There's no doubting that small or micro-cap stocks are predisposed to more growth than blue chips but in the past year, these stocks have rallied beyond many investor opportunities outside their term deposits if they want 'more bang for their buck'.
According to Kevin Rudd, the mining boom is over. No ifs, but maybe some buts. It's true the massive mining profits that resulted from exports of commodities like iron ore and coal may be behind us but there are new products which could be the next big thing for Australian investors — health.
In the past year we've seen our biggest healthcare stocks go through the roof but this one is perhaps our very best performer. Allied Healthcare Group (ASX: AHZ) has risen a huge 166% in the past 12 months alone and is still only valued at $0.064. As a diversified healthcare company that specialises in cardiovascular and soft tissue repair surgery, the world is at its feet.
Another industry that many of Australia's biggest banks are seeking to take advantage of is agriculture. They have realised that the growing population of the Asian middle class face a huge problem: being fed. As a result, Australian farmers will look to use their geographical location and resources to supply soft commodities to the region. Companies such as Ruralco (ASX: RHL), a diversified agribusiness, will stand to gain. Investors have responded to its high dividend yield and potential for growth by pushing up the share price 23% in the past four months.
The next two companies operate in the same industry — financials — but perform vastly different services. If companies want to take on a lawsuit over $5 million but need funding, they'll call IMF Australia (ASX: IMF). If they win and the company doesn't pay, then perhaps Collection House (ASX: CLH) will help out. Collection House has risen over 100% in the past year whilst IMF has risen 40%. Both pay great, fully franked dividends and have room for growth.
Another financial services provider is Mortgage Choice (ASX: MOC). With interest rates so low, property auctions are picking up and people need financing. Mortgage Choice's share price has grown some 89% in the past year thanks to management's ability to continuously improve its market share of new customers. Paying a 4.9% fully franked dividend and with room to grow, this stock is definitely worthy of a spot on investors' watchlists.
Foolish takeaway
When analysing small and micro-cap stocks it's important to consider their ability to fund growth through expansion or new product offerings. Good balance sheets, economic climate and dividends will get your portfolio only so far. Look for management that have the ability to take a company in the right direction and most importantly own shares in the company they lead.
Small-cap stocks are expected to return the best capital gains for investors but four of these stocks also offer dividends over 4%. Interested in our #1 dividend-paying stock? Discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."
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Motley Fool contributor Owen Raszkiewicz owns shares in Allied Healthcare, IMF (Australia), Mortgage Choice and Ruralco Holdings.
