Only 3 of your top-tipped small caps for 2023 are in the black

Unlike the Barbenheimer phenomenon, your electricity and food bills, and the use of ChatGPT - small caps did not take off in 2023. 

The ASX Small Ordinaries Index is still in the red for the year, while the S&P/ASX 200 is about 3% in the black. As a small-cap investor aficionado myself, I feel your pain. 

It's probably no surprise then that readers' top-tipped small caps have not performed very well over the last 11 months - in fact, your portfolio of 10 stocks is nearly 11% in the red (on an equal-weighted basis). 

Given the rush to resources that we saw in 2022, many of the small-cap darlings you selected were battery materials stocks - which have since fallen spectacularly from their highs. Take Chalice Mining and Core Lithium, for instance, which have both seen their share prices plummet more than 70% year to date. 

However, as the headline of this piece would suggest, three of your small-cap picks have outperformed the Small Ords benchmark and have delivered investors a nice (or adequate) return. 

Liontown Resources and Sandfire Resources have both delivered investors positive returns, with their share prices rising 4.17% and 13.24% respectively since the beginning of the year. 

So what was your best-performing small cap of 2023? Perhaps unsurprisingly, given the rise of ChatGPT, NVIDIA and generative AI in general - Megaport took out the top gong for the year - with an impressive 54.20% return over the past 11 months. 

In this wire, I'll take you through some of the notable events from the last year for your top-tipped small caps, outline how the stocks ranked by performance, and share some of the fund manager views on the stocks that have graced this very platform. 

#1. Megaport (ASX: MP1)

Taking home the gold is Megaport, with a return of 54.2% in the first 11 months of the year. Megaport is a provider of Network as a Service (NaaS) solutions (it facilitates connectivity between data centres), which has seen its share price wrapped up in the hype around cloud computing and AI.

Recently, Elston's Justin Woerner argued there's a "mega opportunity" in the stock.

"Megaport’s superior reach and capabilities are expected to continue attracting new customers... A substantial runway remains for revenue growth from both existing and new customers," he wrote.

"The expectation is that profit will outpace sales growth for several years as the business leverages its fixed cost base. We anticipate the company will compound earnings at high rates throughout the 5-year investment horizon."

Analysts agree, with 13 of the 17 major brokers who cover the stock rating Megaport as a "buy". 

#2. Sandfire Resources (ASX: SFR)

Sandfire Resources, Australia's only real copper pure play, was the second-best performer on your top-tipped list of small caps, clocking a 13% return for the first 11 months of the year.

Of the 19 brokers who cover the stock, 11 rate it as a "buy" (with seven analysts rating the stock a "hold" and one a "sell").

That said, Wilsons Advisory's Rob Crookston believes that copper demand will continue to increase over the next decade.

"Despite facing challenges in traditional cyclical sectors like construction, manufacturing, and appliances, copper demand should remain resilient, driven by an overriding trend: the global energy transition," he wrote, arguing that Sandfire is the highest quality exposure to copper on the ASX.

He also argues that the market does not appear to be pricing in Sandfire's superior cash flow growth versus its global peers. 

#3. Liontown Resources (ASX: LTR)

Liontown Resources has had a big year, to say the least. Not only did it have an offer from Albemarle on the table (which it has since walked away from), but it now counts Gina Rinehart as a major shareholder (with a 19.9% interest, and likely the reason why Albemarle walked away).

Post that announcement from Albemarle in mid-October, the stock's share price has plunged 56%.

Of the 15 brokers who cover the stock, eight analysts rate the stock a "buy", three a "hold" and four a "sell".

Recently, as a result of increased supply from Chinese and African producers and against a backdrop of “weaker demand”, UBS downgraded their price forecasts for lithium prices by 45% in 2024, 35% in 2025, and 23% in 2026.

#4. Calix (ASX: CXL)

Calix, for those who remember, was a major darling of 2021. The company develops environmentally friendly solutions for water treatment, CO2 mitigation, biotech, and mineral and chemical processing - and saw its share price rise 515% during the year.

Since then, however, it's been an entirely different story. Higher interest rates have not been kind to stocks like Calix, with its share price falling around 20% in the first 11 months of 2023 (after a stellar year in 2021, its share price fell around 33% in 2022).

Of the seven brokers who cover the stock, six rate it as a "buy". And, since hitting its low in early October, Calix's share price has skyrocketed 43.5%.

But for Marcus Today's Henry Jennings, it's all about revenue.

"Calix's slogan "Mars is for quitters" taps into the need for carbon capture and the removal of carbon dioxide out of not only the cement process but also legacy carbon dioxide... Hopefully, we'll get some more milestones and some licensing agreements leading to revenue, so the outlook is pretty positive."

#5. Renascor Resources (ASX: RNU)

Renascor Resources is a South Australian-based developer focused on exploring graphite, copper, gold, uranium and other minerals. By the end of November, its share price had fallen around 30% into the red - and it's fallen even further (around 10%) since then.

