Small caps and penny stocks have soared in the past year.
The JSE's Small Cap Index is up 58.61% in the past 12 months alone!
A lot of investors are asking me about great small companies to buy and hold for great returns like these in the coming year, and beyond.
But it's important not to throw darts at a wall and pick a lottery ticket. To capitalize on the strength and upside of small caps today, it's important to narrow the field.
The best way to add a new gem to your portfolio is to diversify. Where are you lacking exposure?
If you have a portfolio full of financial and healthcare stocks, you might consider adding a small cap utility or something from the industrials sector. While it might feel like deviating from the norm, diversification is a good hedge. It's an even better hedge when you consider the volatility of small caps.
Here's a look at some of the rising star small caps from the major sectors of the stock market. Consider delving into these buy-and-hold candidates if you're intent on adding a small cap or two to your portfolio.
Don’t want to pick and choose what stocks to buy yourself?
Don’t worry I take out all the hassle and do the research for you.
Hot small caps to buy right now in different market sectors
Energy Sector small cap – Mahube Infrastructure
Mahube Infrastructure owns assets in the renewable energy space.
Its investments include two wind farms and three solar farms that collectively produce enough electricity to power 350,000 South African homes.
The company’s current PE ratio sits at a mere 4.68 with a dividend yield in excess of 8% on its current share price.
As electricity prices rise with inflation – so will Mahube’s income grow… And I am certain the company will continue finding more renewable or other exciting projects to invest in and grow…
Healthcare small cap – Afrocentric Investment Corp
AfroCentric (JSE: ACT) is a little-known JSE based healthcare company. While it has a market cap of only R3 billion compared to Discovery’s R100 billion, it administers MORE lives within its medical aid schemes than Discovery does (3.8 million compared to 3.5 million)!
On 9 March 2021 Afrocentric announced results. The company increased revenue by 25.3% to R3.898 billion.
Operating profit shot up 16.5% to R511 million, and headline earnings per share came in 10.9% higher at 26cps.
Based on these results, Afrocentric is on a PE of around 8.8 compared to Discovery at a PE of 1054!
Construction and Material – Trellidor Holdings
We all know Trellidor – the home security company that’s become such a necessity for daily life in South Africa.
What you might not know is that Trellidor has moved offshore as well.
What’s more – it actually won the contract to secure London’s underground train network thanks to its amazing security doors.
Trellidor released interim results for the six months ending 31 December 2020. The company saw a 2.5% increase in revenue for the six months.
Headline earnings per share shot up 19.5% to 30.6cps. That means the company’s 265c share price equals a PE of only 8.66 based on INTERIM earnings. If the company repeats these earnings for the full year it will be on a rock bottom PE ratio of only 4.33.
It has also declared an 10cps dividend.
Clearly Trellidor is doing well, and it’s even sharing some of these profits with shareholders via its dividend. I really like this stock, and I like its rock bottom share price more!
General Industrials – Bowler Metcalf
Bowler Metcalf is a small JSE listed packaging company.
The company hasn’t skipped paying a dividend since it started paying dividends in 1992.
In its latest results, released mid-February 2021, the company again had a great set of results.
Revenue increased by 12%, profit from operations shot up 34% and headline earnings increased 26% to 67.6cps for the six-month period.
What’s more, it announced an interim dividend of 19.4cps – up 14% from the previous year.
Post covid the stock will definitely see an extra boost to profit – even if purely out of the point of view that it will no longer need to pay the additional costs of doing business during the pandemic (with things like sanitizer, screenings etc in its factories.)
Telecommunications - Alaris Holdings
Alaris Holdings (JSE: ALH) is a tiny technology company worth around R397 million on the stock market right now.
It has offices in South Africa, Finland and the USA with its three business units being Alaris Antennas, COJOT and Mwave.
Through these companies it produces broadband antennas, defence and military equipment and even components that go into satellites.
The company sits on a huge cash pile in the bank, and just completed an offshore acquisition in the UK. That means that it will automatically grow profits, as well as diversify its income offshore.
In its latest results the company grew revenue by 13% and earnings per share 27%. Based on these results, and annualising the performance it sits on a PE of only 6.4. It has never paid a dividend before – but considering its cash on hand its not impossible that it could do so in the next year or two…
Looking for other great ways to grow your income?
Then check out my colleague, Josh Benton’s latest stock report. He explains why you really cannot afford to stay in cash this year and why you have to get invested.
Go here now and claim his latest report. Three stocks to buy now from the dash from cash!
Diversify for growth
Diversification is good for your portfolio. Adding a stock from a sector you’re light in or have very little exposure to brings balance to your investments.
Especially if you’re adding an up-and-coming small cap stock, this diversification is a great hedge against instability. And this is where Red Hot Penny Shares can help.
Our newsletter regularly researches, analyses and tips these kinds of small companies – that could make you big returns in the short, medium and long run!
Here’s to unleashing real value
Editor, Red Hot Penny Shares