Best Small Cap Stocks of 2013 – Zhone (ZHNE)
YTD Return: 965%
Zhone (ZHNE) has been mostly dead money since the financial crisis, but became one of the hottest small cap stocks about halfway through the year. Yes, in July, small cap ZHNE stock went into orbit.
Zhone, which develops networking solutions, has been investing heavily in its product line and it is starting to pay off. The technologies help with key areas like social media and mobile — which should see long-term growth — and have meant big-time gains for ZHNE stock investors.
For the past consecutive four quarters, the small cap has been able to not only exceed revenue estimates, but also to post positive net income and free cash flows. Keep in mind that ZHNE, like lots of small cap stocks, has been a perennial money loser.
Now, though, it looks like the small cap is committed to being disciplined, while also finding ways to keep up the growth ramp. In fact, despite the fact that ZHNE is one of the top small caps stocks, the valuation still looks reasonable. The forward price-to-earnings ratio is 19X.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.