Well established blue-chip stocks are important for every portfolio, but given their size they simply cannot provide the same level of growth as smaller stocks. While these small-cap stocks can make for riskier investments (they tend to be more volatile), they can also deliver investors far greater gains over the years.
In fact, some even have the capacity to double or triple in value in a short period of time – just ask shareholders of Liquefied Natural Gas Limited (ASX: LNG), who have watched their stock skyrocket 1,254% over the last 12 months alone…
Now is actually a terrific time to be buying these smaller companies. While the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) – the index for Australia’s 200 largest companies – is hovering at a six-year high, the S&P/ASX Small Ordinaries (Index: ^AXSO) (ASX: XSO) is still sitting nearly 45% below its 2007 peak. That could be a sign of some enormous gains being made in the coming years…
With that in mind, here are four small-cap superstars I would be buying (or topping up on) today for the long term if I had $10,000 to invest…
1) Cash Converters International Ltd (ASX: CCV) – The company might be known by many as just a retailer of second-hand goods, but it generates the majority of its earnings from its financial services division, including cash advances and personal loans. While it boasts significant growth potential (for example, its Carboodle business is growing very nicely), it is also very reasonably priced. Trading on a P/E ratio of 13.1, it offers a solid, fully franked 3.7% dividend yield.
2) Select Harvests Limited (ASX: SHV) – The almond producer enjoyed a stellar run between the beginning of 2013 and March this year (where it rose nearly 430%), but has since dropped back considerably, offering investors a fantastic buying opportunity. Currently, the stock is trading on a projected P/E ratio of 11.6 and offers an estimated 3.6% fully franked dividend. Select Harvests should continue to recognise strong demand for its nuts, thanks in part to changing consumer health trends as well as a drought in California (the world’s largest producing region).
3) Yellow Brick Road Holdings Ltd (ASX: YBR) – Although some investors might be deterred by the fact the wealth management group hasn’t yet hit profitability, the company has a very promising future ahead of it. While it is expecting its maiden profit in 2015, it is also headed by Mark Bouris, who founded ‘Wizard Home Loans’ back in the day, so it’s in pretty safe hands. With interest rates set to remain low for some time yet, demand should stay strong for YBR’s services. Now seems like an excellent time to jump aboard with shares trading at just 69c.
4) Nearmap Limited (ASX: NEA) provides maps and bird’s-eye photographs of Australia, which are arguably even better than those provided by Google Inc. The company has announced its plans to expand into the United States which could see its shares climb much, much higher than its current 40.5c price tag over the coming years. Due to The Motley Fool’s trading regulations, I cannot buy the stock within three days of mentioning it, but I am definitely considering hitting the buy button in the very near future.
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Each of the companies mentioned above have the potential to deliver enormous returns over the coming years. While I currently own Yellow Brick Road and Cash Converters International, Nearmap is the other standout buy from this list, and the one I would be most tempted to buy next.
However, there is another small cap stock with just as much growth potential while it also offers a massive grossed up 5.9% dividend yield! The Motley Fool has issued a firm "BUY" rating on this small but ultra promising ASX company… and you can get the name and code FREE right now. Click here for your free copy of "The Motley Fool's Top Stock for 2014."
I also own the stock, and think it would be well worth your while taking a look.
Motley Fool contributor Ryan Newman owns shares in Yellow Brick Road Holdings, Cash Converters International and Google Inc (A shares).