The Motley Fool

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.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.