Take advantage of recovery in Europe with these six small-cap stocks

The bull-run in European small-caps is far from over, says fund manager Jim Campbell. Here, he tips six stocks to buy now.

Each week, a professional investor tells MoneyWeek where he'd put his money now. This week:Jim Campbell, fund manager, JP Morgan European Smaller Companies Investment Trust.

European small-cap shares have provided world-beating long-term returns, surpassing other global indices over the past 20 years. Their bull run is far from over in fact, they offer new opportunities for investors seeking to take advantage of the recovery in Europe.

Also, because fewer analysts cover the small-cap sector, it is a less efficient market meaning smart investors can snap up unjustly cheap stocks. We generally seek three characteristics when selecting small caps.

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First, we look for companies that can demonstrate long-term growth. These tend to have leadership positions in their markets and can grow earnings. German financial services and technology company Wirecard and Italian online luxury retailer Yoox are two examples.

Yoox (Milan: YOOX) sells the unsold stock of various luxury brands through its own online store and in parallel it manages the online business of 30 leading luxury brands. We bought the stock in January last year as it grows at 20%-30% a year. The company has as yet has no credible competition.

Wirecard (Frankfurt: WDI) is one of the players in the online payments market. It has a banking licence, which means that, unlike competitors, it can settle credit-card transactions without the need of an intermediary, cutting costs.

The stock has outperformed strongly. We still hold it on the basis of its high organic growth rates, new growth avenues (such as mobile payments) and potential for acquisitions.

Second, we look for companies benefiting from a cyclical recovery those that used the recession to cut costs and become more competitive. Irish building materials company Kingspan and Trigano, the French manufacturer of camper vans, are two examples.

Trigano (Paris: TRI) has outperformed and gained market share as the demand outlook has continued to improve. It plans to reduce capacity in loss-making business units, optimise working capital (better inventory management) and grow international sales in Spain, Scandinavia and Germany.

Kingspan (LSE: KGP) is a global leader in insulation materials for the construction sector. The UK construction market has shown signs of recovery and the US has continued to perform well, which drove earnings upgrades through 2013 and resulted in the stock outperforming.

Third, we look for companies with a corporate restructuring story, for example those that have reorganised or changed management after a downturn. Spanish wind turbine maker Gamesa and Italian footwear producer Geox are two examples.

Gamesa (Spain: GAM) is one of the global market leaders in the wind turbine manufacturing sector with particular strengths in India and Latin America.

It had been an extremely unloved stock for years as it operated in a tough environment, plagued by overcapacity and falling prices. It went through major restructuring and its stock performed extremely strongly through 2013.

Geox (Milan: GEO) has a strong brand, but has been underperforming for a number of years due to a poor business strategy. It has appointed a new chief executive, so that is changing. We bought the stock soon after the September 2012 announcement of the CEO's appointment, but believe there is plenty of upside left.

Jim Campbell is fund manager of the JP Morgan European Smaller Companies Investment Trust.