MENU

These 2 small-cap shares could be rocket fuel for your portfolio

It is fair to say that blue chip shares tend to steal all the limelight. But the Australian Stock Exchange has some fantastic options for investors if they are willing to look beyond shares like Commonwealth Bank of Australia (ASX: CBA) and Wesfarmers Ltd (ASX: WES).

In fact, I would be surprised if the two small cap shares I’m going to talk about today didn’t outperform both CBA and Wesfarmers over the next few years.

Perhaps they are not destined to become $100 billion companies, but I do believe they certainly have the potential to provide investors with fantastic returns.

The two shares are as follows:

Dicker Data Ltd (ASX: DDR)

Dicker Data is a founder-led wholesale distributor of computer hardware, software and related products with a market capitalisation of $292 million. Despite the fact that the first quarter is generally its weakest, the company smashed its own expectations by producing year-on-year revenue growth of 11% to $268 million recently. CEO David Dicker put this down to the company being able to realise full value from new vendors introduced in the last fiscal year.

Because of this result, the company has upgraded its full year guidance to net profit growth of 11% to $24.5 million. This means the shares are currently trading at just 12x estimated FY 2016 earnings. The second quarter is notoriously the company’s strongest quarter, so all eyes will be on that for another beat that I believe could send the share price beyond the $2 mark.

All in all, I believe Dicker Data would be a great addition to most portfolios.

Nick Scali Limited (ASX: NCK)

Nick Scali is one of Australia’s leading furniture retailers operating predominantly on the east coast of Australia under its two brands. The eponymous Nick Scali brand is targeted towards the premium end of the market, whereas its Sofas2Go brand is geared towards the entry-level side of the market, where it competes head on with Fantastic Holdings Limited (ASX: FAN).

I’ve been very impressed with its growth and profitability in the last few years. Earnings have grown by around 9% per annum for the last 10 years, and I believe the current housing market boom will help sustain this level of growth for some time to come. One headwind that investors should take into account though is a weaker Australian dollar. As the company imports its furniture, the falling Australian dollar is likely to result in higher cost of goods sold and price increases.

Despite that I expect Nick Scali to provide strong returns for shareholders over the next few years, especially whilst the housing market continues its boom.

There is another share which investors looking for strong growth prospects might be interested in. I believe this one has what it takes to produce high levels of growth that will give any portfolio a boost.

NEW: The Motley Fool's Top Fully Franked Dividend Share For 2016

Forget BHP and Woolworths. This "dirt cheap" company. is growing like gangbusters, and trading on a 5.6% dividend yield, FULLY FRANKED (8% gross). With interest rates set to stay at these low levels for years to come, for income-hungry investors, including SMSFs, this ASX company could be the "Holy Grail" of dividend plays for 2016. Click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required.

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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.