In times like these when the prices of most assets appear to be overvalued, small cap stocks can contain pockets of value for the discerning investor. Here are three small cap stocks that are worth looking into:
Mortgage Choice Limited (ASX: MOC) operates a mortgage broking franchise network in Australia made up of 449 franchises with 654 mortgage brokers. It is the third-largest mortgage broker in Australia. It also has a health insurance comparison website as well as a financial planning arm. Despite concerns over the Australian housing market, demand for its services remains high and households use brokers to search for the best mortgage rate. It’s currently trading at a below market PE ratio of 12, has a return on equity of 21%, a dividend yield of 8% and it has no debt.
Mayne Pharma Group Ltd (ASX: MYX) is a pharmaceutical company engaged in the development, manufacture, and in-licensing of branded and generic products for distribution, either direct or via partners, into the U.S. and Australia. With the bulk of its revenues coming from the U.S, it’s share price has declined by 60% over the last year due to price deflation of generic drugs and the risk of legislative changes by the Trump administration. Despite this, the company announced some positive news in its FY 2017 results. Revenue was up 114% and net profit was up 137% driven by acquisitions and product launches. It’s also a positive sign that one of its directors Bruce Mathieson recently spent nearly $5.5 million in buying Mayne shares via an “on-market” trade. Mayne is currently trading at a PE ratio of 11.
Greencross Limited (ASX: GXL) is a pet care retailer and provides veterinary services. The pet care industry is proving to be more defensive and less cyclical. Greencross is also well placed to grow through acquisitions of smaller operators as it consolidates the fragmented veterinary services, pet food, and pet accessories market. It’s trading cheaply with a price/earnings ratio of 14.
These small cap stocks tend to be more volatile but this may create some good buying opportunities for investors who can hold their nerve.
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Motley Fool contributor Kevin Gandiya has no position in any of the shares mentioned.
You can follow Kevin on Twitter @KevinGandiya
The Motley Fool Australia owns shares of Greencross Limited. 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.