"The knife has stuck": 5 ASX stocks Charlie Aitken is backing as fear grips small caps

There's FOMO, and then there's FOML.

Most investors are familiar with the former: the fear of missing out, which often drives investors to chase stocks after they've enjoyed spectacular rallies.

But according to Regal Partners' Group Investment Director Charlie Aitken, investors should be paying closer attention to its less-discussed cousin: FOML, or the fear of more losses.

And right now, he believes Australian small caps are suffering from a serious case of it.

With the ASX Small Ordinaries Index down 18% calendar year-to-date, September and October have been particularly brutal for growth-oriented companies and resources stocks.

However, Aitken believes the sell-off has created an opportunity for investors willing to look beyond the prevailing pessimism.

"The biggest mistake we can make as investors is to get FOMO or FOML,” he wrote in a client update sent out today.

"FOMO is almost always associated with a peak in prices, FOML is almost associated with a bottoming in prices."

Why Aitken believes the worst is over

Drawing on 33 years of equity market experience, Aitken believes the ingredients for capitulation are firmly in place.

He calls this his "the knife sticks" theory, a contrarian signal that selling pressure has become so extreme that investors may be better served buying rather than joining the rush for the exits.

“‘The knife sticks’ call is not a perfect science. It is based off 33 years of equity market experience, and I only make it when all the ‘required elements of capitulation’ are in place," he says.

“I absolutely believe all the ‘required elements of capitulation’ are firmly on display with regard to Australian small companies and potentially even more so in our own small companies’ strategies that have underperformed the benchmark.

"Capitulation = value: that is true across all asset classes. That never changes. These are the moments where you buy a $1.00 of value for 70c."

He also expects depressed valuations to attract corporate buyers and private equity firms, potentially triggering a wave of acquisitions.

So where is Regal finding value?

Working alongside Portfolio Manager Jackson Aldridge, Aitken has highlighted five high-conviction investments in the Regal Australian Small Companies Fund.

1. Chrysos Corporation (ASX: C79)

The thesis: Disrupting a centuries-old mining process with recurring revenue.

According to Aitken, Chrysos has developed “disruptive technology in a large addressable market.”

“PhotonAssay replaces fire assay with a faster, safer, chemical- and lead-free method - a rare structural technology shift in mining services,” he explains.

Rather than relying on one-off equipment sales, Chrysos leases its technology under long-term contracts, providing a growing stream of recurring revenue as more units are deployed.

Regal sees two powerful tailwinds: the structural adoption of PhotonAssay across the mining industry and elevated gold prices, which are encouraging miners to increase exploration expenditure.

On valuation, Regal estimates Chrysos trades on approximately 48 times FY28 earnings, against forecast earnings growth of 56%.

While that multiple may appear demanding, Aitken believes the company's growth trajectory is sustainable over an extended period.

2. Forrestania Resources (ASX: FRS)

The thesis: A potential 220,000-ounce gold producer trading at a discount.

Regal's conviction in Forrestania centres on its management team, production ambitions and potential valuation upside.

The company is led by Dave Geraghty, a founding partner of Mineral Resources (ASX: MIN), whom Aitken describes as having "world leading experience in building businesses, developing assets and navigating resource markets."

A transformational development was Forrestania's $300 million acquisition of the Edna May gold operation from Ramelius Resources.

The company is now pursuing two production hubs, with first gold from Lake Johnston targeted by the end of 2026 and the Edna May restart planned for the first half of 2027.

Regal believes Forrestania could eventually produce approximately 220,000 ounces of gold annually.

For comparison, Aitken notes that Ora Banda Mining and Bellevue Gold produce approximately 160,000 ounces annually and command market capitalisations exceeding $2 billion, versus Forrestania's approximately $750 million valuation.

3. Artrya (ASX: AYA)

The thesis: An AI healthcare opportunity with a multibillion-dollar addressable market.

Artrya is developing AI-powered technology to analyse coronary CT scans, positioning it to benefit from a structural shift in how cardiovascular disease is diagnosed.

