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

A fresh-faced young woman holds an Australian flag aloft above her head as she smiles widely on a beach as though celebrating a national day or event where Australia has been successful.
Growth Shares

The best Australian shares to buy with $1,000 right now 

Analysts think these shares could be great options for Aussie investors when the market reopens.

Read more »

A young man goes over his finances and investment portfolio at home.
Growth Shares

Why earning 4% to 5% in a term deposit 'isn't that attractive'

The upside is capped on the most risk-less investments.

Read more »

A woman makes the task of vacuuming fun, leaping while she pretends it is an air guitar.
Growth Shares

Overinvested in WiseTech shares? Here are two alternative ASX growth stocks

WiseTech shares are great, but there are other exciting growth stocks out there.

Read more »

A young man pointing up looking amazed, indicating a surging share price movement for an ASX company
Growth Shares

These ASX 200 growth shares could rise 65% and 100%

Big returns could be on offer for buyers of these shares according to analysts.

Read more »

A man casually dressed looks to the side in a pensive, thoughtful manner with one hand under his chin, holding a mobile phone in his hand while thinking about something.
Growth Shares

Is this growing ASX 300 stock a top buy?

Let's see what analysts are saying about this high flying company.

Read more »

Two smiling work colleagues discuss an investment or business plan at their office.
Growth Shares

3 excellent ASX growth shares to buy for market-beating returns

Let's see why analysts are feeling bullish about these growing companies.

Read more »

A man and woman sit next to each other looking at each other and feeling excited and surprised after reading good news about their shares on a laptop.
Growth Shares

4 ASX shares to buy now and hold for a lifetime in your super fund

Analysts have very good things to say about these stocks.

Read more »

Man smiling at a laptop because of a rising share price.
Investing Strategies

This fund manager delivered 42% gains in one year. Here are the top ASX shares it owns

Growth funds continue to deliver the goods for ASX investors.

Read more »