We could say that when it comes to stellar investing
returns, thinking big is
looking small.
The entire market has been on a tear since bottoming out
back in March. The Dow is up 45% from its March low and the
S&P 500 has posted an even better 52% gain since the same
date.
A handful of large-cap stocks have made stellar moves over
that stretch.
Las Vegas Sands (NYSE: LVS), for instance,
flew to the tune of 988%, and
Wells Fargo (NYSE: WFC) tacked on 167%. But
for many of the biggest movers, like
Dollar Thrifty and
Diedrich Coffee , we have to turn to the
world of small caps. This makes perfect sense, since small
caps
typically outperformtheir larger cousins after a
recession.
With all of these massive gains, though, many investors
are scratching their heads and wondering whether there are
still small caps out there that we could label "cheap." To
get to the bottom of this question I tapped the best
small-cap investors I know -- the folks at the
Motley Fool Hidden Gems
newsletter.
So fellas, which small caps are still too cheap?
Stan Huber, senior analyst
One sector worth considering is durable-goods
manufacturing. These companies have rebounded from March
lows, but less so than most types of businesses. Many of
these companies, such as
Caterpillar (NYSE: CAT), are too large to fit
into our small-cap universe. So instead, I've turned to niche
manufacturing companies that offer productivity-enhancing
products to this industry.
A company that I have my eye on is
Faro Technologies . Faro builds high-tech
measuring devices for use on the manufacturing floor. These
computer-based devices increase productivity and accuracy in
any application involving precision parts. The company is
well-capitalized and once capital spending gets back on
track, it has growth potential that's not reflected in
today's share price.
Faro has felt the recession as its customers' capital
equipment budgets collapsed. But in addition to a
durable-goods uptick that is likely in 2010, it has two other
factors working in its favor. It already commands a large
market share and it operates in a market that is less than
10% penetrated. This provides a safety cushion for the
company in case we're really in for a "
new normal."
Mike Olsen, senior analyst
If you're looking for small caps with predictable cash
flows and a relatively cheap price tag, look no further than
Waste Connections . Continued... |