Forager's 7 best prospects and 6 complementary stocks for 2024

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While large caps across the Australian and global markets have been on a hot streak, small and micro-caps have been left out in the cold. For instance, the ASX Small Ordinaries is essentially flat over the last year while the ASX 50 is up more than 8% in that same time period. The picture is healthier overseas with the S&P global small-caps index and large-cap counterpart up double digits. Perhaps most importantly, global large and mega-caps are trading on lofty valuations. In the US, small-caps are sitting at a 25% discount to the broader market. In Australia, large-caps have outperformed their smaller counterparts by 28% over the last three years. So is this the great diamond in the rough?The Forager Funds Management team, led by CIO Steve Johnson, certainly think so. Two-thirds of the Forager International Shares Fund is invested in companies with a market capitalisation of under US$10 billion. 9 out of the Top 10 holdings in the Forager Australian Shares Fund have a market cap of under $1 billion. In this piece, I'll recap the big themes from 2023, their top 8 themes for the coming 2023/2024 financial year, and share 5 of their highest-conviction stocks heading into reporting season and beyond.Highlights of the past yearFor international fund Portfolio Managers Gareth Brown and Harvey Migotti, 2023 was a year for a rebound following the immense disappointment of 2022. It was also a second half dominated by a return to beaten-down growth names. Meta Platforms is up 200% since the fund doubled down on its position though it is taking profits incrementally.And speaking of technology, the fund was invested in Twitter before Tesla CEO Elon Musk bought it out for the enormous sum of US$44 billion. M&A is always a good sign, essentially in small-caps because it helps prove a thesis that an investor would have had in the stock. But in the case of Twitter, it was just "weird". "Twitter was certainly one of the weirdest takeovers we have ever been a part of. It was a very welcome 'get out of jail free' card on an investment that we really had no right to make a profit on," Brown quipped.For Australian fund managers Alex Shevelev, Gaston Amoros, and Johnson, it was a year for sticking to your guns. "The major positive contributors dominated 2023. We had one poor performer that cost the fund more than 1% of performance and 10 that contributed more than 1%," Sheve...

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