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3 small-cap financial stocks I’d buy with $10,000 today

For years, many companies have tried to steal market share away from the mighty Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC). And it’s no wonder why.

Between them you’ll find over $1.5 trillion worth of assets, 50% of the Australian mortgage market, nearly 40% of domestic business banking and a touch under half of all household deposits.

Their economic moats are so wide you could sink a ship and castles so large, their shadows have shadows. To think any company could seriously stand up to them, is a stretch, at best.

However, as these next small-cap companies have proven, there could be enough room beside these giants for new players to enter and play happily.

  1. Cash Converters International Ltd (ASX: CCV) is a big provider of payday loans and has exposure to both the Australian and UK economy through an extensive branch network. Unlike a big bank who might charge an interest rate of say 14% on a $10,000 loan, according to the Cash Converters’ website a $1,000 loan over six weeks has a comparison rate of 152.03%! Although that might sound ridiculous, the business is growing and I think its stock is cheap at today’s prices.
  2. Money3 Corporation Limited (ASX: MNY) is not dissimilar to Cash Converters. It offers small loans through its growing branch network as well as online. Directors, like Robert James Bryant, hold a significant amount of shares in the company and have been with the business for many years, steering it towards sustainable earnings growth. At current prices Money3 yields 4.2% fully franked and shares trade on a price to cash flow of just 10.
  3. Yellow Brick Road Holdings Ltd (ASX: YBR) is a favourite small-cap of mine. YBR is a $188 million diversified wealth management company led by distinguished Australian businessman Mark Bouris. YBR offers home loans backed by Macquarie Group Ltd (ASX: MQG) (a major shareholder) and although not yet profitable, expects to be so in the next two years, as it benefits from branch maturity and scale.

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I own both Cash Converters and Yellow Brick Road but would gladly buy them again if I had $10,000 to invest today. However, our top analyst, Scott Phillips, recently identified one cheap but growing ASX stock with a 6.3% grossed-up dividend yield which I think is a STANDOUT buy. It would be a serious contender for some of the $10k! If you're interested in knowing its name, just click on the link below, enter your email address and we'll send you the FREE report on Scott's top dividend stock idea for 2014 - 2015!

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Motley Fool Contributor Owen Raszkiewicz happily owns shares of Yellow Brick Road Holdings and Cash Converters International. 

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