Risk tolerance is an important trait for an investor, though it varies drastically from one investor to another. Some investors prefer to play it safe, and the risk they like to take is buying safe, blue-chip stocks in weak markets (at discounted prices and valuations). Others go completely in another direction and risk investing in untested or highly volatile stocks, playing a high-stake game for exceptional rewards.
The most pragmatic approach is probably somewhere between the two extremes. It’s a good idea to look outside the blue-chip pool, but that doesn’t mean you have to dive headfirst into dangerous waters. You can find safe and decently performing stocks among small caps as well, and there are three small-cap stocks that should be on your radar this month.
A tech stock
With a market capitalization of about $1.65 billion, Enghouse Systems (TSX: ENGH) lies close to the upper limit of the small-cap stocks. This valuation is courtesy of a brutal downward slump that has cost the company about 61% of its valuation.
Since it’s still going down, the stock may become even more discounted over time and more attractively valued. But considering the bullish tech sector, an upward trend may be just as likely.
It’s a software and services company that operates in multiple domains, including services related to the transportation sector, interactive services for call centres, and video communications.
This diverse range of business segments might offer this company multiple growth avenues, and if they lead to a major revenue uptick, the stock may follow course. It’s in the position to double your capital just by recovering to its peak value.
A senior care company
Another small-cap stock that you might consider investing in is Extendicare (TSX: EXE). It’s a steady business as the Canadian senior population is steadily growing, and as a 50-year-old name in this segment, Extendicare has established itself as a leader and a trusted service provider. It caters to over a hundred thousand seniors through its 103 communities, over half of which it directly owns.
The stock doesn’t offer much in the way of capital appreciation. In the last 10 years, the stock has grown by just 5%. But it’s a generous dividend payer, and it’s currently offering a juicy 6.6% yield, perfect for starting a healthy passive-income stream. The company has maintained consistent payouts since 2014.
A private equity firm
Clairvest Group (TSX: CVG) is a stable, small-cap growth stock that has grown by almost 1,000% in the last two decades. The growth hasn’t been very consistent over this period, and there were multiple phases when the stock slumped or simply became stagnant but overall, the direction has mostly been up.
The company has completed over 380 acquisitions over the years and currently has a portfolio of 24 companies that it currently owns/has a stake in. It also offers returns through dividends, but the yield is practically non-existent. However, it’s a solid pick for long-term and sustainable capital-appreciation potential.
- We just revealed five stocks as “best buys” this month … join Stock Advisor Canada to find out if Clairvest Group made the list!
Foolish takeaway
The three small-cap stocks represent companies that have a solid position in their respective industries and have performed well during multiple adverse markets. They may not have the “weight” of blue-chip stocks, but they are resilient and reliable picks that can be held in your portfolios for years or even decades.
