Upside's Microcap Picks

12/13/2016 9:00 am EST


Richard Moroney

Editor, Dow Theory Forecasts

Microcaps have been among this year’s best performers, especially since the election, observes suggests Richard Moroney, editor of Upside Stocks; here, he looks at two microcap buys.

Microcaps — which have delivered the highest average returns over the past 90 years — are currently cheaper than small, midcap, and large stocks based on median price/earnings, price/cash flow, and enterprise ratios.

Preferred Bank (PFBC) opened its doors in 1991, when it was founded in Los Angeles to serve Chinese-American customers.

Today, the fast-growing bank serves a diversified client base through 12 branches, including one in New York.

On Sept. 30, Preferred had assets of $3.1 billion, up 36% from a year earlier, reflecting strong loan demand. Robust deposit and loan growth, along with the potential for rising interest rates, should help sustain profit growth.

Wall Street expects per-share profits to advance 18% in 2016 and 10% next year. Estimates for both years have risen over the past two months. The shares have rallied 40% so far in 2016. Preferred Bank, with an Overall score of 97, is a Best Buy.

Based in Canada, Tucows (TCX) has a market cap of only $363 million. But the company is one of the world’s largest providers of internet domain name registrations, with nearly 15 million addresses under management.

In addition, Tucows also has a growing wireless business and is building super-fast fiber networks in select markets.

The stock earns an Overall score of 87 — seventh-best among the 126 internet software stocks in our Quadrix ranking system.

September-quarter earnings per share surged 55% to $0.45, topping the consensus of $0.36. Revenue rose 11%, outstripping expectations and marking the 29th consecutive quarter of growth.

For per-share earnings, the two-analyst consensus is $1.58 for full-year 2016, implying 58% growth. For 2017, per-share earnings are projected to increase 11% to $1.76. The stock is rated a Buy.

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By Richard Moroney, Editor of Upside Stocks

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