4 Small Caps Near Buy Opportunities

08/02/2012 10:45 am EST


Kate Stalter

CMO & Senior Financial Advisor, Better Money Decisions

It’s earnings season, and that means potential for big price swings in either direction. MoneyShow’s Kate Stalter is tracking some small stocks that moved up after earnings, and one that is due to report in the next few weeks.

The S&P SmallCap 600 is lagging the benchmark index year-to-date, showing a gain of 8.26% vs. 11.54%. Small caps are also lagging their larger cousins on a quarter-to-date basis.

However, be careful about using a sweeping analysis like that. You don’t want to overlooking possibilities within a given market cap. Many of the components within the S&P 600 would fall under the value category, and are essentially languishing when it comes to price performance.
Meanwhile, there are several standouts—and potential standouts—from the ranks of small-cap growth names. Cirrus Logic (CRUS), to name one, supplies audio processors to a number of electronics manufacturers, including Apple (AAPL).

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This is a stock I’ve been tracking for quite some time. The company reported its first quarter after the bell Monday, missing views. However, as is often the case, the guidance was the driver behind the stock.

Though Apple suppliers cannot mention its big customer in their reports or marketing, the company issued through-the-roof guidance. Markets are interpreting as a signal that there’s big news ahead from Cupertino, either in the form of blowout sales of the iPhone 5 or a new product introduction.

The stock bolted 22% at the open Tuesday, to $36.31, its best level since 2000. At this juncture, a pullback to a short-term moving average, or trade within a tight range, could offer the next technical entry point.

Another small-cap that reported recently is Texas Capital Bank (TCBI), which delivered second-quarter results last week. The regional bank vaulted 6.9% Friday following that report, and is pulling back in a very gradual, orderly fashion.

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That’s very normal behavior following an earnings-related move, and is exactly the kind of price action that frequently offers a new buy point. As with Cirrus, either a tight trading range or support at the five-day exponential moving average could signal a chance to get into this stock in the coming sessions.

Another small cap trading near 52-week highs is well known to anybody who’s seen its TV commercials featuring odd family-tree discoveries. Last week, genealogy tracer Ancestry.com (ACOM) reported second-quarter results that topped year-ago numbers by 33%.

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The stock gapped up 15% on June 25 following that report. It rallied in the two subsequent sessions, and as of Tuesday was showing a gradual pullback, holding above its five-day exponential line.

Analysts have strong earnings expectations for the company in 2012 and 2013. The stock has quite a bit of overhead resistance before reaching its all-time high of $45.79, reached in April 2011, less than 18 months ago.

However, that’s mitigated by the fact that this is a fairly new IPO, having made its Nasdaq debut in November 2009. Young stocks are frequently some of the market’s biggest price movers.

Ancestry is a volatile stock, with a beta of 1.25. As such, traders may need to give the stock a bit of latitude when setting stops. In recent months, the 15-day exponential moving average has been a good indicator of the stock’s support.

Implantable medical device maker Cyberonics (CYBX) is expected to report its first quarter in the second half of August, with analysts eyeing income of 36 cents per share on revenue of $58.53 million. Those would be year-over-year increases. The company beat earnings estimates in each of the past four quarters.

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The stock has been getting solid support along its ten-week moving average after pulling back from its July 5 high of $47.39. As of Tuesday, it was trading just at its short-term five-day line.

This is one of those stocks that has run up in fairly short bursts since its December emergence from a steep sell-off. That kind of sell-off is often constructive, as was the case with Cyberonics. It flushed out investors and traders who had given up on the stock, and set the stage for new buyers to step in at what were initially lower prices. As the stock rallied, that attracted still more money.

So the risk here is that Cyberonics’ run-up could be a bit long in the tooth. I like the technical action at this point, and consider the stock to be in buy range.

The stock was trading slightly lower along with other small caps on Tuesday. I would prefer to wait for an uptick to take a position.

At the time of publication, Kate Stalter did not own positions in any of the stocks mentioned in this column.

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