When it comes to finding outstanding growth stocks, the old adage “dynamite comes in small packages” is a dollop of homespun wisdom I find to be a helpful guide.
“Small” in this context refers to market capitalization — as in small-cap stocks like the kind found in the Russell 2000 Index. These stocks aren’t so big that it takes huge buying interest to move the needle, which often is the case with many Dow Industrial and/or S&P 500 stocks. Nor are they too tiny — e.g., they are not microcap stocks, as that class is generally susceptible to huge volatility.
The small-caps I like are basically Goldilocks in stature, meaning their size is just right for delivering big portfolio gains.
Of course, finding the right small-cap stocks — those capable of big upside, but not full of risk — isn’t an easy task. You have to find companies with solid fundamentals, outstanding growth prospects, and ones that are seeing strong buying interest by professional money. These three factors are what I look for in small-caps, as they are critical elements that can keep these small fish swimming up any market stream.
Here are three of my favorite mighty mites that could keep delivering strong gains in 2013:
Click to Enlarge Travel site Orbitz Worldwide (NYSE:OWW) recently settled its antitrust dispute with American Airlines (PINK:AAMRQ) over how Orbitz displayed its fares.
The lawsuit might just have been settled, but what has been clearly settled so far in 2013 is Wall Street’s appetite for this small-cap stock. OWW is up 130% year-to-date, and now that the American headwind has been removed, I think more money will flow into this strong travel play.
In addition to the momentum buying in the shares, Orbitz is a company that I suspect will keep seeing good fundamental growth in good times or bad. If the economy continues to improve, more people will look to travel and take vacations. If the economy slows, then more travelers will look to Orbitz to book the cheapest flights and hotel rooms possible.
Either way, OWW wins.
Click to Enlarge Another Internet-based small cap on my list is WebMD (NASDAQ:WBMD). The company’s medical info-packed website has become a go-to destination for looking up all types of medical information.
After a steep drop in the shares at the end of 2012, WBMD began to soar again in 2013. The stock really took off in late February in reaction to better-than-expected Q4 revenue and an upbeat sales forecast for the full year. So far in 2013, WBMD shares are up more than 57%.
In late 2011, WebMD executives began to shop the company around to bigger suitors, but those deals fell through after the shares spiked up to $40. If we see another big move higher in this small-cap stock, it could send the stock back up to those healthy heights.
Click to Enlarge Housing stocks aren’t all about lumber, hammers and nails. In fact, today’s best real estate play is more about mouse clicks.
Online real estate website Zillow (NASDAQ:Z) is taking advantage of the steady rebound in the housing sector, as more prospective homebuyers are looking to find out all kinds of information on homes such as prices, features, homes recently sold in a given area, and all kinds of demographic and other data about a given area.
This is the kind of information you once had to get from a realtor, but now it’s all online, and it’s even available via a smartphone app. Consumers also can find out about mortgage rates, and even get connected with mortgage lenders.
Like our other two small stars, Z shares have seen a big move higher in 2013. Year-to-date, the stock is up nearly 87% — proof that a lot of money is betting on ways to profit from unconventional housing sector plays.
As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.