Small caps offer investors growth optionality across a broad range of sectors, and with less coverage than the big end of town, great opportunities often get overlooked. So, in this week’s episode of Buy Hold Sell, we sift through some emerging names looking for quality small caps flying under the radar.

In doing so, we discover several companies poised to reap the benefits of cost-out programs, capable management and improved balance sheets.

Tune in (or read the transcript) as Ben Clark from TMS Capital is joined by Martin Hickson from Wilson Asset Management and Ellerston Capital’s David Keelan to kick over some rocks and uncover a few gems the market has missed.

Ben Clark: Welcome to Buy, Hold, Sell. I'm Ben Clark, and today we're looking at small caps, but we're going to be looking under some rocks. We're trying to find some businesses flying under the radar that the market's missed and are worth buying. We've got Martin Hickson from WAM, David Keelan from Ellerston. David, I'll start with you. Lovisa was downgraded at the AGM, strong result in February. Buy, hold or sell?

Lovisa (ASX:LOV)

David Keelan: Lovisa is a sell for us. Retailers rarely hold such high multiples. We do appreciate that it's got one of the strongest store rollouts in the market, but having a few problems offshore, we're happy to wait and see.

Ben Clark: Okay. Martin, and also a great management team behind this one, have you got a different view?

Martin Hickson: No, we agree. We think it's a hold. They had a strong result where they spoke about the offshore opportunities in the US and store rollout programs. However, domestically they're struggling. Comp sales are -1.8% for the half, so we're waiting for a pickup there, or a turnaround in the Australian business before buying. So, for us, it's a hold.

Michael Hill (ASX:MHJ)

Ben Clark: Okay. And a company that's really struggled to sell jewellery in America is Michael Hill.

Martin Hickson: Yeah.

Ben Clark: This is starting to push back up, but buy, hold, or sell?

Martin Hickson: Yeah. It's been a tough journey for shareholders in Michael Hill. We think that it's a turnaround now, though. There is a turnaround in place. They've already guided to reducing costs by $5 mil, as well as taking an additional five of costs on top of that. New management team is in place, so we think it's a buy.

Ben Clark: Okay. Is this shiny enough for you?

David Keelan: Yeah, it's a buy for us. But given our view on the consumer being extremely patchy, we feel that the $10 million cost out is identifiable and real. We are being paid to wait until we can see some top line growth when the consumer returns.

Superloop (ASX:SLC)

Ben Clark: Okay. And moving onto Superloop, which has got a good pedigree and was a small-cap fundie favourite for a while, but it's really fallen out of favour recently. Buy, hold, or sell?

David Keelan: We think now is the time that you buy Superloop. It's come through the end of its capex. You have had earnings reset and a bit more weight in the balance sheet. You've got great strategic assets and the consumption data is strong for the medium to long term. It's got a management board that have executed multiple times. We think it's a matter of when, not if.

Ben Clark: Okay. Martin, you often get interested in businesses when they do that balance sheet repair capital raising. Are you interested in Superloop at the moment?

Martin Hickson: For us it's a hold. We did participate in the recent capital raising. As Dave mentioned, over the next few years we should start to see the return from that capital investment program which they've been through. Strong management team, like Dave points out. We think it's a hold.

Ben Clark: Okay. Now, have you brought one along with you that you think, you know, the market's not paying enough attention to. You started buying it. What have you got?

Myer Holdings (ASX:MYR)

Martin Hickson: Yeah, the one for us is Myer. We think it's off the radar. It's been a very tough journey for shareholders in Myer over the last five years since it IPO’ed, but the new CEO, John King has been there for nine months. He's doing a great job turning it around. Large amount of costs coming out of that business. If he can stabilise the top line, we think Myer should rerate significantly. So, it's a buy for us.

Ben Clark: Okay, and David, what can you add? What are you guys buying at the moment that the market's not paying enough attention to?

Atomos Ltd (ASX:AMS)

David Keelan: It's one which IPOed in December '18 called Atomos. We were pre-IPO investors. Atomos is a hardware device that sits on top of cameras and it helps the problem for creators regarding video and photographs, how they upload it and how they edit it. It's trading just on three times revenue, just profitable. Growing strong double-digit. We think it's a winner.

Ben Clark: Okay. It's always good looking at some businesses that are fallen out of favour, and there's a couple of ideas for you.