The Motley Fool

2 small-cap stocks you could buy today and never sell

Quickfire trading for fast profits is an alluring strategy. Many financial commentators will advise you buy a stock because it looks a little undervalued, but instead of flipping stocks for a 10% gain here and 20% profit there, I reckon most investors would be better served playing the long game.

The Sage of Omaha, Warren Buffett, has admitted his favourite holding period is forever because it allows your returns to compound and avoids the attention of the taxman. With that in mind, here are two companies I’d be willing to buy and hold if the market were to close down for 10 years.

A helping hand for healthcare administrators

The US healthcare system is a complicated beast. A hospital can provide a myriad of services, making billing a difficult process prone to human error. For example, a central list of billable items could contain upwards of 40,000 items.

Edinburgh-based Craneware (LSE: CRW) offers hospitals a range of solutions to aid administrators. Its software makes picking the correct treatment codes easy and streamlines reimbursement processing when dealing with government-funded programmes like Medicaid.

In short, the software saves hospitals time and money. Craneware has grown profits eight-fold since 2007. It made $10.6m profit on $50m in revenue last year, for a net income margin of 21.1%. Return on capital has averaged 17.2% over the last five years too and the balance sheet is sound, boasting a $48.8m net cash position.

Trump is planning on repealing and replacing Obamacare, which could change the healthcare landscape in the US. So will that hurt Craneware? Well, its sales actually increased after the election results. These contracts average five years, indicating that hospitals still believe the software will be useful in the future. The healthcare system will likely be insurance-based regardless of what happens, so I believe the firm will remain relevant.

Throw in visible and recurring revenues, a dollar renewal rate of over 100% and strong scalability and I think it could outperform the market for years to come. The company currently trades at 30 times free-cash-flow, but I reckon the aforementioned qualities justifiy this rating. You’ll get a 1.5% yield while you wait too. 

Picks and shovels for the gaming boom

The global video games industry is expected to grow at a CAGR of 5% over the next few years and could be worth as much as $90.1bn in 2020.

Video games are getting more complicated as it grows and I reckon these factors bode well for Keywords Studios (LSE: KWS), a picks and shovels play on this rapidly expanding industry.

Big games developers outsource a number of services to Keywords, including voice acting and recording, games testing and localisation services, including the translation of speech, marketing and packaging into different languages.

Historically, these services have been provided by a number of tiny companies. Keywords is now consolidating this fragmented industry and is the largest service provider in its niche. It acquired eight businesses in 2016, including Synthesis, expanding its skill set into audio services. 

The company has worked with 21 out of 25 of the top games companies by revenues, including Sony and Electronic Arts. I believe it can become the largest service provider in the rapidly growing global gaming industry. A forward PE of 30 is demanding but I think the company’s dominant position and industry tailwinds justify this.   

These exciting growth stories have potential in the long term but admittedly aren't all that cheap when viewed through traditional metrics. However, our analyst team has also unearthed a little-known small-cap growth story that is valued on an undemanding P/E of 7.

The company in question has a wonderful track record, smashing the market by over 100% in the last five years. We believe this company's growth is about to rev up. Click here to download the free investment report. 

Zach Coffell owns shares in Craneware. The Motley Fool UK has recommended Craneware and Keywords Studios. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.