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5 small caps for your watchlist

Investors know to diversify portfolios according to their risk tolerance and appetite for growth. It’s important to have a ‘core’ section of your portfolio devoted to large, established stocks but it’s equally important to have a smaller amount of stocks that are perhaps riskier and more leveraged to growth. These next five stocks operate in diverse industries, have small market caps and are primed for growth.

1. Newsat (ASX: NWT)

Newsat is a satellite communications company that has a market capitalisation of $280 million. It has rights to several orbital slots and is the company most likely to lead Australia’s space quest. In FY13 the company reported increases in EBITDA of 211%, revenue up 5% and gross profit up 1%.

2. Gage Roads Brewing (ASX: GRB)

Gage Roads Brewing is an Australian-based brewer that packages, markets and sells beer, cider and other beverages throughout the country. Recently the company signed a contract with Weston’s World Brands and is using a new automated brewhouse. In the past 12 months its share price has risen 270%.

3. Mortgage Choice (ASX: MOC)

Mortgage Choice is a company currently experiencing significant tailwinds. It services include mortgage broking and financial planning. With interest rates so low and banks forking out bigger commissions to gain a larger share of the mortgage market, it’s definitely worthy of a second look.

4. United Overseas Australia (ASX: UOS)

United Overseas is a real estate development company that operates (mostly) in Kuala Lumpur Malaysia. It has a market cap of $600 million and pays a strong 4.6% dividend. Over the past 10 years it has accrued an average annual return of 39.3%.

5. eBet (ASX: EBT)

eBet is a gaming systems and monitoring company that develops and markets networked solutions for gaming machines through contracts signed with customers in Australia and Asia. It currently has a network of 48,000 gaming machines across both regions but the Australian market alone consists of around 198,000 — leaving plenty of room for growth. The company has a market capital of $46 million, trades on a current P/E of 9.4 and has recently declared a 3.5-cent dividend.

Foolish takeaway

Small stocks are exciting and, contrary to popular belief, can be less volatile compared to blue chips for the very reason that they are traded less and are not affected by macroeconomic news.

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Motley Fool contributor Owen Raszkiewicz owns shares in Gage Road Brewing.

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