Ever wondered how some investors consistently make 20%, 30%, 40% or even 50% on an investment in just one year?
From personal experience, I've noticed these types of long-term investors have one thing in common: they invest in companies outside the top 200.
They buy small-caps.
In Australia that usually means companies with market capitalisations of less than $500 million.
Indeed, aside from the whole load of speculative mining / biotech stocks, dodgy retailers and start-ups; there are actually some great small companies trading under-the-radar of most investors.
Here are five of my favourites:
- Senetas Corporation Limited (ASX: SEN) is up 112% for the year after rallying another 10% over the past month. Senetas designs and develops high-speed network encryption devices which are sold through a global distributor, SafeNet. Whilst its profits can be lumpy, due to the timing and quantum of contracts, it's certainly one to keep an eye on over the long term.
- Bellamy's Australia Ltd (ASX: BAL) potentially stands at the beginning of a huge rise in demand for its products from foreign markets. The baby formula maker's shares have surged over 115% in 2015, as investors reacted to a strong profit result earlier in the year. Although the stock trades at a price-earnings ratio of 125 its expansion into China is underway and could continue to power profits higher for years to come.
- Yowie Group Ltd (ASX: YOW) is the intellectual property rights owner of the Yowie chocolate brand. The $107 million small-cap company is currently rolling out its chocolate to the massive U.S. consumer market through a large network of retailers such as Walmart, Safeway and more. Whilst the exact date it'll reach profitability remains the big unknown, so far, the rollout appears to be tracking along nicely.
- Somnomed Limited (ASX: SOM) creates and distributes SomnoDent, a mouthguard-like device which has shown significant benefits for sufferers of sleep apnoea. The continuous open airway therapy (COAT) device isn't as effective as the continuous positive airway therapy (CPAP) devices manufactured by multi-national biotechnology giants, but it's a far cheaper alternative.
- AMA Group Ltd (ASX: AMA) is a $184 million diversified aftermarket automotive parts retailer which is growing rapidly into the largely unconsolidated panel-beating market. AMA Group's share price has run-up strongly in the past year, but management has hinted at strong growth in the year ahead.
I'd happily buy shares in these five companies at today's prices. However, if I had to pick one, I'd have to say my favourite is Bellamy's simply because its product is proven and it could have a tailwind at its back in the form of a rising Asian middle-class.
