5 Little Stocks to Love

by Louis Navellier | February 8, 2011 12:01 pm

Big Things in Small Packages

It appears that many investors are increasingly coming to the conclusion that small-cap growth stocks are the best on the market. Companies can’t get by with mere cost-cutting anymore; they need to show real growth. A good stock is no longer one that has turned things around after the deepest recession in 30 years and is now delivering explosive sales and earnings growth; it is one that has sustained its sales and earnings growth throughout the downturn and into the recovery.

The small-cap stocks on this list are benefiting from their consistently strong sales and earnings, making them among the best stock picks[1] for the current market.

Keep reading to get the top small-cap stocks to buy for February.

Small Cap to Buy #1 – Polypore International (PPO)

Polypore International Inc. (NYSE: PPO[2]) is my favorite small cap to buy this month. This specialty chemicals company isn’t a big newsmaker, but it still knows how to rack up gains even when it’s not making the headlines. The stock is up 22% in the past month, and has risen 80% since September 2010.

PPO makes membranes that are used to separate positive and negative electrodes in lithium-ion and lead-acid batteries. Essentially, what this company does is make the next era of electricity generation possible.

It has received a lot of attention from institutions over the past month with a number of analysts raising their ratings on this stock. Expectations are high for this company’s sales performance in 2011 due to the increased use of rechargeable batteries, as well as the rapid expansion of the lithium industry. This company will report financial results on Wednesday, Feb. 23, and I am expecting a strong showing. Buy PPO under $54.

Small Cap to Buy #2 – Acme Packet (APKT)

Acme Packet Inc. (NASDAQ: APKT[3]) has soared nearly 30% this month following its outstanding earnings report at the beginning of the month. Leading communications technology companies, such as APKT, are doing quite well in the current market environment in which businesses are investing a great deal of money in upgrading their Internet networks. This was evident in the company’s most recent earnings report.

APKT reported earnings of $14.5 million, or 21 cents per share, on sales of $70.2 million. These results compare with 2009 fourth-quarter earnings of $9.1 million, or 14 cents per share, and sales of $41.2 million. Excluding items, the company posted earnings of 26 cents per share in the most recent quarter, above analysts’ estimates of 22 cents per share by 18%!

The results were record-breaking for the company and caused the share price to skyrocket in the trading session following the report. Investors have cheered the strong quarterly results and upwardly revised 2011 guidance, and the stock is making new all-time highs. The company now predicts yearly sales of $300 million (up from $286 million to $287 million) and yearly earnings of $1.05 per share (up from 99 cents to $1 per share). Acme will benefit from increased spending on 4G/LTE (Fourth Generation/Long Term Evolution) as record numbers of users download mobile applications, send messages through Facebook and Twitter, and surf the web on their cell phones, creating demand for faster broadband speeds. Buy APKT under $83.

Small Cap to Buy #3 – Alliance Fiber Optic Products (AFOP)

Networking, as an industry, is experiencing a lot of growth right now and component suppliers like Alliance Fiber Optic Products Inc. (NASDAQ: AFOP[4]) are benefiting from investments that companies and governments are making in expanding bandwidth capacity.

The company announced fourth-quarter financial results last week and, unfortunately, it led to a significant dip in the stock. The earnings announcement is a red herring, however, and investors are simply using it as an excuse to sell when their real motivation is profit-taking.

The company booked fourth-quarter earnings of $1.7 million, or 20 cents per share, up from $428,000, or 5 cents per share, in the fourth quarter of 2009. These figures were in line with analysts’ estimates. The company’s sales were $11.6 million in the quarter, a 55% year-over-year increase but a tad short of expectations. The sales miss is being blamed for the drop in the share price. In reality, however, the company’s results were quite strong, all around, and they set new records for the company.

We’ve seen this kind of behavior with this stock before. Last month, it fell 12% in one day and continued to move lower, but in the two weeks following its bottoming-out point, it gained nearly 20%. This is a thinly traded stock so it is given to these kinds of swings, but as long as it continues to post strong earnings results, it will keep moving higher.

Use this dip as an opportunity to buy AFOP below $21.

Small Cap to Buy #4 – Radcom Ltd. (RDCM)

Radcom Ltd. (NASDAQ: RDCM[5]) reported strong earnings results for the fourth quarter last week. It logged quarterly sales of $5.4 million, up 29% year-over-year, and earnings of $500,000, or 8 cents per share, a 104% yearly increase. I can tell you just based on the year-over-year comparisons that these results are quite strong.

The company stands to benefit from the implementation of 4G/LTE technology over the next year as more and more businesses use Radcom’s products to ensure the integrity of their networks. Radcom is also rapidly expanding into emerging markets, with 32% of its sales coming from Latin America and 19% of its sales come from Asia/Pacific last year.

Now, despite these results, the company’s share price fell in the days following its report and the stock closed out January with only a modest gain. The reason for the decline is profit-taking, plain and simple. If you look at the stock’s performance in the period from Dec. 1 to mid-January, the stock moved higher by 60%. Investors have been waiting for the right time to book profits and they used the earnings announcement as impetus to do so.

I still remain quite bullish on this stock and believe it will move higher after the sell-off is over and that the current dip provides an opportunity for you to pick up shares. Buy RDCM under $13.

Small Cap to Buy #5 – Netflix (NASDAQ: NFLX)

OK, with a market cap of 11.5 billion, Netflix Inc. (NASDAQ: NFLX[6]) is not a small-cap stock, but it is a stellar growth stock. In a highly anticipated report, the company recently announced earnings results for the fourth quarter. Despite all the analyst coverage, the company still was able to post a remarkable 23% earnings surprise! The company reported earnings of $47.1 million, or 87 cents per share, compared with 71 cents per share as expected by the analysts. In the quarter, the company also raised sales by 34% to $595.9 million and increased its total subscriber base to 20.1 million, a 63% year-over-year and 18% sequential increase.

Given these results, it should come as no surprise that the stock is up over 20% since the beginning of the year. Short sellers had been gunning for this stock in the weeks leading up to the report and after the company announced, and they were eating their words. In my eyes, this stock is another Apple Inc. (NASDAQ: AAPL[7]). Naysayers are going to predict doom and gloom for NFLX at every corner, but consistently this company is going to beat expectations and attract more investors as a result. 

In the next year, I’m looking for the company’s recently launched $7.99 per month streaming-only service to fuel growth, as well as the addition of new titles to its movie database. The integration of Netflix service into other electronic devices, like smartphones and gaming consoles, will also be a key driver. Buy NFLX below $250.

Source URL: https://investorplace.com/2011/02/small-cap-stocks-to-buy-ppo-apkt-afop-rdcm-nflx/

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