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Your instant 3 share small-cap portfolio

Over the last 16 months or so, investors have seen the enormous gains that the share market has delivered – particularly when compared to the returns made on term deposits as a result of low interest rates.

Since May last year, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has soared 19.6%. To put that into perspective, if that rate were to remain constant, investors could double their investment in under four years.

However, that growth has largely been driven by investors who have sought out high-yielding stocks, including the big four banks, supermarket giants Woolworths (ASX: WOW) and Wesfarmers (ASX: WES) as well as Telstra (ASX: TLS). Many of these stocks have become overvalued and it has become unlikely that at today’s prices, they will deliver market beating returns – partially due to limited growth prospects.

At the other end of the spectrum however, there are many small-cap stocks that still have plenty of growth opportunities ahead, and the possibility of delivering fantastic results for years to come. Here are three stocks that are worth keeping an eye on.

Mortgage Choice (ASX: MOC) is a well-known company that helps customers find the most attractive mortgage product to suit their needs. Whilst most analysts are anticipating low interest rates for years to come, demand for mortgages — and the company’s services — will continue to expand. Mortgage Choice is currently priced at $2.81 per share and, despite its stellar run over the last 12 months, should continue to deliver fantastic results.

Silver Chef (ASX: SIV) is a quality company that provides equipment funding for small to medium sized businesses in various sectors through its ‘Rent.Try.Buy’ and ‘Rent.Grow.Own’ solutions. After having climbed to as high as $8.94 per share, Silver Chef has slipped back down to $8.26, giving it a market capitalisation of $237.6 million.

The company recently delivered an impressive report which included a 27% increase in net profit and an 18% increase in its dividend, but it is the future that investors should be excited about as a pickup in business confidence across the economy should continue to boost the company’s profits well into the future.

Jumbo Interactive (ASX: JIN) is an online lottery website operator that has delivered solid results to investors over the last two years as it has expanded its international presence. Compared to Mortgage Choice and Silver Chef, Jumbo is a riskier investment, given its relationship with Tatts Group (ASX: TTS), as there is potential that Tatts Group could try to push Jumbo out of the competition.

However, having increased its levels of marketing and investment, Jumbo will continue to diversify its operations globally in markets such as North America, Mexico and Germany. Currently priced at $2.24, the stock is still significantly below its 52-week high of $3.28 and holds a market capitalisation of just $97.6 million.

Foolish takeaway

In order to recognise significant gains from the share market, investors need to look where others aren’t. Savvy investors are now seeking growth in smaller companies. Discover two stellar small-cap opportunities now, in our brand-new research report, “2 Small Cap Superstars” — simply click here to download your FREE copy.

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Motley Fool contributor Ryan Newman owns shares in Silver Chef.

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