Motley Fool Australia

6 exceptional smaller stocks with exciting growth prospects

With Perpetual Limited (ASX: PPT) receiving the 2014 Morningstar Fund Manager of the Year award it certainly makes sense to review some stocks its market-beating team of portfolio managers have selected.

Given smaller stocks often have longer and faster growth profiles, “small caps” can provide a significant boost to long-term portfolio returns. Two funds managed by Perpetual that focus on stocks with smaller market capitalisations are the Pure Microcap Fund and the Smaller Companies Fund.

Here are six stocks owned by at least one of the above two funds or others that appear to have exciting future growth prospects.

1)      G8 Education Ltd (ASX: GEM) continues to expand its childcare centre portfolio via acquisitions on attractive multiples. The company still only has a small percentage of the overall market which provides for further significant growth potential.

2)      Affinity Education Group Ltd (ASX: AFJ) is a newly listed competitor to G8. Interestingly Affinity is currently the largest holding in the Microcap Fund, while G8 is currently the largest holding in the Smaller Companies Fund.

3)      eBet Limited (ASX: EBT) provides software solutions to the gaming industry. With a tailwind of growth in the gaming industry and significant leverage to higher revenues, eBet could enjoy similar success to its larger peers in coming years.

4)      Mermaid Marine Australia Limited (ASX: MRM) is currently trading near its 52-week low having suffered from lower vessel utilisation. The recently announced strategic acquisition for approximately $449 million of Jaya has the potential to be a company transforming acquisition and could act as a catalyst for the stock.

5)      Infomedia Limited (ASX: IFM) has cleverly positioned its suite of software products to have global appeal and importantly to offer increased efficiency and productivity for its clients. With many potential clients still to switch to the more modern Infomedia product offering, its pipeline of future growth looks good.

6)      Vocus Communications Limited (ASX: VOC), Perpetual funds have built a significant holding in this super-fast internet provider, trading shares over the first two months of 2014.

Foolish takeaway

As the saying goes – From little things, big things grow – this can hold true for companies too. Identifying smaller companies with decent growth prospects can lead to long-term gains for investors.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

Related Articles…