Many investors are scared off the idea of owning small caps. That's perfectly understandable, there's a lot less coverage of small businesses. If you don't know about a business it can seem a lot riskier.
Perhaps it would be safer to only own shares of businesses that are valued at $1 billion or larger. Luckily, broker Bell Potter has put a list together for its private clients and Livewire of the 10 best shares worth over a $1 billion to own:
ALS Limited (ASX: ALQ)
This company provides testing services for the environmental, food, pharmaceutical, sources and electronic sectors. Bell Potter thinks ALS will benefit from the recovery in the resources sector and the growth in food & pharmaceutical testing sectors.
Caltex Australia Limited (ASX: CTX)
The fuel refiner and retailer has been a big winner from the rising oil price, as well as high profit margins at its service stations. Caltex believes that the convenience stores at its service stations are a large untapped opportunity. However, I personally don't see what else can be done with them.
Challenger Ltd (ASX: CGF)
The retirement income and annuities provider is predicted to be a major winner from the shift of baby boomers from the accumulation phase into the retirement phase. I agree with Bell Potter on this one, Challenger looks like it will be a key beneficiary in this area and could be a long-term winner.
CSL Limited (ASX: CSL)
Despite the large run-up in the share price Bell Potter thinks this global plasma product company will continue to grow further with plasma volumes predicted to grow by 8% per annum for the foreseeable future. Plus, its new products from the R & D portfolio could turn into more winners for CSL.
GPT Group (ASX: GPT)
Bell Potter thinks this property business will continue to do well thanks to continued economic growth, particularly in the logistics space. However, I think rising interest rates could dampen the mood around the business.
Lendlease Group (ASX: LLC)
Urban regeneration could be a key theme to watch for Lendlease in overseas markets. Bell Potter pointed to the group's urbanisation pipeline end value of approximately $40 billion around the world. I'm more confident on Lendlease than GPT, however rising interest rates are still a factor to be wary of here.
Link Administration Holdings Ltd (ASX: LNK)
Link is the largest provider of outsourced administration services in the superannuation funds sector. It also offers administration services for UK asset managers and share registry services for companies in Australia, the UK and other European countries.
Link has a compelling offering for its clients with economies of scale. It could benefit from the expected super fund consolidation in the future. I agree with Bell Potter that Link looks interesting, but the current valuation is a sticking point for me.
Orora Ltd (ASX: ORA)
This packaging company has a growing business in Australasia and in the US. Continued economic growth in both countries should see Orora's earnings continue to grow according to Bell Potter.
Star Entertainment Group Ltd (ASX: SGR)
Star operates three casinos based in Sydney, Gold Coast and Brisbane. The planned refurbishments could make its locations generate more earnings. Star is one of the better ways to play the tourism theme on the ASX. However, I'm a little worried for Star Sydney's future earnings considering Crown Resorts Ltd (ASX: CWN) is constructing its own casino complex in the city.
Spark Infrastructure Group (ASX: SKI)
Spark has stakes in energy distribution businesses in Victoria, South Australia and New South Wales. Bell Potter thinks there's a good avenue for growth with the changing energy landscape in regards to renewable energy generation, storage points and the end user.
Foolish takeaway
There are a number of interesting picks in this list. I can see why Bell Potter has chosen each business, however business-specific, industry-specific, interest rates or valuation reasons leads me to think most of them have potential downsides.
At the current prices I think I would only really be interested in buying Challenger shares which are currently trading at 17x FY19's estimated earnings.
