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3 growing small caps for your watch list

Every well-balanced portfolio has a few speculative stocks in it to satisfy the “what if” of savvy investors.

These three stocks are speculative picks worth keeping on the watch list.

Paladin Energy Ltd (ASX: PDN)

It seemed like it was all over for uranium production and exploration company Paladin Energy last year when the company entered administration due to issues with a Electricite de France long-term supply agreement.

The company has emerged from its period of difficulty with less debt on its balance sheet, but its FY18 results did show uranium oxide sales slipped 24%. However, Paladin Chairman, Rick Crabb, thinks the expected revival of uranium prices will be the company’s turn to shine.

There will no doubt be struggles to overcome in the post-administration period and Paladin will have to exercise plenty of discipline, but uranium prices are almost certainly on the up – so the opportunity is there if the company can leverage off it.

Investors should keep an eye on how Paladin fares when it restarts production at its Langer Heinrich project.

Adacel Technologies Limited (ASX: ADA)

Adacel is a unique small cap involved in the development of operational air traffic management systems and training solutions.

Its share price has suffered lately and its FY18 NPAT slide of almost 10% didn’t help, despite a revenue uptick of 25%.

Investor confidence has dampened over the last year after Adacel lost part of its contract with the American Federal Aviation Administration, although there were contract wins in the emerging markets of Algeria, Morocco, Sri Lanka and China.

With its shares hovering around 52-week low levels  investors may be interested, but investors should do their due diligence on Adacel’s key contracts to get a better idea of its growth potential.

The company also plans to win customers with new products with a strong pipeline of opportunities, particularly in its training systems.

Pengana Capital Group Ltd (ASX: PCG)

Investment management company Pengana is an under-the-radar small cap, but its international equities strategies are positioned for growth and FY19 could be a good one for the stock.

Pengana delivered an underlying NPAT of $12.4 million for FY18, which was weaker than expected, but its overall fundamentals were buoyed by 12.5% FUM growth and Moelis Australia has a price target of $3.62 on the stock, which is sitting steady at the time of writing at $3.40.

Pengana has managed the successful integration of the Hunter Hall platform and the upgrades that will come online as a by product of this merger should work to align Pengana’s strategies with its growth plans.

Pengana’s current investment exposure looks fairly attractive and if it can continue its FUM growth as expected things could look brighter in FY19.

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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Adacel Technologies 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 Scott Phillips.

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