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3 small-cap stocks for your watchlist

Large capitalisation (cap) stocks are perfectly fine for conservative investors and investors who have already built themselves a large and comfortable retirement nest egg. For investors in these situations, large cap, generally blue-chip stocks can be perfect. These stocks generally have defensive business models, reliable dividends and often lower volatility. Most importantly blue-chips will generally protect a portfolio from any permanent loss of capital.

There is perhaps just one disadvantage about large cap stocks – they are not small! “What?” I hear you gasp. You see, the law of nature is that big things usually struggle to get bigger. While growth brings its own complications, the wealth which can be gained by owning a fast growing, small company is certainly desirable.

So while the following three stocks may not suit all investors, if you are looking to own a portfolio of stocks which can grow at an above average rate to meaningfully increase your wealth by the time you retire, then small and mid-cap stocks are often the place to be looking.

Here are three companies which are reporting growing sales and could be worth keeping an eye on.

1) Quickstep Holdings Limited’s (ASX: QHL) share price has rallied 33% over the past 12 months. In comparison the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is up around 14%. The carbon fibre manufacturer has had a number of exciting announcements recently including the receipt of a new US$11.2 million purchase order for 19 sets of wing flats for the Lockheed Martin C-130J Super Hercules aircraft. Quickstep is also manufacturing parts for the F-35 Lightning II Joint Strike Fighter.

2) Dicker Data Ltd’s (ASX: DDR) share price has soared 84% in the past year. The firm recently completed a company transforming acquisition and as a result underlying pre-tax profits in FY 2015 are expected to jump to $30 million, which roughly doubles the earnings base of the company pre-acquisition. Going forward Dicker Data is also forecasting it will capture significant synergies, of which only around $6.5 million are captured in the FY 2015 guidance.

3) RHINOMED FPO (ASX: RNO) is an early stage medical device company whose share price has gained 31% over the last year. While the results are obviously off a very small base, Rhinomed’s respiratory and nasal technology has recorded a jump in earnings from $9,000 in the March quarter, when its Turbine product was launched, to $201,000 in the June quarter.


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