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Fund manager reveals 3 ASX small caps that could beat the market this year

ASX Small Caps

NAOS Small Cap Opportunities Company Ltd (ASX: NSC) has revealed three ASX small caps that could beat the market this year.

Naos is a fund manager that believes in holding a high-conviction portfolio of businesses, typically around 10 holdings, that are industrial in nature and worth holding for the long-term.

In the listed investment company’s (LIC’s) March 2019 update, Naos outlined three of its holdings it believes could do well this year:

MNF Group Ltd (ASX: MNF)

MNF is a leader in providing voice over internet protocol services and other similar offerings. The share price is down around 25% over the past year, but Naos said a catalyst which could boost MNF is if it achieves its second half FY19 earnings and that the FY20 guidance may be too conservative.

The upcoming launch of the Singapore operations also has Naos interested with additional geographical expansion a possibility in the future.

I agree that MNF looks interesting at this price level, but it is very important that MNF does indeed hit its guidance, or the share price could take another tumble.

Consolidated Operations Group Ltd (ASX: COG)

For readers unfamiliar with this one, it’s a financing and leasing business. Naos pointed to the fact that COG has received a number of informal and preliminary enquiries as a reason why COG’s momentum is one to keep an eye on.

The potential for COG to launch a white label finance product that is funded or partnered with a big four bank for prime auto loans is also exciting, according to Naos.

Anything in the loan space is a very interesting opportunity at the moment. Whilst the royal commission is causing banks to be much more cautious about lending these days, the slowing Australian economy could mean a rise of loans going bad.

BSA Limited (ASX: BSA)

BSA assists clients in building services, infrastructure and telecommunications. It is a beneficiary of the expanding NBN, but Naos thinks the catalyst for BSA could be the conclusion of the strategic review of the HVAC Build segment and potential acquisitions that would add other strings to BSA’s bow.

BSA itself has said there is a strong pipeline of opportunities in all of its core markets and it has identified potential in other markets.

Foolish takeaway

Each of these companies are a lot smaller than typical ASX200 growth shares, so they are likely to be more volatile than large caps. However, each of them have promising potential over the next few years – I can see why Naos owns them.

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Motley Fool contributor Tristan Harrison owns shares of NAO SMLCAP FPO. The Motley Fool Australia owns shares of and has recommended MNF Group 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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