5 small-cap stocks to buy today

These growth companies are likely to continue gathering strength in the next 5 years.

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So far this year, the companies included in the S&P/ASX Small Ordinaries (ASX: XSO) (^AXSO) have underperformed their larger counterparts included in the S&P/ASX100 (ASX: XTO) (^XTO) by over 3%. But it’s not the first time it’s happened.

Since November 2012, the difference balloons out to nearly 27%! So if there are opportunities to be had on the Australian market, value investors should be focusing their attention on small-cap stocks.

My favourite small-cap stock at current prices is Cash Converters International Ltd (ASX: CCV). It’s a market leader and is diversifying into different industries and product groups – it’s more than a pawn shop. Its small-loans business is first class and its franchised store network is growing rapidly. In recent months it has signed a number of joint venture partnerships, giving it increased exposure in both New Zealand and South America.

In the Australian legal market, Shine Corporate Ltd (ASX: SHJ) and Slater & Gordon Limited (ASX: SGH) are the premier listed law firms. Slater & Gordon is larger and dominates the personal injury market but has recently moved into personal legal services and expanded into the United Kingdom. Shine, relatively new to the ASX, has flourished in Queensland where a majority of its offices are found. It too operates in the lucrative personal injury market but has also expanded into emerging practice areas.

Yellow Brick Road Holdings Ltd (ASX: YBR) is a $118 million company with a rapidly growing branch network right throughout Australia. It is a diversified non-bank financial company which has big plans for the near future. By FY15 it hopes to record its first profit and become one of Australia’s largest diversified non-bank financial companies with over 300 branches.

Donaco International Ltd (ASX: DNA) is a hotel and casino operator with its flagship asset located in Lao Cai, Vietnam. It is due to open its revamped resort facilities soon. They are located on the country’s border with China and their opening should dramatically increase revenues and profit. Management have also hinted at the possibility of acquisitions in the near future.

Foolish takeaway

If you haven’t already started looking to diversify your portfolio with some top growth stocks, now is your chance. With blue-chips becoming more expensive by the day, it’s unlikely the above stocks will stay at these prices forever.

Motley Fool Contributor Owen Raszkiewicz owns shares in Slater & Gordon, Shine Corporate, Cash Converters International, Yellow Brick Road and Donaco International. 

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