4 stocks on my BUY radar right now

Although the underwhelming performance of the S&P/ASX 200 (Index: ^AXJO) (ASX:XJO) over the last few months has been disappointing for most investors, the decline of the index as a whole can be mainly attributed to the top 20 companies in the index.

Companies like Woolworths Limited (ASX: WOW), BHP Billiton Limited (ASX: BHP) and Telstra Corporation Ltd (ASX: TLS) have grossly underperformed on the prospect that earnings growth is likely to be below market expectations for the next 12 months or so.

It’s no surprise then, that many investors have switched to investing into smaller companies with brighter growth prospects to try to generate better returns. In fact, if you had invested in the S&P/ASX 200 index excluding the top 20 companies, you would have received a positive return of more than 9% over the past 12 months.

Unfortunately, this has resulted in highly inflated share prices for many smaller companies and this has meant it is now becoming increasingly difficult to find high-quality stocks at reasonable prices.

Despite this, I have been closely watching four small-cap companies that I think could be great long term buys at or near current prices:

1. Vita Group Limited (ASX: VTG) – Vita Group is Australia’s largest independent retailer of mobile communications and also runs Telstra Corporation Ltd’s  (ASX: TLS) retail stores and Telstra business centres. The company has been successful in increasing revenues despite reducing the number of retail stores it operates and has been able to translate this revenue growth into profit growth. In FY15, Vita Group increased revenues by 34% and underlying earnings per share by 73%. Although much of the company’s success is reliant on Telstra’s continuing support, Vita Group is confident on delivering further growth and is attractively priced at current levels with the shares trading at around 14x FY15 earnings.

2. Ozforex Group Ltd (ASX: OFX) – OzForex recently released its first half 2015 results that showed a record half year result with a 34% increase in transaction volumes compared to the previous year. The number of active clients increased by 16% and more importantly, the average transaction value increased by 15%. The ultimate result was a 12% increase in underlying earnings to $12.3 million. OzForex also confirmed it remains on track to meet its FY16 guidance and this will see underlying earnings increase by up to 17%. The share price has shown some weakness recently and although the shares still trade on a price-to-earnings ratio of more than 22, any further weakness may be a good buying opportunity for long term investors.

3. Nearmap Ltd (ASX: NEA) – Negative market sentiment has hit Nearmap hard with the share price more than halving over the past 12 months. The recent and sudden departure of its Managing Director has compounded the situation and the market has been disappointed with the progress (or lack thereof) in the critical United States market. Despite this, the business case for Nearmap remains intact and its competitive advantages remain strong. With the shares trading at around 35 cents, it appears most of the negative sentiment has already been priced in, and investors with a high risk tolerance may see this as a good buying opportunity.

4. Collins Foods Ltd (ASX: CKF) – Collins Foods operates 171 KFC stores throughout Australia as well as 26 Sizzler restaurants in Australia and Asia. The company has been investing heavily over recent years to build new stores, create new products and improve marketing to consumers. Collins Foods’ most recent underlying financial results were impressive, with earnings per share increasing by more than 37%. The KFC operations are expected to maintain earnings momentum into FY16 which should generate another strong result. The share price has been trending in the right direction and with the shares trading on a price-to-earnings ratio of just 14, any weakness in the share price may be a good buying opportunity.

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Motley Fool contributor Christopher Georges has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. 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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