed significant fluctuations in stock prices, often unrelated to the fundamental value of companies. Volatility creates opportunity for active investors to buy shares at attractive valuations and to exit overpriced stocks during these pronounced market swings.

If you're interested in learning about how to take advantage of these opportunities please register for the upcoming QVG Capital Investor Webinar to be held on Wednesday the 20th of March.

REGISTER HERE