I'll admit, it's not a very Foolish (capital-f) way to invest your hard-earned cash.
But who can honestly say they've never wanted to try their hand on a penny stock promising huge returns?
You know the ones…
Companies with a market capitalisation of $200 million, $100 million or less. They have some special technology or asset that they say holds massive potential, yet they've never made a profit.
But while I should probably tell you I'm impartial to trying my hand on these 'hope-and-pray' type investments, I'm not.
In fact, I'm betting – modestly, of course – that each of these next five small-cap stocks can shoot the lights out for my portfolio.
- Yowie Group Ltd (ASX: YOW) – Market Capitalisation: $175 million
Yowie Group is currently rolling out its unique confectionary across the enormous US consumer market through a growing network of world-class retailers like WalMart and Safeway. It is also investing to develop its 'Yowie World' digital offering.
- Bulletproof Group Ltd (ASX: BPF) – Market Capitalisation: $41 million
Bulletproof is a 'mission critical' cloud computing business. It has heavy insider ownership, with an experienced management team at the helm. It specialises in taking a business' website and technology applications from a standalone server to the cloud. Then charges an ongoing management fee.
- Techniche Limited (ASX: TCN) – Market Capitalisation: $19 million
Techniche is another small-cap tech company with an experienced manager calling the shots. However, Techniche isn't like many other small ASX tech stocks, since it holds a portfolio of even smaller businesses which it hopes to take to the next stage of their evolution. The business has its advantages (a 5.8% dividend yield for starters), but long-term profit growth will require an experienced manager to remain in control of the business.
- Senetas Corporation Limited (ASX: SEN) – Market Capitalisation: $151 million
Senetas isn't exactly the penny stock it was just one year ago following its 268% rise in value in that time. However, after its share price recently peaked at 22 cents, it has subsequently fallen back to 14 cents, so I'm willing to say it's again a decent investment. I think fair value for Senetas shares lies around 19 cents. Of course, take that estimate with a grain of salt. Senetas develops high-speed encryption devices for physical communications networks like Ethernet and Fibre, which are certified to the highest international standards.
- Reffind Ltd (ASX: RFN) – market capitalisation: $34 million
Reffind is perhaps the 'most speculative' (if there is such a thing) of the group because it only recently listed on the ASX. However, CEO Jamie Pride and his team are highly credentialed technology investors. Much of the team also has significant experience in human resources (HR). HR experience is vital because Reffind is currently rolling out a mobile job referral app to large multi-national clients. While highly speculative at this stage, keep an eye on this one in the future.
Buy, Hold or Sell?
We've previously said speculative investments should occupy no more than 10% of a well-diversified portfolio. However, some investors would argue even 10% is too much.
My advice to those who want to try their hand on smaller stocks like those above would be: don't invest more than you can afford to lose.
