The Motley Fool

2 of my top small-cap stock tips for 2019

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Gold medal
Image source: Getty Images.

If you’re looking for big gains from the stock market, it can pay to look outside the FTSE 100. Just look at Fevertree Drinks whose share price has risen over 1,700% since the company listed on the stock market in late 2014 – try getting returns like that from the Footsie.

Today, I want to share with you two of my top small-cap ideas for 2019. In my view, both have the potential to generate big gains for investors. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

K3 Capital

K3 Capital (LSE: K3C) is a leading business sales and brokerage firm that acts for businesses valued between £50,000 and £100m. The £120m market-cap company has recently won a number of industry awards, including first place in the 2017 Thomson Reuters Small-Cap Financial Advisory Review.

It first came to my attention in January last year when the group released an excellent set of interim results and its share price shot up above 400p. Since then, the shares have drifted back to 275p, yet the group has continued to make significant progress (full-year revenue was up 53%), which leads me to believe that the stock could be set for another leg up in the near future if results this year are robust. It’s worth noting that in December, the company advised that it had achieved “significant revenue and profit growth” across its Knightsbridge and KBS Corporate brands, compared to the first half of the prior financial year, which suggests to me that this year’s results could be good.

With the stock currently trading on a trailing P/E ratio of 19.6, I think there’s plenty of upside potential here. And with a dividend that is growing rapidly (the yield is around 4%), I also think K3C could turn out to be a cash cow for investors.

Gamma Communications

The next small-cap stock that I think has strong potential is Gamma Communications (LSE: GAMA). Founded in 2001, the company provides voice, data and mobile services for the business market, and its clients include Pret, British Heart Foundation, and Cathay Pacific.

AIM-listed Gamma first listed there in late 2014 at a price of 187p, and since then, the stock has risen to 800p, valuing the company at £716m. Yet the company is generating strong growth at present, and the shares don’t look particularly expensive, which leads me to believe that there could be more share price gains to come in the near future.

Crunching the numbers, there’s a lot I like about the firm. Revenue and profits are trending up at a rapid rate, and return on capital employed (ROCE) – a key measure of profitability – is high, averaging 27% over the last five years. Furthermore, debt is negligible, meaning the company is less vulnerable in the event of an economic downturn. Half-year numbers, released in September, were excellent, with revenue up 18% and cash generated from operations surging 66%.

With the stock trading on a forward P/E ratio of 22.9, I think the outlook over the medium term is exciting. 

Of course, smaller companies are more volatile than larger ones, meaning the risk of losing money is higher. Even the most promising smaller companies can experience setbacks and see their share prices fall significantly. Therefore, when investing in small-caps, it pays to diversify your money over a number of different picks, in order to lower your risk.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Edward Sheldon owns shares in K3 Capital. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.