Australian investors are so focused on the larger end of the stock market that they appear to be forgetting about the incredible opportunities residing at the smaller end of town. While small stocks might not offer the same level of dividends, they can deliver far greater financial rewards provided you take the right approach.
Looking at the chart below, it becomes clear just how neglected Australia's small-cap sector has been in recent years. While the S&P/ASX 200 Index (INDEXASX: XJO) has risen nearly 32% over the last five years, the S&P/ASX Small Ordinaries (INDEXASX: XSO) has actually declined by 0.6%.
Source: Google Finance
With many of the larger cap stocks, like Commonwealth Bank of Australia (ASX: CBA) and Woolworths Limited (ASX: WOW) now considered to be expensive investments, it seems like now is a great time to start exploring some of the opportunities at the smaller end.
With that in mind, here are three that I've recently bought that you could also consider today.
- Nearmap Ltd (ASX: NEA). Nearmap's stock rose nearly 20% on Friday on the back of a very strong full-year report, which highlighted not only its maiden profit, but also a very optimistic outlook for FY2015. Its products, namely ultra-high resolution aerial photographs, are proving increasingly useful across various industries while an expansion into the US also looks promising.
- ADMEDUS FPO (ASX: AHZ). The diversified biotechnology/healthcare company is another small-cap with enormous potential. It recently begun selling its flagship Cardiocel product, which is a cardiovascular tissue regeneration technology. Shares are currently trading at just 16 cents, so now could be a great time to get on board.
- Shine Corporate Ltd (ASX: SHJ). The junior law firm has fantastic long-term potential in the growing personal injury market and is expanding throughout Australia. Despite its promising prospects, it trades on a price-earnings multiple of just 15.9 and boasts a market capitalisation of $397 million. In comparison, fellow law firm Slater & Gordon Limited (ASX: SGH) is more than three-times larger with a market cap of $1.24 billion and is trading on a P/E multiple of 19.1.
The Motley Fool's top growth stock for 2014-15 – FREE!
Smaller stocks tend to carry greater risk and volatility than the larger corporations. As such, it is vital that you diversify accordingly and target those offering strong growth prospects as well as a solid balance sheet.
