The 'Newest' Small Caps on the Block (NCI, CATM)
The relentless push higher by stocks has many an
analyst scratching his or her head right now.
They can scratch away, because the bottom line is
this: companies continue to beat earnings expectations. There's no way
around that simple fact - so the market continues to move higher.
Check this out - through last Friday, data
compiled by Capital IQ shows that 453 companies in the S&P 500 have
reported, and 71 percent beat earnings expectations. The average upside
surprise has been 6.1 percent.
With the S&P 500 trading at 16-times estimated
2010 earnings you might think large cap stocks are getting expensive.
They're really not - in a few weeks this fiscal year will be in the
books. Based on the number of companies beating earnings estimates,
forward earnings estimates should increase.
Right now, you can buy the S&P 500 for
14-times estimated 2011 earnings. That's not too bad when you consider
that analysts expect long-term average EPS growth for the S&P 500 to
exceed 10 percent.
Remember, buying growth at a low PE is typically
better, and right now many large cap stocks look attractive.
***This signals to me that we should still be
buying small cap stocks because as I've said a thousand times,
small cap stocks always perform over the long term.
One of the best ways to find exciting small cap
stocks is to monitor new additions to the small cap indices - I prefer
the S&P 600 Small Cap Index, and the Russell 2000 Small Cap
Index.
On February 28th, I found 2 'new'
companies that were added to the S&P 600:
Navigant Consulting: (NYSE:
NCI): This is a $485 million
market cap company that provides specialized consulting services for
things like change management, risk, and uncertainty. Its customers
include hospital operator MedCath Corporation (Nasdaq:
MDTH), privately held Ontario Power Authority, and the
British Sky Broadcasting Group (LSE: BSY).
Why consider Navigant? Because uncertainty is
virtually guaranteed these days, meaning this company should have a long
list of potential customers. Also, analysts expect the company will
increasing earnings by 19 percent this year. They have a price target on
shares of $12.83, or 37 percent above yesterday's close.
Cardtronics (Nasdaq;
CATM):Electronic payment
processors have been hot stocks lately, and as an operator of ATMs and
financial kiosks, Cardtronics is in the right industry. The company has a
market cap of $811 million.
Analyst, earnings projections are pretty
impressive for Cardtronics - the consensus estimate for normalized EPS in
2011 is $1.21, a 92 percent increase over 2010. GAAP earnings estimates
are less aggressive, so I'd encourage you to investigate what's going on
in the 'unusual items' section of the company's income statement. In the
past year the company has paid off long-term debt and sold off some
assets. In 2008, the company recorded a $50 million impairment to
goodwill. All of these items impact GAAP EPS.
At first blush, these unusual items tell me the
company had to get reorganized internally, and its recent addition to the
S&P 600 indicates that its efforts are paying off. Four analysts rate
the stock a buy with a consensus target price that is 20 percent above
yesterday's close.
***A word of caution before you rush out to buy
anything: the market has been on a one way track higher lately. In recent
sessions we've begun to see a loss of momentum, so while many stocks are
still attractively valued that doesn't mean go buy everything you want
right now.
Put together a watch list of stocks you want to
own, and figure out the price that you want to pay. Then use volatility
in the market to get your price. If you have a number of stocks ready to
pounce on, than chances are your number will come up on at least a
couple.
Navigant Consulting and Cardtronics are two stocks
to consider, especially since inclusion in the S&P 600, or Russell
2000, can be the beginning of a longer run higher.
Further
Reading:A month or so ago,
small cap analyst Tyler Laundon put together a report on five small cap
stocks that he felt had the chance to deliver big gains for subscribers
to Small Cap Investor PRO. One of these stocks is up 240 percent
since being recommended in August of 2010. Another is up 111 percent. You
can access the report on these companies here.
Within the next week, another report will be published that features the
next group of high potential small caps technology stocks. As a
subscriber, you'll be among the first to receive the report.
Disclosure: NONE
