Monday's stocks to watch: HAL, HAS, AAPL >>> READ MORE

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.

    View All  

Small Caps to Buy #3: Central Garden & Pet (CENTA)

Small-caps-to-buy-centa-stockIn addition to its stock dropping 36% in 2013, Central Garden & Pet (CENTA) has underperformed the S&P 500 by almost 18 percentage points during the past five years while everyone and their dog — small caps, large caps, whatever — has seen impressive gains over that same period.

Central’s entire board and management team should be thoroughly embarrassed, especially chairman and founder William Brown, who owns 58% of voting CENTA stock.

CENTA is an amalgam of garden and pet products, none of which seem to make money. Five years ago, CENTA had operating profits of $126 million on $1.6 billion in revenue; in fiscal 2013, its revenues were slightly higher over 2009, but its operating profit of $40 million was 68% lower. Instead of increasing profits every year, it’s shrinking them.

At this point, you should be wondering why I’ve picked this turkey to turnaround in 2014.

I’d like to tell you it’s because Central Garden & Pet has a new product that’s selling crazy, but that’s just not the case. No, in its Q4 earnings release Dec. 10, CEO John Ranelli had this to say:

“Our financial results are simply unacceptable. While we will see some improvements along the way, it is going to take another year or two to get our performance consistently where we want it to be.”

While not very encouraging in the near-term, I feel as though any positive news from CENTA later in the year could spark a big rally in its stock price.

In my mind, this five-year nightmare has been completely factored into to its stock price, which hasn’t traded this low ($6.42 today) since early 2009, and then only because of the market crash in late 2008. The pet business is the key to CENTA’s success. If management want to solve the problem permanently, it will sell its garden business and focus on the one that’s worth saving.

If that news were to come out, you’d be almost guaranteed a doubler overnight.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

©2017 InvestorPlace Media, LLC