As someone who is focused on retiring early, I’ve leaned towards shares offering capital gains in recent months. After all, I’m still fairly young so I think I can give growth stocks the time they need to come good.
Part of this shift has involved buying around 20 small-cap stocks which I’m aiming to hold for the long term. Clearly, buying smaller companies isn’t for everyone due to their higher risks versus larger shares. But I feel comfortable in doing so and in the selection of the companies I’ve made, with many of them holding up better than most UK-listed shares in recent weeks.
One company which has a business model I like is Restore PLC (LON: RST) (LSE: RST.L). It is focused on document storage solutions and while I must admit that this isn’t the most interesting of pursuits, the recurring revenue which the company enjoys has great appeal. After all, recurring revenue means stability and more earnings visibility.
Restore is able to generate recurring revenue simply because when an individual or company stores documents, they are unlikely to then seek out a cheaper or more convenient alternative. Simply put, customer loyalty is relatively high and this helped Restore to increase its EPS by 17% in 2014. Such a wide economic moat bodes well for its long term future in my view and with its shares trading on a P/E of 16.8, I’m happy with their long term growth potential.
Also offering upside in my view is Next Fifteen Communications Group plc (LON: NFC) (LSE: NFC.L). This has been one of my better performers in recent months, with its shares rising by 20% in the last six months.
One of the reasons I bought Next Fifteen is its truly global exposure. It has major operations in the US as well as in Europe and Asia, with all three regions performing well according to its latest interim update. And with Next Fifteen having a decent balance sheet and strong cash flow, it has been able to make several acquisitions in the last year which should help to boost its profitability in the long run. With shares in Next Fifteen trading on a P/E of 15.2, I’m still comfortable holding them.
Still in the PR/advertising space, M&C Saatchi Plc (LON: SAA) (LSE: SAA.L) has been a bit of a disappointment since I bought it last year, with my holding down 9% at the moment. I’m not concerned about this since I have a very long term timeframe and the company’s progress seems to be relatively sound.
For example, in M&C Saatchi’s most recent update it reported a rise in revenue of 9% at constant currencies, with EPS increasing by 13%. This allowed it to increase dividends by 15%, which puts the company on a prospective yield of around 2.5%. While these smaller companies are in my portfolio mainly for their capital growth potential, I do like a growing dividend as it gives me confidence in the company’s future prospects.
Therefore, with M&C Saatchi seemingly on-track to deliver on its long term goals, I’m optimistic that it and the other 19 or so other smaller company shares I hold will help me to arrive at an early retirement even sooner!
The author owns shares in Restore, Next Fifteen and M&C Saatchi at the time of writing.