While looking for shares to buy right now, I’ve been searching among smaller companies. Indeed, I believe one of the best ways to generate high returns in the stock market is to invest in micro-cap shares. This is because smaller businesses tend to grow faster than their larger peers.
For example, it’s a lot easier for a small business with £50m of revenues to double sales than a large blue-chip with revenues of £10bn. However, while it’s possible to generate a high return with micro-cap shares, investing in small businesses can also result in considerable losses. As such, this strategy isn’t suitable for all investors.
While small businesses can grow faster than blue-chips, there’s also a higher chance of them collapsing. Still, I’m comfortable with this level of risk.
Shares to buy right now
Housing is one of the most significant parts of the UK economy. I think companies that serve this market could be attractive investments for the long haul.
With that in mind, I would buy micro-cap shares Belvoir and LSL for my portfolio. The former is a franchisor of letting and estate agency businesses, while the latter provides many services related to the buying, selling and letting of properties.
Both companies have different strengths, opportunities, weaknesses and risks. Competition is the main factor for both. Selling houses is an incredibly competitive market, and agents always try to undercut each other on fees. Property maintenance is equally as competitive. The small size of these businesses may make it harder for them to compete.
Still, I think these are some of the best shares to buy now to invest in the booming UK housing market. According to analysts projections, Belvoir is expected to record earnings growth of 5% for 2020. LSL’s earnings are forecast to increase 34%, although these are just projections at this stage and should be viewed as such.
Forecasts suggest the UK economy could roar back to life in the second half of 2021. Again, these are just projections, but I think the best shares to buy now to profit from this trend could be Severfield and HSS.
These micro-cap shares have lots of exposure to the UK construction sector, which tends to be highly cyclical. A sharp improvement in economic activity could result in higher demand for construction equipment.
But if the economy slumps, demand may fall, which would negatively impact these companies. That suggests these businesses are probably riskier than average. Nevertheless, I’d buy Severfield and HSS to invest in the UK economic recovery.
Financing the recovery
Litigation Capital Management is another micro-cap stock I’d buy to invest in the UK economic recovery. This business operates in the rapidly-growing litigation finance market. The market is booming, and there are plenty of opportunities for the company to grow in the next few years.
However, the market is highly competitive. This may force Litigation to take excessive risks to achieve better returns. So, while I’d add the business to my portfolio, I plan to keep a close eye on its lending. Based on this risk, it may not be suitable for all investors.
The post 5 micro-cap shares to buy right now appeared first on The Motley Fool UK.
Rupert Hargreaves has no position in any of the shares mentioned. 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.
Motley Fool UK 2021