If you're looking to add a little more oomph to your share portfolio returns, I highly recommend you try your hand at small-cap stocks.
While small caps may be significantly more volatile than their larger counterparts, the returns arguably compensate investors for the added temperament required to successfully invest at the smaller end of town.
But where do I start?
Here are three small caps that may be worthy additions to your share portfolio today.
- Senetas Corporation Limited (ASX: SEN)
Senetas develops high-speed encryption devices for Ethernet and Fibre Optic networks. Its layer-2 data encryption devices are certified by all major organisations locally and abroad, enabling it to protect sensitive data at the highest levels of government and business.
Given the $150 million company's exposure to large customers, its revenues can be lumpy year-to-year. However, investments in faster devices, customised algorithms and growing maintenance revenue bode well for the company over the years ahead. At just 14 cents per share, I think there is value in Senetas at today's prices.
- Yowie Group Ltd (ASX: YOW)
Yowie is the name behind the once very popular children's chocolate brand which encapsulated toys and was offered throughout Australia and New Zealand until 2005. Yowie Group is the property rights owner to the brand. However, the best thing about Yowie Group is that it has exclusive access to the giant US market thanks to regulation that precludes major competitors from offering toys inside chocolates since they can be a choking hazard.
The $177 million Yowie Group does not offer dividends and is not yet a profitable business; however, a nation-wide rollout of its products to Walmart stores bodes well for significant increases in revenue and – eventually – profitability.
- Nearmap Ltd (ASX: NEA)
Nearmap shares have been crunched over recent months, as a slowing local economy failed to provide the upside growth the market was expecting. However, Nearmap's aerial photography is a first-rate product offering with professionals from solar installers to insurers using the technology to design their systems and services.
At just 44 cents per share, Nearmap is valued at $150 million, which in my opinion is a very good price to pay for a business that is likely to experience strong top and bottom line growth over the long-term.
Buy, Hold or Sell?
I hold a small amount of shares in each of these three businesses because I believe they are likely to provide significant upside for my portfolio over the long-term. Of the three, I'd say Yowie Group is the riskiest bet, but arguably holds as much potential as both Senetas and Nearmap.
