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3 small-cap stocks for future growth

The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has risen substantially over the last 12 months as investors have sought out ‘defensive’ high-yielding dividend stocks instead of investing in other low-return investments such as term deposits.

However, the stocks that have driven the market are unlikely to continue their rallies in the long run. The big four banks have become overpriced and, when interest rates inevitably rise, the dividend yields could lose their appeal, which could see stocks fall further.

It is still vital that your portfolio maintains a strong core – made up of companies such as Telstra (ASX: TLS) or Twenty-First Century Fox (ASX: FOX) – but significant growth in the future could also be realised from smaller cap stocks (Note: smaller cap stocks should make up a smaller proportion of your portfolio due to the level of risk involved, but can still lead to substantial gains.)

Yellow Brick Road  (ASX: YBR) is one company that you could add to your portfolio, or at very least to your watchlist. The financial industry has been recognised as being a major driver of growth over the next 20 years and Yellow Brick Road seems like the perfect place to take advantage. The company was founded by Mark Bouris, who also founded Wizard Home Loans, and reported a 68.36% increase in revenue for the year to June 30. Currently priced at 56.5c per share, Yellow Brick Road boasts a market capitalisation of $110 million, giving it plenty of room to grow.

Webjet (ASX: WEB) is one of the more attractive tourism companies to consider for your portfolio. The online travel agency allows customers to search and book domestic and international products, including travel insurance, hotel accommodation and flight deals. Whilst the business remains strong, shares have plunged to $2.65 from their April high of $5.30, making now a perfect time to buy in.

Quickflix (ASX: QFX) poses a greater risk than Yellow Brick Roads or Webjet due to its tiny market capitalisation. Priced at just 1.4c per share, Quickflix has a market cap of just $16 million. Furthermore, in its 10 years of existence, the company has not yet returned a profit. However, as is always the case, we invest for the future, and it is looking bright for the DVD and online movie streaming company, which has invested heavily in technology that will enable it to continue growing its streaming business.

Quickflix is striving for a share in the expanding market against services like Telstra’s Bigpond Movies or JB Hi-Fi’s (ASX: JBH) JBNow service. Netflix (NASDAQ: NFLX) has already succeeded in the industry and has delivered enormous gains for shareholders in recent years.

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