Your instant 3-share small-cap healthcare portfolio

Australia’s small-cap stocks are often poorly researched, and not enough investors are looking at the exciting opportunities that are available. If we look back at the past five to 10 years, there are emerging trends rippling through the small end of town.

For example, it’s not only tiny speculative resources companies that have grown by hundreds or even thousands of percentage points in the past decade. Two industries that continue to be at the forefront of every small-cap investors’ mind are technology and healthcare.

These two sectors have the ability to disrupt industries by forcing sweeping changes to their profession. Allied Healthcare (ASX: AHZ) is one stock looking to do just that — its CardioCel regenerative tissue engineering technology has the ability to change the way surgeons treat soft tissue injuries. Recently the company made its first sale of CardioCel in European markets.

It’s not all about completely changing an industry, sometimes making your service easier and cheaper for the customer is the best way to push your company forward. Capitol Health (ASX: CAJ) is the only Australian public company operating exclusively in diagnostic imaging. Capitol operates in Victoria and is well placed to grow revenues both organically and through acquisitions. The stock is priced quite high, and although it might not be bargain for investors looking to make a quick buck, I am confidant of its ability to build long-term shareholder wealth.

Last, 1300 Smiles (ASX: ONT) is a healthcare company that provides dental surgeries, practice management and administrative services to self-employed dentists. Although it has grown strong and consistently since listing back in 2005 the company still has more growth ahead. Morningstar is predicting EPS to grow to 36.4 cents in 2015 up from its current earnings of 26.9 cents.

Foolish Takeaway

Australia’s small-cap market remains underserved by research houses and fund managers, meaning the more companies you sift through, the more hidden gems you are likely to uncover. When looking at small caps, it’s important to analyse their progress over a number of years to get a sense of what goals management sets for themselves and whether or not they were achieved. A little bit of debt is alright, but none is better. However it’s also important the company isn’t diluting shareholder ownership to raise capital.

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Motley Fool contributor Owen Raszkiewicz owns shares in Allied Healthcare. 

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