3 micro-caps to watch

Small and micro-cap stocks are good "what ifs", but they can also be game changers.

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Australia's expertise in specialist fields has meant that our great, everyday Aussie companies can blossom into something spectacular. Here are three small companies to watch closely over the coming years.

If Australia's richest are right, then agriculture could be the next booming industry for our country. Asia's rising middle class is forecasted to grow from 500 million to over 3 billion in the next few decades and will need more land to cultivate food and vegetables and grow livestock. ANZ chief executive Mike Smith recently said that insufficient attention has been paid to a potential surge in Chinese demand for soft commodities such as grain and meat.

One company that would stand to gain from such a rapid growth in agricultural products is Ruralco (ASX: RHL). Ruralco is a cashed-up agribusiness company operating under many local brands throughout its 500 outlets across Australia. In addition to farming products like fertiliser and other merchandise, its diversified business model operates across seed, wool, livestock, real estate, stock feed, water, grain, finance and insurance. Paying a 6.2% fully franked dividend and boasting a market cap of around $175 million, this company could be ready to take off.

Australia's pharmaceuticals, biotechnology and life sciences companies have taken on the world and been successful. As Australia transitions from an exporter of commodities, our specialist knowledge may become our biggest and most lucrative export.

Companies around the globe have been battling for many years to make breakthroughs on some of world's most relentless diseases like cancer, heart disease and osteoporosis. Novogen (ASX: NRT) is a leading Australian research and development pharmaceutical company with a market capital of just $26 million. However, in the past year the company has made major advances in research and the share price has reacted, raising 146% in just 12 months. Most recently, the company has taken on an additional US corporate investor that will inject another $4.5 million into it and help fund further research.

Another company in the healthcare space is valued at a tiny $0.049 but has a market capital of $51 million and, similar to Novogen, has risen a staggering 157% in the past year alone. Allied Healthcare (ASX: AHZ) is diversified healthcare company that invests in and develops the next generation of medical devices. The company's niche is the commercialisation of tissue engineering technology for cardiovascular and soft tissue repair surgery.

Foolish takeaway

Experienced investors understand the need to diversify a portfolio and will regularly add speculative or high risks stocks for small portions of their wealth. These companies have a huge upside but come with a bigger amount of risk. Some investors may only commit 5% or 10% of their investable income to small caps but, one thing that is certain is that you shouldn't  invest money in these type of stocks unless you can afford to lose it.

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Motley Fool contributor Owen Raszkiewicz owns shares in Ruralco and Allied Healthcare.  

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