In my opinion a common misconception amongst investors is that they must focus on solid blue-chip stocks to build their wealth over the long term.
Of course, it is a sensible strategy for the average investor. That is, those who perhaps lack the enthusiasm for stock market investing and would rather spend their free time doing other things.
However enterprising investors (i.e. those who actively monitor the markets and believe they have the temperament and competence to analyse securities) should look outside the most commonly held stocks for better opportunities.
Especially now with the S&P/ASX 200 (INDEXASX: XJO) riding high, there appears to be much better value offered in small-cap stocks.
Five I already own, or have my eye-on, are listed below…
Collins Foods Ltd (ASX: CKF) appears to offer investors both capital gains potential and a healthy 5% fully franked dividend yield. It is an owner and operator of selected KFC and Sizzler stores throughout Australia.
Shine Corporate Ltd (ASX: SHJ) is a law firm specialising in plaintiff litigation. The group is currently expanding (organically and acquisitively) into 'emerging practice areas'.
Bentham IMF Ltd (ASX: IMF) is another growing legal eagle. However, Bentham IMF is involved in the financing of litigation and arbitration claims both domestically and abroad. Its earnings can sometimes be lumpy so investors shouldn't rely on regular dividend payments from the company. However with a long-term mindset, there's definitely value in IMF shares at today's levels.
Cash Converters International Ltd (ASX: CCV) is a well known second-hand goods dealer and personal finance provider throughout Australia and the UK. Despite the rise of online ecommerce sites like Ebay, an investment in Cash Converters has returned an average annual total shareholder return of 20.8% over the past decade. Although the group's payday loans business has recently been hit with regulatory changes, I remain confident it'll produce market-beating returns for many years yet.
Mnemon Ltd (ASX: MNZ) is the owner of popular ecommerce websites such as OO.com.au, dealsdirect and TopBuy. Recently the company announced a plan to merge with Grays Holdings – a leading business to business ecommerce group. The combined entity will be known as Grays eCommerce Group.
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