Regal expects coronary CT angiography to increasingly replace traditional stress testing as the frontline diagnostic tool for chest pain.

Currently, approximately four million coronary CT scans are performed annually, compared with 9.5 million stress tests. Regal believes that relationship could reverse over the next five to six years.

“4.5m scans per annum at roughly $850 blended rate per scan, suggests there is ~$4b market – which is growing at 10-15% per annum for the foreseeable future,” Aitken says.

Artrya also has approximately $75 million in cash and $13 million in outstanding options, which Regal believes will fund the business through to breakeven.

Beyond organic growth, Aitken sees potential takeover appeal, describing Artrya's AI coronary platform as "a logical bolt-on for imaging or medtech majors."

He also points to US-listed HeartFlow, which specialises in AI-powered cardiac diagnostics and has seen its shares surge to record highs, as an example of the value investors are placing on proven medical technology.

4. Lindian Resources (ASX: LIN)

The thesis: A rare earths producer benefiting from the push to diversify away from China.

Rare earths have become an increasingly important strategic priority for Western governments seeking to reduce their dependence on Chinese supply chains.

Regal believes Lindian's Kangankunde project is particularly well positioned to benefit.

"Very few new rare earth projects globally are actually reaching production; Kangankunde is one," Aitken notes.

Beyond the project's strategic importance, Regal sees opportunities for Lindian to capture more value through downstream processing and its relationship with separation technology specialist Carester.

The valuation is another attraction; Regal estimates that once Stage 1 is fully ramped up, Lindian could generate approximately $290 million in annual EBITDA, compared with a market capitalisation of around $700 million.

That implies a market capitalisation of approximately 2.4 times projected EBITDA, although achieving those earnings will depend on successful project execution.

Aitken adds: “A long-life deposit with a Stage 2 expansion offers volume growth after first production.”

5. Zip Co (ASX: ZIP)

The thesis: A profitable US payments challenger with earnings growing faster than revenue.

After a difficult period for the buy now, pay later sector, Regal believes Zip has emerged as a considerably more mature and financially attractive business.

“The US is the growth engine and Zip's share of that market is still small, leaving a long runway,” he says.

“Zip accounts for circa 8-10% of the overall BNPL market. BNPL as a segment still only accounts for roughly 6% of e-commerce transactions and less than 1% of all retail spend.”

Importantly, operating leverage is now visible; revenue is growing faster than costs and is forecast to grow at 20+% vs. EPS at 60% in FY27.

Despite those growth expectations, the manager estimates Zip trades on approximately 14 times earnings, implying a price-to-earnings-growth ratio of just 0.23 times. Zip has also repurchased approximately 60 million shares across two buyback programs and flagged a further $50 million buyback.

Its shares surged approximately 13% yesterday after its first-quarter FY27 results revealed a 17% increase in total income.

A painful year, but Aitken believes the knife has stuck

Aitken's bullishness comes against the backdrop of a particularly difficult period for Regal's own Australian small-company strategies.

He acknowledges that the funds have underperformed the already-weak Small Ordinaries Index, reflecting their use of leverage and greater exposure to growth companies and materials.

"I am not in any way attempting to sugar coat recent performance of our small company strategies," Aitken wrote.

Nevertheless, he believes the market is presenting precisely the kind of opportunity long-term investors should embrace, warning that those who capitulate now risk looking back with regret at a missed opportunity.

“It is so mentally hard to avoid both FOMO and FOML, but it is essential in equity markets that are priced minute by minute on short-term narratives, narratives that can change extraordinarily quickly.

"The voting machine/weighing machine concept has never been more accurate in terms of equity markets today."

Nevertheless, Aitken believes the market is presenting precisely the kind of opportunity long-term investors should embrace, warning that those who capitulate now risk looking back with regret at a missed opportunity.

He will join the Regal Investment Committee from 1 November, with a stated intention to improve transparency around portfolio holdings, valuations and sector positioning.