Buy Hold Sell: 3 ASX small and mid-cap recovery plays (and 2 names to avoid)

When markets turn rough, it’s often small and mid-cap stocks that wear the brunt of the pain.

Take 2022, for example. From a total return perspective, the ASX 200 lost 1%, while the Small Ordinaries Index tumbled nearly 20%. But a falling share price doesn’t always mean a falling star - some of the greatest investment comebacks are buried beneath the rubble of a market correction.

Consider Eagers Automotive, which plunged from $3.20 to below $1 during the GFC before surging above $16 with a healthy dividend yield. Or Afterpay, which collapsed to $8.01 in March 2020 only to rocket back to $70 within months.

Drawdowns like these can offer bold investors serious upside, but only if you back the right names. The real opportunity lies in spotting companies with strong fundamentals and a compelling long-term outlook that’s masked by a weak share price.

In this episode of Buy Hold Sell, we're joined by David Allingham from Eley Griffiths and Marcus Burns from Spheria to uncover which beaten-down stocks are primed for recovery (and which ones deserve to stay on the sidelines).

Watch the video, listen to the podcast or read the edited transcript below.

Please note this video was filmed on 26 March 2025.

Other ways to listen:

• Podbean
• Spotify

Edited Transcript:

Vishal Teckchandani: Welcome to Buy Hold Sell, brought to you by Livewire Markets. My name is Vishal Teckchandani. When markets get tough, it’s unfortunately small caps where things get rough. That’s why in this episode we’re looking at a few companies that are down – but far from out.

Joining me today are Marcus Burns from Spheria and David Allingham from Eley Griffiths. Gentlemen, welcome.

Domino's Pizza Enterprises (ASX: DMP)

Vishal Teckchandani: Let’s kick things off with Domino’s Pizza – one of the wildest rides I’ve seen. David, buy, hold, or sell?

David Allingham (HOLD): That’s a hold for us. It’s a great business, and we’ve got warm feelings toward Domino’s – especially the Australian franchise, which is incredibly strong. But it’s in a tough spot. It’s no longer a growth name – it’s in turnaround mode with a new CEO, store optimisation, and reductions in Japan. Expectations are still high, and they need to normalise a bit before earnings rebound.

Vishal Teckchandani: Marcus, its share price has been sliced by 40% over the past year. Buy, hold, or sell?

Marcus Burns (HOLD): I’m also a hold. It’s historically been a great business with a lot of potential, but there are headwinds. The company’s highly geared, and franchisee profitability has taken a hit due to food inflation. We’d want to see signs of a structural turnaround before getting more positive.

Reece (ASX: REH)

Vishal Teckchandani: Next up – Reece, the plumbing and HVAC distributor. Buy, hold, or sell?

Marcus Burns (HOLD): It’s a cracking business – very well run with strong market share gains over time. Great family ownership, good free cash flow, strong balance sheet, excellent management. But the valuation is still a bit rich, especially after the big US acquisition. So it’s a hold for now.

Vishal Teckchandani: David, the stock is down over 40%. Are you a buyer?

David Allingham (BUY): I am. You don’t often get the chance to buy a business of Reece’s quality at a discount. The U.S. expansion offers a long runway – 10 to 15 new stores per year – and the return on capital is outstanding. At $15–$16 it’s still a little expensive, but with global tailwinds and strong store economics, we’re buyers.

Karoon Energy (ASX: KAR)

Vishal Teckchandani: Sticking with you, David – let’s talk Karoon Energy. Buy, hold, or sell?

David Allingham (BUY): We’re a buy. It’s at an interesting juncture – it had a tough 12–18 months with production issues, often outside their control. But guidance looks more realistic now, and the balance sheet is strong. They’re buying back 10–15% of shares, and oil prices look favourable. Plus, there’s heavy short interest – we find that compelling.

Vishal Teckchandani: Marcus, your view?

Marcus Burns (HOLD): I’m a hold again. It’s incredibly cheap and the assets are decent, but I’m concerned about management – they haven’t always acted in shareholders’ best interests. It’s a risky part of the world, and the operations themselves are risky. So we’re waiting for improvement.

STAYING DOWN

Vishal Teckchandani: Time for something spicy. We asked you to bring one stock – or sector – that’s down and expected to stay down. Marcus, what did you bring?

NextDC (ASX: NXT)

Marcus Burns: These are always hard because as investors we focus on what we like – not what we avoid. But I’d call out NextDC. It’s been popular for the AI and data centre thematic, which we agree is huge long-term. But the company has put nearly $1 billion to work in the past year with very little revenue growth to show for it. Returns on capital are low, and despite the strong thematic, the business itself isn’t delivering.

The uranium sector

Vishal Teckchandani: David, what’s your pick?

David Allingham: Rather than one stock, I’ll call out the uranium sector. We’ve been big bulls over the past few years, but I think a lot of the tailwinds have already played out. It’s become less about story and more about fundamentals – balance sheets, quarterly results, mine commissioning. It’s going through choppy waters and probably will for another 12 months. We’re watching it closely, but for now, we think it stays down.

Vishal Teckchandani: Gents, thanks for your insights.

David Allingham: Thank you.

Marcus Burns: Thank you.

Vishal Teckchandani: Well, there you have it – a couple of stocks poised for a rebound, and a few that may stay in the doldrums. I hope you enjoyed this episode. My name is Vishal Teckchandani – don’t forget to like this video and subscribe to our channel. Happy investing!