The dividends of Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) might be above average, but if you want to invest like a pro, you have look beyond the 'usual suspects' and find tomorrow's biggest names, today.
It's not easy and you won't get it right every time, but by undertaking a little research you can quickly identify some promising investments. Common characteristics of the most successful small companies are strong balance sheets, responsible driven management and a growing demand for their services.
One company which is going from strength to strength is Collection House Limited (ASX: CLH). It is a debt recovery firm with growing operations throughout the country. It has a market cap of just $230 million while its number one rival, Credit Corp Group Limited (ASX: CCP), is nearly twice as big ($400 million) and growing – proving there is room for top and bottom line growth. Collection House trades on multiples of just 12, pays a 4.1% fully franked dividend and has modest balance sheets and good management.
Another company planning to steal market share from rivals and grow its reputation is Slater & Gordon Limited (ASX: SGH). Its move from personal injury litigation services in Australia to personal legal services in the domestic market as well as in the UK has been well-received by investors. It has an impeccable record of success, estimated to win over 95% of cases, and the new growth strategy provides an opportunity to substantially extend the number of cases it can take on. Keep an eye on this one.
Another long-term stock which is trucking ahead with both organic and acquisitive growth is Challenger Ltd (ASX: CGF). Challenger is Australia's number one annuities provider and a rapidly growing fund manager. Of all companies in the country, Challenger is in poll position to benefit from an aging population with large superannuation accounts and a desire for a reliable income stream. Its recent purchase of Bendzulla Actuarial provides a number of efficiencies for the company including a large client book.
Foolish takeaway
The most successful fund managers make it their business to know all the companies in the S&P/ASX200 (ASX: XJO) (^AXJO), but also those stocks which are not included in the index and are likely outperform the market in the long-term. These three companies are currently trading at modest prices with long-term tailwinds and efficient business models. Don't miss out on your chance to bag a bargain.
