Stock analyst Joe Youssef from Austock says people have to be ‘very particular’ about which small cap they invest in.

‘I remember in 2007 actually doing a presentation for the stock exchange and at that time highlighting how the small caps were trading at historically high P/Es,’ he says. ‘But I think it’s fair to say given the magnitude of the sell off, there’s a lot of value in a lot of these stocks.’

Ardent Leisure used to be the Macquarie Leisure Group. It runs Dreamworld and owns the AMF Bowling franchise among other leisure assets. Youssef said he recently did a successful capital raising and that the company has benefited from the ’surprising upsurge in discretionary consumer spending’. The company has also benefited from strong domestic tourism figures.

‘The company also is likely to pay Macquarie Bank $17 million and Macquarie will give up its management rights,’ he said.

Boart Longyear is the world’s largest drilling services provider, Youssef says, and around ‘70 per cent of its business is procured from providing drilling services for the big miners’.

‘It’s one company that got absolutely savaged in the sell off due primarily to a slowdown in global economies but it was also very highly leveraged,’ he says.

Youssef says the company’s balance sheet has been cleaned up and is trading about half of where Austock sees its DCF of $0.50.

‘We see some significant upside in this company as well.’

Catalpa is an ‘emerging gold play’ in Western Australia. Youssef says Austock is involved with the company corporately and so can’t give a price target. The company has its main gold asset in Western Australia and secured funding through a combination of debt and equity in March this year, announced in June it will merge with Lion Selection Group, which will increase their reserves.

‘The company will be in full production, or its first production by calendar year in 2010,’ he said. ‘We think there’ll be net profit in the region of $6 million and it’s trading well below its DCF.’ Youssef says he thinks there’s no question gold can ‘contest the US$1200′.

DKN Financial Group is not aligned with the major banks, and Youssef says it has a successful model on how it delivers financial services products to financial planners. ‘Its probably one stock in the financial service sector that we think has got some significant upside,’ he says.

Another gold play, Gryphon Minerals is located in West Africa.

‘The company’s got resource reserves of about 820,000ounces,’

‘It wants to break through the magical one million ounces level and its obviously now got the money in the kitty to be able to spend on exploration there, because this particular West African region is gold rich.’

Youssef says Mineral Resources has already been a sterling performer. It’s got three major business models: it builds, owns and operates mine crushing plants. It also installs and repairs pipelines and creates manganese and iron ore concentrate which is exported to China.

‘I like this company because 61 per cent of the stock is owned by senior executives in management, so it is tightly held, but it’s always good to see management backing the stock,’ The company has a strong balance sheet, Youssef says, and the share price is current $5.60 and Austock has raised the target price on it a couple of times and is now eight dollars.

Youssef said the profit result for the first half of 2010 was in line with expectations. Saying there has been a lot of pressure on the pharmaceuticals side of the business.

‘It’s gone through a fairly tough two to three years, and growth is slowly starting to emerge in that sector and obviously some of the initiatives announced by the Federal Government with regards to the health sector and the Budget will also be a positive,’ he says adding that there is a growing belief that the generic pharmaceutical industry will see stronger growth.’

‘We’ve got $1.35 valuation and price target on the stock, so it’s about 20 per cent above where its trading at the moment.’

Retail Food Group owns Michel’s Patisserie and Doughnut King. A lot of its revenue comes from royalty fees and franchise fees. It also has ‘fairly strong margins’ from stores it opens and owns. The company is also looking at following Woolworths with the service station model.

‘The Woolworths example actually surprised people with just how successful it was with the petrol stations and I think they’re trying to follow suit,’ he says.

The discount retail company The Reject Shop has about 160 stores and is looking to co-locate with Big W and K-mart.

‘Obviously, there’s some economy with scale benefits with regards to co-ownership,’ he says, adding that it has also benefited from discretionary consumer spending. Also ‘pivotal’ to the stock is that it imports most of its products. The currency is high now and if it goes through parity, and if they don’t pass this onto the consumer, margins will improve dramatically.

Terramin Resources’ Angas Mine in South Australia generates around 30,000 tonnes per annum of zinc and 10,000 tons per annum of lead, Youssef says.

It has secured two strategic alliances this year, which helped it raise in the order of US$250 million to US$300 million to grow its resources going forward.’

Youssef says its ‘jewel in the crown’ is a zinc mine in Algeria, which will add 180,000 tonnes per annum of zinc and about 60,000 tonnes per annum of lead.