2013 has been a great year for equities despite quantitative easing (QE) never ending, North Korean tensions, a possible Chinese economic slowdown and ongoing issues throughout the Middle East and Europe. In fact the S&P/ASX200 (ASX: XJO) (^AXJO) has notched up gains of 13% (not including dividends) in the past year.
That means many of Australia's biggest stocks have already risen substantially from their levels 24 months ago. However in the past year the S&P/ASX Small Ordinaries (ASX: XSO) has fallen 5.56%. Although many small mining related stocks would have fallen harder, the under-researched and under-invested small cap space could be ripe for the picking.
One stock that is set to go skyward in the next year is Newsat (ASX: NWT). Newsat was once a telecommunications services provider but is now Australia's only pure play satellite communications company. In 2014, thanks to its Jabiru satellite development program, Newsat will launch its satellites and cover much of the developing world. This will result in massive revenue increases from huge private and government contracts.
If 2014 is going to be anything like 2013 (RBS Morgans believes it will be), then fund managers and financial advisors will have no problem drawing in new customers. When the stock market does well, everyone piles in and wealth managers can notch up easy gains. Yellow Brick Road (ASX: YBR) is a junior wealth manager that has a bright future ahead. The founder of Wizard home loans, Mark Bouris, heads it. With a market capitalisation of only $107 million, its got plenty of room to grow.
If you're looking for yield in 2014 but still want a big growth story then perhaps established small caps are what you need. RCG Corporation (ASX: RCG) is a holding company for Athletes Foot and RCG Brands, which include Merrell, Cushe and CAT footwear. Recently the company announced an acquisition of the Saucony wholesale businesses in Australia and New Zealand. It pays a reliable 5.6% fully franked dividend and Morningstar is predicting strong earnings per share growth in the next three years.
Foolish takeaway
By all accounts it looks like the next year will be a big one for the Australian stock market as we transition away from mining-related investment. With rising consumer and business confidence, now might be the perfect time to get into smaller stocks before the rest of the market.
