3 ASX small caps that should be in your portfolio for the 2020s

These 3 ASX small caps, including Bubs Australia Ltd (ASX:BUB), should be in your portfolio for the 2020s.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

You could find the best opportunities for growth on the ASX in the hunting ground of small caps. 

It's much easier for a business to double in size from $250 million to $500 million than it is to go from $2.5 billion to $5 billion.

Over the long-term I think the shares that have got the best potential for returns are either the ones with the greatest economic moats, or the ones that are quite small and have a long growth runway.

Here are three of my favourite small cap ideas for growth:

Bubs Australia Ltd (ASX: BUB

Bubs is an infant formula business, except most of its revenue comes from goat milk products. I have been impressed by what Bubs achieved in its short time on the ASX.

It acquired NuLac Foods, which gave it exclusive supply from the country's biggest goat milking herd. It acquired Australia Deloraine Diary, a CNCA approved infant formula manufacturing facility. It has signed a number of agreements to expand its sales reach, the deals with Chemist Warehouse and Alibaba's Tmall seem particularly clever.

Bubs is launching into new countries and launching new products regularly. The organic (cow) grass-fed formula products could be particularly attractive to consumers over time. 

Bubs is set up for strong long-term growth and its revenue is rising rapidly.

Propel Funeral Partners Ltd (ASX: PFP

Propel is the second largest funeral operator in Australia and New Zealand. It's much smaller than InvoCare Limited (ASX: IVC), so it has a much longer acquisition growth runway before its market share becomes an issue for competition regulators.

The funeral industry has a compelling growth future. Death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050.

When you combine that organic volume growth of the industry with the rising price of funerals, hopefully better profit margins, plus acquisitions, it should lead to good earnings growth over the next decade.

WAM Microcap Limited (ASX: WMI

Finding good small caps can be difficult. It can be tough getting the right price and it may also be hard to know what the right position size for your portfolio is.

I'm happy to leave a lot of my small cap investing to one of the best small cap investing teams in Australia, WAM Microcap.

Since the listed investment company (LIC) was formed in June 2017, its portfolio has produced an average return per annum of 21.9% before fees, expenses and taxes. That's a great performance and I think WAM Microcap could be one of the best fund performers over the next decade.

Foolish takeaway

Propel is definitely the defensive pick of the three, I wouldn't be surprised to see its dividend rise consistently over the next 10 years. Bubs definitely has the potential to be one of the best-performing shares this decade. But WAM Microcap's performance has been really strong and it gives a lot of diversification in a single investment.

Motley Fool contributor Tristan Harrison owns shares of WAM MICRO FPO. The Motley Fool Australia has recommended BUBS AUST FPO, InvoCare Limited, and Propel Funeral Partners Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Growth Shares

Smiling woman with her head and arm on a desk holding $100 notes out, symbolising dividends.
Growth Shares

Invest $10,000 into these Australian shares in December

Analysts think these shares could generate big returns for investors.

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Growth Shares

2 of the best ASX growth shares money can buy

Bell Potter rates these growth shares very highly. But why?

Read more »

A smiling travel agent sitting at her desk working for Corporate Travel Management
Growth Shares

My 2 best ASX growth shares to buy in November

Growth continues to catch the market's attention.

Read more »

a man looks down at his phone with a look of happy surprise on his face as though he is thrilled with good news.
Growth Shares

Buy these ASX growth shares for 16% to 25% returns

Analysts are saying good things about these buy-rated shares.

Read more »

two children squat down in the dirt with gardening tools and a watering can wearing denim overalls and smiling very sweetly.
Growth Shares

How to maximise $10,000 by investing in 2 ASX growth shares

Here are my best growth ideas on the ASX right now.

Read more »

A man sees some good news on his phone and gives a little cheer.
Growth Shares

These ASX 200 growth shares could rise 50% to 60%

Big returns could be on offer from these growing companies according to analysts.

Read more »

Sports fans looking at smart phone representing surging pointsbet share price
Growth Shares

Up 111% in six months, this soaring ASX share is backed to keep rising

One fund manager thinks this ASX growth share can continue its phoenix performance.

Read more »

a happy investor with a wide smile points to a graph that shows an upward trending share price
Growth Shares

These ASX growth shares are being tipped to smash the market

Returns of 14% to 68% could be on the cards for buyers of these shares according to brokers.

Read more »