Small Cap Value Trio

06/14/2016 9:00 am EST

Focus: STOCKS

James Oberweis

President, Oberweis Asset Management, Inc.

Relative to large caps, valuations look better small caps, notes Jim Oberweis, Jr., editor of The Oberweis Report. Here, the money manager and small cap expert looks at a trio of stock that he considers appropriate for risk oriented investors.

The VIX index, which is affectionately known as Wall Street’s fear gauge and represents the market’s estimate of future volatility. It correlates with the price of “portfolio insurance” using options. A low VIX implies that few are worried and premiums are low.

For context, over the past 25 years, the median level of the VIX has been approximately 18. In quiet markets, the VIX index typically trades in a range of 12-20. These days the VIX is at 13.5, near the low of this year’s range.

This complacency in the face of higher valuations is concerning. The S&P 500 P/E trades for 18-19x earnings, depending on how you measure it. That’s the highest level since 2009 and considerably above its 50-year median level of 16.8.

While nobody can time the market, it’s worth noting, especially among large-cap equities, that valuations are above-average and investors are bathing in complacency. That’s a bad combination when the inevitable surprise jumps out of the box.

However, valuations look a little better for small-cap growth stocks. While the S&P 500 is just shy of its 5-year high, small-cap growth stocks (as measured by the Russell 2000 Growth Index) would still need to rally nearly 15% to reclaim the highs of last summer.

Among our latest small cap featured stocks, BG Staffing (BGSF), which assists employers impacted by seasonality and fluctuations in customer demand.

Its unique multi-family segment is a leading provider of office and maintenance personnel to the multi-family housing. Finally, the professional segment provides highly skilled IT professionals.

In its latest reported first quarter, sales increased 46% to $59.5 million; earnings per share of $0.24 in the quarter versus $0.10. Clients of Oberweis Asset Management own 26,000 shares.

Heska (HSKA) sells veterinary products, with a core focus on the canine and feline markets, including blood testing instruments, digital imaging and other products such as heartworm tests and preventative products, allergy products and allergy testing.

Heska recently acquired a small international company and is planning to launch products there, expanding their footprint beyond the US and offering another leg of growth.

In the first quarter, sales increased 19% to $27.1 million; Heska reported earnings per share of $0.17 in the first quarter versus $.09. Clients of Oberweis Asset Management own 10,800 shares.

U.S. Concrete (USCR) is a leading producer of ready-mixed concrete — an important material used in commercial, residential and public works construction projects.

While the company operates only in select markets – Texas, California and New York/New Jersey -- the company boasts significant market share in each of its geographic areas.

In the company’s latest reported first quarter, sales increased 43% to $245.1 million from $171.3 million in the first quarter of last year.

US Concrete reported earnings per share of $0.31 in the latest reported first quarter versus $0.12 in the same quarter of last year. Clients of Oberweis Asset Management own 45,700 shares.

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By Jim Oberweis, Jr., Editor of The Oberweis Report

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