The stock market has been a little jumpy the past few weeks, and small cap stocks have been no exception.
Investors have been dumping out of some of the high fliers and rotating into high dividend stocks and lower quality issues. It’s a weird environment, but I am confident that this will change before too much longer.
The economic news shows me the economy is getting better now that the bad weather is behind us, and we should see those companies with very high sales and earnings growth takes the lead once again.
The key is to find the stocks that have the characteristics that lead to powerful performance. While you may think that means those stocks that are in the sexy industries and attract all the headlines … that is not always the case. Thanks to Portfolio Grader we can see what is actually working right now instead of just trying to pick the best of the popular stocks. As we have seen, they are not always the stocks that lead the way when the rally resumes.
Here are two small caps that do some dirty business, but are a great pick for your portfolio right now:
Appliance Recycling Centers of America (ARCI) is not in a business that is sexy or exciting at all. The company sells appliances though a chain of company owned stores that sell appliances to consumers and recycle used appliances and remove parts and accessories that are potentially harmful to the environment. They also provide municipalities and utilities with turnkey appliance recycling and replacement services. While selling and disposing of washers, dryers and refrigerators may not sound that exciting, the results certainly have been. Appliance Centers has seen earnings explode by more than 180% so far this year as demand form municipalities and utilities for recycling services accelerated year over year. Portfolio Grader noticed the strong pickup in business and fundamental conditions at Appliance Recycling and upgraded the stock to an A back in February and the stock remains a strong buy at the current price.
Vertex Energy (VTNR) is a business that is not sexy at all. In facts it is just plain dirty. The company collects used motor oil and sells it to companies who use in their re-refining, chemical processing and blending operations. They also process the used oil into a refining feedstock that can be used as a replacement for diesel ship fuel. A final division purchases transmix and chemical products form pipeline operators, refiners and chemical producers that can be used as feedstock to be processed into finished products. The company has seen earnings move higher by more than 60% in the past year and along the way have posted three consecutive positive earnings surprises. The improving fundamentals and strong growth caused Portfolio Grader to upgrade the stock to an A back in March and Vertex Energy is a strong buy at the current price.
The market will get back on track as we get into the summer and the companies with strongest sales and profit growth will once again lead the way. These two not-t0o-exciting companies should proved investors with very exciting results once this happens.
Louis Navellier is the editor of Blue Chip Growth.