Six-Pack of Small-Caps

04/10/2015 9:00 am EST


Stephen Quickel

Editor, US Investment Report

A large part of the stock market’s recent struggle is the media-assisted focus on the short-term—on the day-to-day and hour-to-hour ebb and flow of conflicting economic and financial data—asserts Stephen Quickel, editor of US Investment Report.

The 24-hour news cycle is frequently more a hindrance than a help to the stock market. Equity investors today are arguably over-informed.

And in trying to sort out the flood of data, it is hardly surprising that the stock market has become so volatile. But surely we can try to think ahead and zero in on the long-term.

Meanwhile, here are thumbnail profiles of our latest new stock recommendations, all small-caps. Of at least 200 candidates screened, these meet our criteria for growth sector leadership, rapid long-term earnings growth, and reasonable P/E and PEG valuation ratios.

Even so, they are a varied lot, spanning several different industry sectors. All are expected to outgrow the 9% annual earnings rate of the S&P 500, by two-to-one on average, with three growing earnings more than 25% a year.

Analog Devices (ADI)

A big Apple contract win boosts prospects for this chipmaker’s touch-screen technology, which is to be adopted across AAPL’s entire lineup of iPhone and iPad products.

EPAM Systems (EPAM)

An outsourcer of information technology software, EPAM has expanded its design and solutions capabilities resulting in impressive sales and earnings growth of 30% in a string of recent quarters. Mutual fund ownership of this stock has tripled to 325 in two years.

Gentherm (THRM)

A potent stock for our portfolio in 2013-14, as earnings doubled, THRM slipped from 50 to 30 last fall on growth worries. Now, with sales of its temperature control products topping $1 billion, seven of eight analysts rate it a Strong Buy or Buy.

Norwegian Cruise Line Holdings (NCLH)

With 21 ocean-going cruise ships and six more on the drawing boards, this Miami-based holding company expects to grow earnings an average of 27.5% a year, including a 41% surge in the coming 12 months.

Restoration Hardware Holdings (RH)

Analysts disagree about the impact of the gigantic 40,000-to-70,000 square-foot, upscale home furnishings stores RH is opening in Atlanta and other major cities.
Wall Street coverage has tripled to 19 firms, with 12 rating it a Strong Buy or Buy, but seven calling it a Hold. The analysts’ consensus earnings growth is 27.2% a year. The stock’s PEG is 0.90.

Synchronoss Technologies (SNCR)

It’s expanded its focus from mobile device activations for Apple and others to step up its higher margin cloud services, doubling subscribers in a year and exceeding guidance by 30%. Nine of ten analysts rate it a Strong Buy or Buy.

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