10 Microcap Value Stocks

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On a monthly basis I conduct a close replication of AAII's (American Association of Individual Investors) Shadow Stock screen. The goal is to find small, undervalued stocks with high price momentum over the past 52 weeks. It is a highly speculative, risky strategy that can potentially undercover a hidden gem or two.

The screen and date below is courtesy of Stockscreen123. I use the following screen criteria to identify high momentum value stocks:

No over-the-counter stocks

No financial stocks

Market cap > $20 Million and < $200 million

Previous EBITDA quarter and trailing twelve months are positive

Share price > $1

Price/book < .80

Price/sales < 1.2

Top 10 stocks are selected based on highest 52 week returns

Minimum average daily volume > 5k shares

The results for this month are at the bottom of the article and last month's list is here. The screen for last month returned 6.4%, bolstered by FFHL's 55% return. Last month's piece I discussed in-depth the difficulty in valuing some Chinese stocks. The Chinese companies under the most scrutiny are those which began trading in the US via reverse mergers, which is the practice of a private company acquiring a public company (many times penny stocks which have little or no value) in order to bypass the lengthy and expensive process of going public. Allegations (and in some cases proof) of accounting fraud have plagued the Chinese small-cap sector, especially those companies which began trading via reverse mergers.

With that caveat in mind, there are two Chinese firms on this month's list, FFHL and CNTF. The non-Chinese firms still warrant additional due diligence, as all of these stocks have low market caps and often have very low volume.

Cobra Electronics (COBR) is a $23 million company engaged in the design and marketing of two-way mobile communication products and mobile navigation products. It trades at a price/sales of .21 and price/book of .68 and has no long-term debt. It has razor thin profit margins (net margins of 1.89%), so there is little room for error. It has increased earnings the trailing twelve months of 121% versus the previous trailing twelve months and 40% this quarter versus the previous year's quarter. However, the company's five ear sales and earnings growth rates are negative, and as a result the stock has suffered since 2006 before rebounding in 2009.

The stock's longer term price action shows support at $3-$3.25 and resistance at $4-$4.25. It is currently consolidating between those two points so from a technical perspective it could be ready for a move:

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No	Ticker	Name	Last	Rank	MktCap	Pr2SalesTTM	Pr2BookQ
1	FFHL	Fuwei Films (Holdings) Co., L	3.53	98.55	46.15	0.51	0.52
2	ROIAK	Radio One, Inc.	1.62	88.44	76.36	0.27	0.67
3	UWN	Nevada Gold & Casinos	1.59	87.80	20.35	0.42	0.67
4	WOLF	Great Wolf Resorts, Inc.	3.47	86.18	112.68	0.39	0.70
5	COBR	Cobra Electronics Corporation	3.60	82.00	23.54	0.21	0.68
6	PARL	Parlux Fragrances, Inc.	3.06	77.77	63.52	0.52	0.62
7	AWRCF	Asia Pacific Wire & Cable	4.73	73.65	65.42	0.13	0.42
8	WLFC	Willis Lease Finance Corporat	13.30	71.65	158.45	1.03	0.60
9	CHGS	China GengSheng Minerals, Inc	1.74	68.32	46.62	0.70	0.78
10	TGX	Theragenics Corporation	1.70	67.57	57.61	0.70	0.71

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