Forget blue-chip and “income” stocks. The only characteristic differentiating the stock market from other assets classes is the possibility of share price increases. If you don’t want capital gains, look away now.
I’m not denying it, investing in small-caps is risky but if you’re funnelling money into overpriced bank big shares – like Commonwealth Bank of Australia (ASX: CBA) or Westpac Banking Corp (ASX: WBC), you’re not exactly choosing ‘safe’ investments either.
If you want seven free growth ideas, which you can research and assess against your own risk profile, here’s a list of seven small companies I’ve bought in the past 12 months for the sole reason of capital gains in the long-term.
1. Newsat Limited (ASX: NWT) is a satellite communications company with a market capitalisation of only $245 million. It trades on a price-earnings ratio of 83. It has been my worst performing stock since I bought it. However when the word “satellite” appears in investing prose, you can be assured its long-term.
Newsat is currently preparing to launch the satellites which are part of its Jabiru program. The company has acquired several orbital slots which it plans to fill in years to come. Jabriru-1 is expected to be launched in 2015 and is expected to generate $US 3 billion of revenues over 15 years at 82.5% margins.
2. Liquefied Natural Gas Limited (ASX: LNG) is, like Newsat, high-risk / high reward. It’s a small gas explorer with its flagship project, Magnolia, in Louisiana, USA. The project is capable of producing eight-million tonnes of natural gas per annum once operational. It’ll be some time before the company reaches that point.
However, by the time it reaches production it’ll be too late to buy-in. What differentiates the company from other explorers is the majority of the leg work has already been completed and LNG will be capable of significantly reducing plant costs and operation with 30% less emissions through its innovative OSMR technology. LNG is up 91% since the beginning of 2014.
3. Donaco International Ltd (ASX: DNA) owns and operates its flagship casino and hotel on the Vietnamese border with China in Lao Cai. It is currently in the process of renovating its casino and hotel from a 34-room 3-star facility to a 428-room resort complex. Its share price has retracted in the past 10 days following an announcement to raise capital to fund potential acquisitions. Nevertheless the current price leaves room for plenty of growth potential in the long-run.
4. Yellow Brick Road Holdings Ltd (ASX: YBR) is one company I’ve held for quite a while although its share price continues to increase only modestly despite some very promising signs of growth. Recently, chairman Mark Bouris said the company will be looking for potential acquisitions to bolt-on to the business. After the purchases it looks as though it will be a force to be reckoned with in the diversified wealth management sector.
5. Slater & Gordon Limited (ASX: SGH) is Australia’s premier personal injury law firm with operations right around the country and, recently, overseas. Slater & Gordon is growing in three areas including personal injury, personal legal services and the UK. At $4.54, it still has a plenty of upside potential.
6. Shine Corporate Ltd (ASX: SHJ) is a founder-run law firm focused on plaintiff litigation throughout Queensland and, increasingly, throughout the rest of the country. It is my most recent portfolio addition. I bought it because it is extremely profitable (with an EBIDTA margin of over 26%) and has significant management ownership, it is establishing itself in a number of emerging and rapidly growing practice areas, is cashed up and hasn’t ruled out the possibility for acquisitive growth in the future.
Each of these companies are emerging names in their respective industry and should be considered high-risk. It’s important to maintain a well-diversified portfolio before making a speculative buy like one of these but, if you’re prepared to, they just might be one of the best investments you’ll make.