Small-Cap Stocks: The Big Thing on Wall Street
There’s a lot of talk in Washington about which big-name institutions will survive, but there’s also a quieter conversation on Wall Street about which small-time companies are going to be the next big thing.
For those of you looking to strike it rich right now, or for those of you who have lost a bundle and want to make it back fast, these are the companies you want to be investing in now.
I’m talking about companies in niche sectors that will continue to profit in these tough times including infrastructure, green energy and semiconductor equipment. I’m talking about companies that have cut expenses, accumulated cash for the long term and are moving in to gobble up struggling competitors. There are some great stocks out there that are relatively cheap and relatively unknown — I’m talking about small companies with market caps of less than $50 billion and stock prices as low as $10 a share!
But your window is small — the initial burst these stocks see will build exponentially, and the lion’s share of the profits will go to a select group of investors who acted when the time was right. It you wait too long, these stocks will race up out of reach.
Here are 8 of my favorite small-cap “bargain” stocks to buy now.
Small-Cap Stock #1: American Italian Pasta Co. (AIPC)
American Italian Pasta Company (AIPC) is the largest maker of dry pasta in North America. It is also a commodity play since it benefits from higher wheat prices. AIPC’s consumer brands, such as Mueller’s, Golden Grain, Heartland, R&R and Mrs. Grass are staples on supermarket shelves throughout the U.S. and overseas. In addition to grocery sales, AIPC also supplies foodservice operators and other food manufacturers.
In these tight times, consumers are dining out less and eating more at home. And cheap comfort foods like pasta are at the top of their shopping lists.
In the last year, the stock is up by more than 500%, and that’s even after the recent market troubles knocked it back! As the economy and stock market stabilize in 2009, AIPC could make that 500% gain look like small potatoes. American Italian Pasta is an outstanding buy.
Small-Cap Stock #2: MasTec (MTZ)
MasTec (MTZ) plays a vital role in literally supporting the backbone
of the U.S. economy: infrastructure. For the last 75 years, MasTec has designed, built, installed, maintained and upgraded the telecommunications and utilities infrastructures of the U.S. This company has a hand in everything from telephone lines and high-speed Internet, to satellite and cable television services, to electric, water and natural gas utilities. All you have to do is look outside your
window at the nearest telephone pole or glance across the fence at a neighbor’s satellite dish to see where MTZ makes its money!
Recently, MasTec reported outstanding results for their fiscal fourth quarter. Revenue soared 51% to $414 million. Earnings-per-share soared from 11 cents for the fourth quarter of 2007 to 26 cents for the fourth quarter of 2008. That’s a growth rate of 136%!
It’s also worth noting that MTZ just completed its acquisition of a company that focuses on wind energy and natural gas facilities. This was a smart move because it expands MTZ’s presence in the rapidly growing alternative energy and infrastructure construction business. The company expects to boost sales by $400 million in 2009 thanks to this purchase, and raised its full-year earnings forecast as a result.
I also expect President Obama’s plan to spend $150 billion over the next decade on alternative energy and a “smart” utility grid to light a fire under MTZ’s growth prospects.
By my estimate, MasTec trades for about 10 times this year’s earnings — a bargain considering this company’s potential for future growth! This company is perfectly positioned to be the stock of the year. I rate MasTec a very strong buy.
Small-Cap Stock #3: Volcano Corp. (VOLC)
Volcano Corporation (VOLC) is a great small-cap stock in the healthcare sector.
Volcano designs medical devices to diagnose and treat heart disease in patients. Although these tests aren’t normally covered by most health insurance policies, they cost less than $1,000 a pop, and they’re especially important for those who are at risk for cardiovascular disease.
VOLC has exceeded analysts’ expectations for 10 straight quarters. The company recently reported Q4 earnings of three cents per share which was a penny more than Wall Street was expecting. That’s a great turnaround from 2007’s Q4, when Volcano lost 53 cents a share. Sales have risen 23% to $49.3 million. Volcano is a great buy.
Small-Cap Stock #4: Thoratec (THOR)
Thoratec Corporation (THOR) is a great growth company with strong fundamentals that has performed well even on the down days. I expect that when the bulls return in full force, this company will generate massive profits.
