MENU

These are my favourite 3 small caps

Small caps are the best arena for investors to beat the market in my opinion. Exchange traded funds (ETFs), analysts and investment managers all tend to be focused on the large end of the market, that leaves little upside surprises and therefore less chance to beat the market.

The sheer size of small caps also gives investors an advantage. It is much easier for a company to double its market capitalisation from $100 million to $200 million compared to growing from $1 billion in size to $2 billion.

That’s why I’m already a shareholder in the following shares and I want to buy more of them:

Propel Funeral Partners Ltd (ASX: PFP)

Propel is Australia and New Zealand’s second largest funeral operator. The company estimates that it has 4.1% of the Australian market and 6.7% of the New Zealand market.

I believe Propel is a good candidate to beat the market because it has plans to acquire other funeral businesses to increase its funeral market share. The best reason to invest is that the death volumes in Australia are expected to increase by 1.4% per annum between 2016 to 2025 and then 2.2% per annum from 2025 to 2050.

I think Propel could be a very good slow-and-steady grower over the coming years as long as there isn’t any price pressure from competitors.

It’s currently trading at roughly 30x FY18’s estimated earnings.

Zenitas Healthcare Limited (ASX: ZNT)

Zenitas is a small cap healthcare operator that provides allied care, home care and primary care. I really like that Zenitas operates in a few different segments of the healthcare market. It’s growing well, it delivered 7.5% organic revenue growth in the first half of FY18.

The company says it has a strong pipeline of acquisition opportunities and as long as it integrates those businesses successfully it could have a very promising future.

It’s trading at around 19x FY18’s estimated earnings.

National Veterinary Care Ltd (ASX: NVL)

National Vet Care is following in the footsteps of the early Greencross Limited (ASX: GXL) by acquiring other veterinary businesses. Indeed, it was launched with a few ex-Greencross staff.

The business is approaching 70 veterinary clinics, but it could easily reach a total of 150 or more over the next several years. It also generated good organic growth of 3% from its clinics for the half-year result to 31 December 2017.

It’s trading at 23x FY18’s estimated earnings.

Foolish takeaway

Like I said in my introduction, I believe in all three of these businesses which is why I already own shares of all of them. The current market volatility is presenting an attractive price to buy all three in my opinion. I would slightly prefer Zenitas or National Vet Care at the current prices.

Another growth idea is this top stock from the auto industry which I also own in my portfolio.

OUR #1 dividend pick to grow your wealth over the new financial year is revealed for FREE here!

Financial year 2018 is here and The Motley Fool's dividend detective Andrew Page has revealed his must buy dividend share to grow your wealth in 2018.

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor Tristan Harrison owns shares of Greencross Limited, NATVETCARE FPO, Propel Funeral Partners Ltd, and Zenitas Healthcare Ltd. The Motley Fool Australia owns shares of and has recommended Greencross Limited. The Motley Fool Australia owns shares of NATVETCARE FPO. The Motley Fool Australia has recommended Zenitas Healthcare Ltd. 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 Scott Phillips.

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.