Small and mid-cap stocks are the most rewarding investments. Every big company was once a mid-cap with great long-term potential. I mean just imagine buying biotechnology blue-chip, CSL Limited (ASX: CSL), for as little as $3.80 in 1999 and holding it until now, today it trades comfortably above $70 per share. Woolworths Limited (ASX: WOW) and gas giant Santos Limited (ASX: STO) both traded for less than $5 per share in the past 15 years, and now they’re some of the most frequently traded shares in the S&P/ASX 200 Index (ASX:XJO) (^AXJO).
Long-term investors should be looking to small and mid-cap stocks for growth and, believe it or not, dividends. Finding a company which can expand its business model in the long-run, not in the short-term with unsustainable gains, allows management to pay a consistent and growing dividend.
Sometimes it can be a bumpy road along the way, particularly when the company is just finding its feet, an unexpected earnings downgrade can be the catalyst for violent share price fluctuations. Perhaps, that’s the reason litigation funder Bentham IMF Limited (ASX: IMF) is still undervalued. However rather than miss earnings guidance or fail to provide upside potential, IMF’s earnings can be ‘lumpy’ due to the nature of its business. Despite that, the company is increasing the number of cases it is undertaking and growing its presence in the US with an already impressive track record of success.
Today, IMF announced the case it had funded against mining services company Downer EDI Limited (ASX: DOW) was successful with the company entering into discussions for settlement. The law firm behind the case is Slater & Gordon (ASX:SGH). A well-known but under-appreciated Australian business. In addition to its ongoing success here in Australia, it is expanding into the UK via an acquisitive growth model. At today’s prices I like it (a lot!).
No one likes to be on the receiving end of a law suit, but most cases of wrong doing rarely make it to the lawyers’ desks because receivables management companies come knocking. That’s the polite way to say debt collector. In Australia Credit Corp Group Limited (ASX: CCP) is the biggest receivables company, serving banks, finance and telecommunications companies. It, like Slater & Gordon, is pursuing growth overseas although it is still in its infancy.
In Australia, we’re lucky we can enter into contracts knowing they’ll be upheld by law. We’re also very fortunate to have natural resources at our doorstep. Of those resources, oil and gas continue to be extremely lucrative investments. Senex Energy Ltd (ASX: SXY) is a mid-cap gas producer with key joint venture partners and no debt. With an expanding production profile it’s one to watch… closely.
Australia isn’t known only for its hard resources. Soft commodities will play a big part in our economic future. Grains, meats and fish are examples of soft commodities which spring to mind. Currently serving local markets, Tassal Group Limited’s (ASX: TGR) salmon continues to be in very high demand. In the most recent half-year report, profit, EBITDA, dividends and earnings per share were all up.
If you’re investing in your long-term future, instead of buying expensive blue chips, its important to consider the growth stories which are responding to the trends likely to persist in years to come. Each of these companies have the potential to transform their businesses and share prices in-line or above the market’s growth rate.
These 3 stocks could be the next big movers in 2020
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Motley Fool contributor Owen Raszkiewicz owns shares in Slater & Gordon and Bentham IMF.
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