How can I be so certain of this? Well, Thoratec makes ventricular assist devices, or VADs, for patients suffering late-stage heart failure. In other words, a VAD is a heart pump. Sadly, advanced heart failure affects 550,000 patients a year. Can you imagine how long the waiting list is for a heart transplant? But even though this list is growing and outpacing the number of transplants, Thoratec’s VADs help thousands of patients to survive and live productive lives.
Thoratec dominates the market with its VAD technology, rightfully claiming 75% market share in the U.S. The company works closely with hospitals and cardiac surgery centers all over the U.S. and in Europe. This is great news for hundreds of thousands of sick people out there — and, of course, for Thoratec. The company made headlines recently after it was announced that a 14-year old survived 118 days without a heart — two Thoratec heart pumps were implanted to keep her blood circulating until she could have a transplant. That’s how effective this company’s technology is!
Thoratec is a phenomenal buy, and I expect this stock to be a leader in the next bull market.
Small-Cap Stock #5: Emergent Biosolutions (EBS)
Emergent Biosolutions (EBS)
is a company that develops and produces drugs that treat or protect against infectious diseases and bio-agents such as typhoid, strep and hepatitis.
As with our other health care picks, Emergent is a recession-proof
stock because medicine and treatments simply will not be cut out of family budgets even in hard times. EBS also has the added benefit of institutional buyers. Remember the anthrax panic that gripped the nation just seven years ago? Well, Emergent is the U.S.’s only supplier of BioThrax, an FDA-approved anthrax vaccine. In the last 10 years, the company has sold 30 million dosages! It’s true — the government is buying the vaccine up as fast as Emergent can make it.
In the past year alone, Emergent has signed two large contracts with the departments of Defense and Health and Human Services to deliver more than 33 million additional dosages of the BioThrax vaccine over the next three years. The government’s long term commitment to combating anthrax is clear, and this bodes extremely well for Emergent.
In early March, the company reported standout earnings, saying that it and expects revenue to grow by 25% to 35% this year with profits over $20 million — even as the broader economy struggles. EBS is an excellent buy.
Small-Cap Stock #6: Ebix (EBIX)
Ebix (EBIX) sells insurance industry software products and services in Asia, Australia, Europe and North America. This company is not your standard IT firm, however. The company’s Ebix.com website acts as an online auction house for auto, home, health, life and other types of insurance — and Ebix gets a fee on each transaction. Its cutting-edge applications like this that make Ebix an industry leader. And the numbers prove it.
Ebix recently reported solid earnings for the fourth quarter. Revenue rose 65% to $20.14 million, and earnings-per-share came in at 66 cents compared with 40 cents
for the fourth quarter of 2007. That’s very impressive growth.
Small-Cap Stock #7: AZZ Inc. (AZZ)
AZZ Inc. (AZZ) is an electrical equipment and components manufacturer, serving the global markets of power generation, transmission and distribution. It also serves the industrial market with its galvanizing services used in steel fabrication.
What you may not know is that AZZ has a huge hand in the nuclear power business, both in the United states and abroad. In late 2008, AZZ acquired Blenkhorn and Sawle Ltd, a Canadian electrical equipment supplier. These groups provide support to major utilities, mining, oil and gas and the nuclear power industries.
As a carbon-free source of power, nuclear energy is gaining traction around the world. That means big things from AZZ! In the three weeks after the March 9 lows, AZZ jumped nearly 70% — and that’s only the beginning of the profits I expect from this powerful company.
Small-Cap Stock #8: Baytex Energy Trust (BTE)
Baytex Energy Trust (BTE) is a company that explores, develops and produces oil and natural gas in Canada. More importantly, however, Baytex has been able to maintain and grow its profitability even during this period of low commodity prices.
The company is very good at planning and managing projects, so Baytex has been able to keep its operating costs low. It’s because of this cost consistency that Baytex has been able to produce output at a sustainable level.
Speaking of output, at the end of 2007, Baytex had proven reserves of 12.6 million barrels of light and medium grade crude oil, 106.8 million barrels of heavy crude oil and 122 billion cubic feet of natural gas.
Recently, the trust acquired two significant land positions to gain access to the Bakken Formation, which holds 3 to 4.3 billion barrels of light crude oil that is trapped in only about 150 feet of rock.
