In the small-cap isle of the Australian Securities Exchange, investors can find some bargains.
That's because small-cap stocks aren't followed nearly as closely by analysts as their larger counterparts.
And special requirements on some fund managers preclude them from investing in companies outside the S&P/ASX 300 (INDEX: ^AXKO) (ASX: XKO).
This provides a perfect opportunity for individual retail investors to add promising up-and-comers to their portfolios long before the professionals get a chance to buy.
One such company is Shine Corporate Ltd (ASX: SHJ), Australia's third-largest personal injury law firm. Despite boasting a market capitalisation of $510 million, Shine until very recently had extremely illiquid shares. Adequate liquidity is a requirement for all stocks entering indices.
Its lack of turnover was partially a result of two founders holding more than 50% of issued shares. After a recent sell down (they still hold 24.7% each) the shares are more liquid.
Despite climbing over 100% since listing on the ASX in 2013, I'm confident in the firm's ability to generate outstanding returns over the long term and would happily buy more shares at current prices.
Another company which is at the top of my buy list is Yellow Brick Road Holdings Ltd (ASX: YBR). The company's share price has done nothing since I bought it. But that's ok because I believe it is a very well run business which will outperform over the long term. YBR is an unprofitable junior wealth management firm, which recently made two large acquisitions to boost its broker network substantially. As more of its branches reach maturity in the next two years, I expect it to turn its first profit.
Aerial photography provider Nearmap Ltd (ASX: NEA) is another promising small-cap. Since turning its first profit the company's share price has been extremely volatile and after reaching a peak of 83 cents last month has fallen back to just 61 cents. With an expansion into the US, Nearmap deserves a spot on all investors' watchlists.
Finally machine-to-machine (M2M) device developer Netcomm Wireless Ltd (ASX: NTC) has also recently swung to profitability. Yet its share price has fallen even further than Nearmap's over the past six months. This comes despite a very positive outlook for the company, both in the near term, but also the long term for its broadband and M2M offering.