That said, it's been a very volatile ride for Renascor shareholders - with news of Chinese export restrictions on the material causing graphite stocks to bounce. On the news, and after hitting a low on October 19, Renascor's share price skyrocketed around 64%.

So what happens from here? Fat Tail Investment Research's James Cooper says it all depends on how heavy-handed China becomes in allowing permits for sales of refined graphite.

"Remember it hasn’t announced an outright export ban. Yet, there’s every reason to believe it could levitate in that direction,” warns Cooper.

“What we do know is that China is using its dominance of graphite supply and other critical metals to push back against any pressure from the West... That could offer a sustained rally across all graphite stocks, especially those looking to develop downstream capacity."

It seems analysts agree, with four of the five major brokers who cover the stock rating it as a "buy". 

#6. Arafura Rare Earths (ASX: ARU)

Arafura Rare Earths was your top-tipped small cap for 2023 - with 1.49% of the total vote. Having returned around 124% in 2022, investors had high hopes that the stock could do it again in 2023 - but instead, its share price has fallen around 56%.

Arafura also counts Gina Rinehart as a major shareholder, having bought shares in late 2022 and again in early 2023. I doubt she would be overly concerned with the stock's year-to-date performance, though - given she likely has a longer-term investment horizon - and also her north of $37 billion fortune.

Of the seven major brokers who cover the stock, currently five rate the stock a "buy" and two a "hold".

In October, Acorn Capital's Rick Squire argued the stock's outlook was "more challenging."

"It's got a very large CapEx thanks to the style of the deposits - and there are limiting synergies in terms of processing. It's also a modest grade. So it's not the type of project that we think is best to invest in," he said. 

#7. Sayona Mining (ASX: SYA)

Sayona Mining is a lithium producer with projects in Quebec, Canada and the Pilbara in Australia. Like the other lithium hopefuls on this list, it probably hasn't helped that lithium carbonate prices have fallen around 80% since the beginning of the year.

While the idiom suggests that there are many reasons to sell a stock (and only one reason to buy), it seems that the CFO of Sayona Mining selling $1.68 million of stock in July was enough to scare the bejesus out of investors - who couldn't care less for the reason - sending the lithium producer's share price more than 70% south since then.

That said, analysts seem to think the stock is a "buy", with six of the seven major brokers who cover the stock rating it as so. The stock is still one of the most shorted companies on the ASX, with a 9.55% short interest, according to Shortman.com. 

#8. Core Lithium (ASX: CXO)

Ahh, Core Lithium - a former lithium darling of the market - and the third worst performer on your list of top-tipped stocks for 2023 - with investors losing around 73% of their investment in the first 11 months of the year.

Of the 16 major brokers who cover the stock, nine rate the stock a "sell", five a "hold" and only two a "buy".

Recently, Firetrail's Eleanor Swanson and IML's Simon Conn covered the stock on Buy Hold Sell.

"Moving into next year, we think the supply/demand backdrop is looking still pretty challenged in lithium. We're seeing EV penetration numbers getting pushed to the right, and as a result, we don't want to be anywhere near a high-cost producer - so we think Core Lithium is an avoid," Swanson said.

"Core's an oxymoron. I don't think it should be a core of anyone's portfolio," Conn added.

"It's a tough stock. There's a wall of supply coming, as Eleanor pointed out. Those high prices we saw last year have incentivised a huge amount of supply... They've had issues in terms of getting the mine up into production. The geology seems like it's quite difficult, it's got company-specific risk, and there are headwinds in the commodity. We think it's a sell."

Interestingly, 71% of you agreed. 

#9. Pointerra (ASX: 3DP)

Pointerra is the creator of 3D geospatial data technology - whatever that means. Its share price had been on a downward spiral until the end of July (down around 47%), before it shot up 110% after announcing that it had won a $15 billion contract with its existing US-based customer, Entergy, for its grid resilience program.

Since then, Pointerra's share price has fallen around 80%. Talk about a volatile ride!

There has been zero coverage of Pointerra on Livewire's platform over the last 12 months, but there is this article from late 2022. The stock is back trading at levels seen before the COVID-19 pandemic (during which, Pointerra's share price soared around 2000%). It's also not covered by any major brokers. 

#10. Chalice Mining (ASX: CHN) 

Chalice Mining's Gonneville Project in Western Australia boasts a mix of green metals - including nickel, copper, cobalt, palladium and platinum - but it hasn't been enough to keep the company's share price afloat in 2023. 

In the first half of the year, Chalice's share price didn't really move. But, in late August, investor sentiment turned far more sour, with the green metals darling becoming a scoping study disaster (after management made some pretty insane commodity price assumptions for the project). Since then, its share price has fallen around 70%. That's gotta hurt. 

That said, brokers remain mixed on the outlook for the stock, with five of the 11 analysts covering the stock rating the stock a "buy".