2 big ideas to add growth to your portfolio

Investors are excited about shares again — some are even leveraging up to make their purchases. Margin lending is on …

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Investors are excited about shares again — some are even leveraging up to make their purchases. Margin lending is on a “strong uptick”, with CommSec writing $75 million worth of new margin loans in just the last three weeks.

Call it the “Great Rotation” as The Australian Financial Review has. Or call it the “Blue Chip Bubble”.

Whatever you call it, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has risen nearly 12% in the last six months.

This isn’t to say we’re on the verge of another crash, but simply to assert that, with the run up among the ASX’s largest companies, there remain some exciting companies inexplicably left behind, many of them lesser known mid-caps and small-caps. Here are two such companies worth taking a look at.

Idea #1: Small company, big growth

Silver Chef Limited (ASX: SIV) is a $207 million market cap company, so well within small-cap territory. Its main business line involves buying and then leasing out restaurant cooking equipment to cafe operators and franchisees.

You wouldn’t call this an exciting business… until you see the numbers. Revenue has more than tripled in the last five years.

What’s more, Silver Chef’s business is high margin, and the company has grown net income from $2.6 million in 2008 to $9 million in 2012. Not to mention that for the first half of the 2013 financial year, Silver Chef enjoyed revenue growth of 37%, net profit growth of 41%, and increased its dividend by a hefty 50%.

The share price has come along for the ride, too, outperforming the S&P/ASX 200 by a stunning 320 percentage points since the company’s 2005 float.


Management has said it’s committed to delivering earnings growth of 15% to 20% “going forward.” And with the hospitality industry estimated to be financing some $1 billion of equipment each year, and Silver Chef’s business just a tiny fraction of that today, it certainly seems as if the company is well positioned to meet this ambitious target.

Right now, the shares are trading for just 17.5 times earnings, so it appears Mr. Market is offering here exactly what savvy investors are looking for: growth at a reasonable price.

Idea #2: An under-followed mid cap

My second idea is a larger company, but one with an equally impressive track record of growth and a similarly huge opportunity before it.

I’m talking about Austbrokers Holdings Limited (ASX: AUB), which operates — and aggregates — small insurance brokerage offices.

Austbrokers, with is $570 million market cap, only operates or counts as partners several dozen of these offices today, thus the potential before this company is huge.

As chief executive Mark Searles recently told The Australian Financial Review…“There are about 800 licensed insurance broking companies in Australia. We have joint-venture partnerships with 43 of them – so it doesn’t take a rocket scientist to work out there’s still a lot of opportunities there”.

Like Silver Chef, Austbrokers’ business is high margin and poised for growth. With net margins of nearly 32% in the last twelve months, it simply doesn’t get much better than this.

In fact, the performance of Austbrokers business and its shares have been nothing short of phenomenal since the company’s float, also in 2005, with the shares rising some 300% since then. Yet shares are now trading for at a P/E ratio of just 14.3. Growth at a reasonable price? You bet.

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Better investments than BHP or Commonwealth Bank?

Silver Chef and Austbrokers represent some of the market’s most interesting opportunities, yet these companies rarely ever make the headlines.

They’re simply not on the radar of most investors, who are preoccupied with the ASX 20 and the usual suspects such as BHP Billiton (ASX: BHP) and Commonwealth Bank (ASX: CBA).

I’m sure I don’t have to tell you that we’re quite a long way past the days in which these massive companies could grow earnings at a rate of 20% a year!

Of course you’ll want to do your own due diligence on the companies I’ve brought to your attention just now. I am not recommending that you buy either this minute, but that you keep both companies on your watch list as potentially promising investments.

Don’t miss out! You can get two more ASX small-cap ideas FREE right now in our brand-new special report, “2 Small Cap Superstars”. Simply click here now, it’s free.

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Catherine Baab-Muguira does not own shares in any of the companies mentioned in this article.

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