Many of Australia's blue chip and growth companies experienced strong rallies in 2014. Even after the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) has conceded over 3% this year, with the index dropping under 5200 points today, there are still many stocks which appear overpriced.
Fortunately for investors, there are still some very attractive offerings at the smaller end of the market with companies trading at more attractive valuations. Here are three small caps that investors could consider adding to their portfolio today:
Nearmap Ltd (ASX: NEA): Nearmap provides high-resolution overhead photos and maps of Australian towns, covering 85% of Australia's population and its products are used by thousands of companies. Customer numbers are growing rapidly and it recently signed a licensing agreement with Google Maps, which will give customers access to useful tools for viewing maps while also allowing them to view maps outside of Nearmap's own coverage areas. While shares rallied over 800% in 2013, investors should be focused on the company's long-term potential to continue expanding and gathering more and more customers (particularly as it looks to go international). Shares are currently trading for 61.5c.
Select Harvests Limited (ASX: SHV): The almond producer also rallied strongly in 2013 but is set to continue benefiting from a number of factors. Firstly, California, which is the world's largest producing region, is entering its third year of drought which has seen the price of almonds rise. The company has also been heavily focused on reducing costs and increasing production, and is in a good position to boost profits in 2014 and beyond. Shares are looking attractive at $5.91 each.
Mortgage Choice Limited (ASX: MOC): The housing sector is booming and Mortgage Choice is in a prime position to capitalise. People wanting to buy a home go to companies such as Mortgage Choice to get help finding the best mortgage products to suit their needs. While its most recent yearly report contained less than satisfactory results, the company put this down to "an extended period of dampened consumer and business confidence", but it should bounce back strongly. Its market capitalisation is $369 million and at $2.86 a share, it also boasts a trailing 4.6% fully franked dividend yield.
Foolish takeaway
It is important that investors realise the additional risks that come with investing in small-cap stocks. While they can reap greater returns, they can be very volatile and should therefore form a smaller portion of your overall portfolio.
