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Your instant 3-share small cap portfolio

The share prices of Gentrack Group Ltd (ASX: GTK), Pro Medicus Limited (ASX: PME) and Class Ltd (ASX: CL1) could go higher yet, but first – a word of warning…

Investing in the sharemarket is risky if you don’t have the correct temperament, or your financial situation is fragile. By that I mean, one of the last things you should be doing is buying shares, if you:

  • Have credit cards charging you bucket loads of interest
  • You don’t have the time to understand how the sharemarket works, and/or
  • You haven’t created a budget and savings plan

3 small cap shares to kick-start your portfolio

Each of the following three companies is small(ish) and have performed exceptionally well over the past few years. However, I think each of them holds long-term potential.

Gentrack

Gentrack is an NZ$400 million Kiwi software company specialising in programs for energy and water utilities, and airports. While the company is a defensive business, with recurring revenue, it is growing at a healthy clip. Gentrack recently made some sizeable investments in the UK following a deregulation of the water utility market.

Pleasingly, it also pays a 2.5% dividend.

Pro Medicus

Pro Medicus is a $534 million Melbourne-based health software business. Its key product enables doctors to send and receive medical images in seconds, allowing radiologists to diagnose clients from their smartphone. The company has experienced explosive growth, signing prestigious international hospitals.

Despite its rapid rise and expanded valuation, however, I think Pro Medicus shares are worth a closer look.

Class

Class is a $340 million software business that has created a platform for advisers and accountants to manage investment portfolios and self-managed superannuation funds (SMSFs). Like Gentrack, the company may not shoots the light out overnight. However, in addition to modest growth, Class’ business is also defensive.

Foolish Takeaway

These three small caps are amongst my favourite ASX shares. Yes, they each develop software. However, I think software businesses offer growth and defensive features in one investment.

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Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask.

The Motley Fool Australia owns shares of Class Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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