In this Australian Investors Podcast episode, your host Owen Rask is joined by Luke Winchester, founder of Merewether Capital, to discuss:
- How Luke filters 2,000+ ASX stocks down to a high-conviction watchlist
- What makes a quality micro cap in today’s market cycle
- Five ASX micro caps Luke is watching (and in some cases owning)
- Why process, patience and position sizing matter in small caps
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Topics Covered
– How Luke built his micro cap investing process Luke explains how he narrows 2,300+ ASX stocks to a focused universe of ~100, then to a concentrated portfolio. He discusses avoiding mining explorers, pre-revenue biotechs and heavily loss-making businesses, and why genuine cash flow and scalability matter.
– What part of the market cycle are we in? The conversation covers interest rates, volatility and why micro caps can offer opportunity when information is scarce and sentiment is weak. Luke’s 5 ASX micro cap stocks to watch:
LaserBond (ASX: LBL)
- Industrial laser cladding technology extending machinery life.
- High-margin IP and ESG tailwinds
- Recent margin recovery after a capex investment phase
- Key metric: gross margin recovery and utilisation
XRF Scientific (ASX: XRF)
- Analytical lab equipment and consumables for mining.
- High-margin consumables business (strong profit-before-tax margins)
- Exposure to mining activity without being purely exploration-driven
- Key metric: consumables profit growth, not just revenue
Austco Healthcare (ASX: AHC)
- Nurse call and healthcare workflow technology.
- Transition from low-tier products to higher-value integrated systems
- Turnaround story driven by management execution
- Key metric: backlog conversion and recurring revenue growth
Change Financial (ASX: CCA)
- Payments infrastructure and card issuing platform.
- Platform-style economics with operating leverage
- Inflection point in profitability
- Key metric: revenue growth and scale across its fixed cost base Kip McGrath Education
(ASX: KME)
- Tutoring franchise with education tech upgrades.
- Turnaround after US expansion missteps
- Strong free cash flow as capex moderates
- Key metric: franchise network growth and cash generation
- Which stock is most misunderstood?
- Luke highlights LaserBond as a business where short-term margin pressure obscured long-term value.
- Final reflections on process and discipline
- Why separating business performance from share price volatility is essential in micro cap investing
