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3 Small Caps That Are Ready to Rebound

In what could be a weaker year for most small caps, investors might be best served by looking at 2013's laggards.

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Small Caps to Buy #2: Liquidity Services (LQDT)

small-caps-to-buy-lqdt-stockIf you’re a business or government agency, Liquidity Services (LQDT) might be who you go to in order to sell surplus assets.

Using online marketplaces, LQDT takes a cut of the proceeds. Back in 2008, I recommended LQDT stock when it was trading at $9.50.

It didn’t turn out to be the stress-free stock I thought it would be.

At the time, I had no way of knowing LQDT stock was about to go on a wild ride to $60 and beyond, then down to $20 … in a span of 36 months. 2013 was no exception as its stock lost 45%, the worst year it has had as a public company.

But consider that in 2008 when I recommended Liquidity Services, the company delivered adjusted earnings per share of 51 cents, meaning its price-to-earnings ratio at the time of my pick was almost 19. In 2013, its adjusted EPS were $1.75 for a P/E of 12 times earnings — 37% lower than its valuation in 2008. However, its adjusted EPS is currently in the midst of a walk down from $1.86 in fiscal 2012 to $1.75 in 2013 and estimated in 2014 to be anywhere from $1.76 to $1.60. At the very low end, we’re currently talking about a forward P/E of 13.5 — still much lower than back then.

Do I think LQDT will hit $60 again? Not without several years of demonstrable growth in earnings. But a 20%-30% run in 2014 isn’t out of the question should it produce better-than-expected results.

At the end of the day, Liquidity Services is a business whose need is an ongoing one. With no debt and lots of cash, I like LQDT’s chances.

Article printed from InvestorPlace Media,

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