Investors who focus on value are looking for bargains. Stocks where the price has been punished more than the fundamentals warrant and therefore stand a good chance of a turnaround.
One area of the market to explore for stocks that might demonstrate strong returns if they are truly downtrodden for no good reason is the small end of the market.
With that in mind I set about building a screen that focuses on tiny stocks with strong value characteristics and reasonable fundamentals.
The first steps were to focus on small and good value. For this I chose a market capitalisation of less than A$200 million, which is the common threshold for micro-cap stocks. You may choose to make that threshold even lower if you want to zero in on the bottom of the market. The logic here is that this part of the market is often overlooked. It is too small for most fund managers to be interested in, and very few market analysts cover stocks in this space. There are 1,304 stocks in this space, about 65% of the market. Such a large group is likely to hold some interesting opportunities, but finding them may not be easy....
