3 under-the-radar small caps with growth potential

Credit: StephenMitchell

Almost every investor will have heard of companies such as Qantas Airways Limited (ASX: QAN) and Telstra Corporation Ltd (ASX: TLS). These large-cap shares are some of the most popular on the Australian Stock Exchange.

But for every blue-chip share on the ASX there are a number of lesser known shares which can be just as good investments. In fact, in many cases they can be better investments than the blue-chip shares we all know and love.

Three shares which I believe offer investors the potential for greater returns than many blue-chips shares in the next few years are as follows:

ARB Corporation Limited (ASX: ARB)

ARB is a designer, manufacturer, and distributor of high-quality four-wheel drive parts and light metal engineering works. After a good first half to the fiscal year, I believe it is set to have a fantastic second half.

Last year saw a large number of new four-wheel drive vehicles released across the world. This caught ARB by surprise and it has had to play catch up on product development. Management has advised that it has now caught up and its products have hit the market. I expect this to be a big boost to its top line, especially with a weak Australian dollar. In the first half of the fiscal year its exports rose by 15% year over year, and I expect similar in the second half.

According to CommSec, the market consensus is for earnings to grow at 11% per annum for the next couple of years.

Fantastic Holdings Limited (ASX: FAN)

Fantastic Holdings is the company behind furniture retail brands Fantastic Furniture, Plush, and Dare Gallery. It is one of a number of shares which have been benefitting from the boom in the housing market.

I was impressed with the first half performance the company turned in, and expect the housing boom to help it outperform for the full year.

The company paid an interim dividend of 7 cents. I believe the full year performance will allow it to pay out at least another 7 cents for the final dividend. This would make a full year dividend of 14 cents, which I expect to yield a fully franked 7.7%.

Sealink Travel Group Ltd (ASX: SLK)

The weaker Australian dollar and the rise of Chinese tourism are two key reasons why I feel SeaLink could be a great investment today.

Last year there were over 1 million Chinese tourists that visited Australia, and this is expected to increase for a number of years. With its many boats and ferries in key tourist spots such as Sydney Harbour, I expect SeaLink will see a prolonged rise in passenger numbers.

In my opinion this supports the view of analysts that see earnings growing by an average of over 40% per annum through to 2018. If this is achieved then I think investors may see the share price rise considerably during this time.

The technology that's going to REPLACE the Internet is already here...

Dollar for dollar, insiders are calling it one of the biggest new markets in the history of modern business... NOW is the time to get in on the hush-hush industry that could be poised for growth of over 4,463%+ by 2020... And the 1 ASX stock that stands to grow YOUR money right alongside it! Simply click here to learn its name.

Motley Fool contributor James Mickleboro 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.