Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

United Rentals, Inc. (URI), Cheniere Energy, Inc. (LNG), American Capital Ltd. (ACAS): These Stocks Have Great Growth Potential

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some small-company stocks to your portfolio, the Vanguard Small-Cap ETF (NYSEARCA:VB) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.


The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The Vanguard ETF’s expense ratio, which is its annual fee, is an ultra low 0.10%.

This ETF has performed  well, beating the S&P 500 over the past three and five years. As with most investments, of course, we can’t expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why small caps?
It’s common, and reasonable, to invest in lots of large-cap companies, as they’ve typically proven themselves enough to grow large, and tend to have some competitive strengths. But it’s also smart to include smaller companies in your portfolio, as the best of them can grow rapidly and eventually become large caps.

More than a handful of small companies  had strong performances over the past year. Natural-gas specialist Cheniere Energy, Inc. (NYSEAMEX:LNG) soared 75%, with investors excited  about its plans to build a liquid natural gas (LNG) export terminal to ship gas procured relatively inexpensively here to regions where it can be sold at a much higher price. They also like the stability that the company’s planned long-term contracts  should offer. It’s currently income-poor, but seems to have some long-term gains locked in. The stock is trading near a 52-week high.

American Capital Ltd. (NASDAQ:ACAS), a business development company (BDC) that’s also involved in mortgage-backed securities, surged 68%. It was upgraded  in February by analysts at Zacks, who liked its expense and debt reduction, along with better-than-expected earnings. But more recently, Wells Fargo & Co (NYSE:WFC) analysts downgraded the whole BDC sector, citing heightened credit-market risks and steeper valuations. Some are hoping that American Capital Ltd. (NASDAQ:ACAS) will reinstate its dividend in the near future, as management has said  it would like to do. In the meantime, it has been buying back shares, which isn’t always the best thing for a company to do. There’s a case to be made, though, that the company may be too inscrutable for most investors.

United Rentals, Inc. (NYSE:URI) gained 26%, renting out construction and industrial equipment, among many other things. Though its P/E ratio of 68 looks steep, its forward P/E of nine is much more attractive, suggesting strong expected growth. Indeed, revenue has been growing at a double-digit clip over the past three years, though free cash flow is negative.  Along with its fourth-quarter earnings, the company reported working on paying down debt, and expects to have significant free cash flow in 2013. It also pointed to its successful diversification from its previous focus on construction.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.