3 small-cap stocks I'm counting on to grow my portfolio

Are you missing out on the potential of Yellow Brick Road Holdings Ltd (ASX:YBR), Lifehealthcare Group Ltd (ASX:LHC), and Australian Bauxite Ltd (ASX:ABX)?

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Recently I and other contributors have published a number of articles on the potential of stocks like Woolworths Limited (ASX: WOW), and ResMed Inc. (CHESS) (ASX: RMD), whose share prices have been knocked around by the market.

It's true that I'm strongly contemplating a purchase in Woolworths at today's prices, but there are a number of small-cap stocks that I'm relying on to drive my portfolio into the future as well.

The first one is Yellow Brick Road Holdings Ltd (ASX: YBR), an emerging non-bank lender and wealth management specialist headed up by Mark Bouris. Part-owned by Macquarie Group Ltd (ASX: MQG), Yellow Brick Road has experienced rapid revenue growth thanks to acquisitions and growing market awareness of its offering.

Back in January I wrote that the company posted its first ever operating cash surplus, which could be a step on the road to legitimate profitability either later this year or in 2016. Yellow Brick Road also boasts a growing suite of high-quality financial products that have delivered above-benchmark results to customers so far.

As the company continues its journey to become a fully-fledged financial services provider, I believe investors can expect strong performance in coming years, and recent weakness in the share price is tempting me to add to my holdings.

Lifehealthcare Group Ltd (ASX: LHC) is a small-cap company enjoying a period of strong performance recently. After a lacklustre Initial Public Offering (IPO) launch, shares began soaring after full-year results came in ahead of expectations.

A recent acquisition at an attractive valuation has further supported the share price, and provides a high likelihood of the company continuing to grow profits in 2016. Investment bank UBS has placed a $3.70 price target on the stock, and while I believe it will get there sooner rather than later, I'm not sure that shares are an appealing prospect at current prices.

Finally Australian Bauxite Ltd (ASX: ABX) is a junior bauxite miner that sits just above the line separating 'small cap' from 'micro-cap' stocks. I initially identified ABX as an appealing speculative buy back in September 2014, and so far the stock has performed as expected; successfully gathering funds and commencing production in Tasmania.

With 119 million tonnes of Direct Shipping Ore identified for mining so far, Australian Bauxite has many years of production ahead and ample opportunity to add mine sites and ramp up production (which it is doing already).

Successful exploration shows the company can continue to upgrade its resources, while extensive tenements that are unencumbered with environmental, cultural or other concerns help to simplify operations, reduce costs, and provide plenty of room for future expansion.

I'd happily buy shares in Australian Bauxite and Yellow Brick Road at today's prices. However, since I already own shares in all three small-caps, I'm casting my net a little wider.

Motley Fool contributor Sean O'Neill owns shares in Yellow Brick Road Holdings, Lifehealthcare Group, and Australian Bauxite. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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