asx Small caps: best shares to buy for growth
Investors buy ASX Small Caps as they are the best growth stocks to buy in 2020. As a small stock grows, so does your wealth.
Why are ASX Small Caps the best growth stocks to buy?
ASX Small Caps, or small companies listed on the ASX are the best growth stocks to buy as they provide investors with share price growth. The ASX Small Caps that Under the Radar Report recommends to buy are growth stocks and are mostly in the early stage of their business life cycle.
ASX Small Caps as a general rule are establishing their niche and investors should buy these growth stocks while they are still small. ASX Small Caps are often undervalued as growth stocks as most analysts do not cover them because they are simply too small.
ASX Small Caps are often cheap growth stocks
ASX Small Caps are often cheap growth stocks when compared to Blue Chip shares. This is because ASX Small Caps are often establishing themselves and are in the growth stage of the business life cycle.
At Under the Radar Report we advise investors buy ASX Small Caps when they are cheap and to not chase the stock and pay a big price. Investors should buy ASX Small Caps when they are still priced for growth.
The value end of ASX Small Caps is where Under the Radar Report hunts for growth stocks and it is where we focus on a PE ratio of 12-14 for those growth stocks. The average PE for the All Ords ASX Index is 16, however, for a top industrial Blue Chip share the PE can be 18 or 19 or even higher.
Uncover ASX Small Caps
The best growth stocks to buy
Small companies in diverse industries are the best growth stocks to buy
Small companies are the best growth stocks to buy as investors have a diverse range of industries to choose from such as technology, gold, and minning. This is because by nature ASX Small Caps are less established businesses and are often in disruptive industries including technology experts or niche fields. ASX Small Caps are growth stocks because disruptive businesses once established really grow. Take a look at our best ASX Small Caps that have demonstrated to be the best growth stocks for our subscriber.
Blue Chip shares in comparison are much more mature in their business cycle and are therefore by nature a less risky investment. However, the ASX 200 (the top 200 ASX listed shares) are dominated by the big banks and resources companies but it is very limited to a number of sectors (ie banking and resources and a few big name industrials), but essentially it does not give investors the opportunity to invest in a variety of industries to achieve substanial growth.
Are growth stocks riskier?
Small Caps are are smaller, and less known, so it is important that you look to manage your risk. These ASX Small Caps are mostly under researched by the share market participants. For example there would be 15-20 analysts covering the Blue chip shares but you are lucky if one or two cover ASX Small Caps.
At Under the Radar Report our experienced team of analysts research every growth stock that we recommend, and we have a very strong performance record in our nine years of recommending growth stocks. Our analysts have over 150 years combined experiecing analysing and investing in Small Caps.
Read more about our performance here.
Analysis of ASX Small Caps relies on the same principles as Blue Chip shares
Our small cap share analysts use the same investment principles as if they were researching and recommending blue chip shares. They look at the quality of earnings, the quality of management (especially important here) – we like it when management has a stake or has shares in the small cap – when you win, they win too. We look at sales diversification, the key drivers of the business – why would they grow? What is their competitive advantage? Can it increase its prices without losing customers? Plus of course the financials and the audited results. Our team speak to management regularly to keep up to date with the small cap and it’s progress.
Read more about our ASX Small Caps investment philosophy here.
So proper independent share research for small caps is very important.
ASX Small Caps are the best growth stocks as 50% pay dividends
Another interesting fact about the small caps that Under the Radar Report recommends is that 50% of our ASX listed small caps.
We make it really easy for our subscribers to see which of our ASX small caps pay dividends. We list them all and you can search by their dividend yield. The dividend yield ranges from 9.2% to 0.4%. If a small cap stock is paying dividends it is not only some nice income for an ASX investor, it also shows that the company is established and making a healthy profit and they are often a less risky investment.
Should ASX Small Caps pay a dividend?
At some stages in a small caps’ life cycle it is actually important to be reinvesting any profit back into the company to power growth. Because the primary reason you are investing in small caps is because you believe in the company and its niche and see real growth opportunities for your investment dollar. If it is not performing as it should, perhaps it’s time to sell and to put your money into a different small cap that is performing and can deliver you growth which the share market rewards with an increase in the small caps share price.
Investing in ASX Small Caps
ASX Small Caps are fascinating to learn about as . You become a shareholder or a part owner in a small business that is in a massive growth phase. You get to learn about the business and it’s point of difference, whether it be Austal (ASB) a global designer and builder of ships with ship yards in Western Australia who makes battle ships for the US Navy, to Money3 (MNY) a niche lender primarily focussed on providing secured auto loans to people that have trouble accessing finance from traditional lenders to some amazing medtech stocks whose technologies are being developed to help people across the globe.