Julie Stralow at Morningstar wrote an interesting article last week on how to invest in small companies. She notes that small companies often grow faster than large companies, and that by virtue of their size, small companies are often not as followed by analysts, leading to information gaps and mispricing. The difficulty with investing in small companies is the potential for increased risk. It is also difficult to identify small companies with sustainable competitive advantages.
Julie notes four small cap stocks that are both attractively priced and that she believe have sustainable competitive advantages (i.e. wide moats). Her list is as follows:
- DeVry (DV)
- Federated Investor (FII)
- Foward Air (FWRD)
- Strayer University (STRA)
I hope to find some time this week to take a closer look at these four attractive stocks.