The key risk-on and off drivers today are the same – U.S. politics, global growth, other centr...
Wyatt's Small-Cap Growth Picks
10/31/2003 12:00 am EST
"We are focused on high growth opportunities," says Ian Wyatt, editor ofThe Growth Report. In 2002, the service’s portfolio returned 40%. As of October 15, 2003, the portfolio was up 73% for the year. Here, Ian covers his stock selection approach and his current favorite small-cap stocks.
"We focus on historical and projected earnings as the core component in picking stocks. We take a long-term approach to investing in growing businesses and look for fundamentally strong companies. We look for companies with innovative products and services and those focused on niche markets. We don’t limit our focus to technology; however, it just so happens that most of the companies we are finding that we like currently do fall in the tech sector. We are trying to find companies ahead of Wall Street. By that I mean we try to get into these companies at an early stage. We feel that if we are able to take positions prior to Wall Street coverage, or coverage in the financial media, that we will do well, as our stocks gain more attention and then get valued appropriately.
"Many of the stock we currently like are small-cap or micro-cap companies. We think some of these undiscovered stocks are presenting us with great opportunities. Small caps have been the leading sector so far in 2003. Small caps tend to rise dramatically in the early stages of an economic recovery. And we believe this strong growth will continue through 2004, as we believe we are still in the early stages of a recovery. In most stock, the information that is known is already priced into the issue. The exception to this is in small caps. Information is not as widely available, and therefore, the opportunities are there to buy something at less than what one would consider a fair price, simply because not as many people know about the company. As a result, we think that small- and micro-cap investing can provide substantial results that we believe are unavailable in other areas of the market. Here are five current favorites:
"I-mergent (IMGG NASDAQ) sells e-commerce software to small businesses and entrepreneurs. Their software allows small businesses to set up an electronic store front and move their businesses online. We’re particularly interested in the way this company sells its products. First, it holds free two-hour information sessions throughout the country, which are attended by 100,000 individuals annually. It then tries to sell a full-day session, in which individuals learn about the company’s software and how to market online. From these sessions, people can then purchase the software that sets up their online store front. We think this is a great, growing company and we think the stock is very attractive.
"Focus Enhancements (FCSE NASDAQ) designs applications-specific semiconductor chips that allow for high quality digital images to be delivered on TV screen. For example, a product that has recently begun to ship is a chip for Microsoft’s X-box, the gaming system. During the second quarter, the company receive 10 new semiconductor design contracts. We believe the company should turn profitable over the second half of 2003, as sales more than double from the first half.
"Mobile Electronics (MOBE NASDAQ) provides mobile computing products such as power adaptors and batteries for laptops, cell phones, and PDAs. The company’s blockbuster product is The Juice, a universal power adaptor that is experiencing strong sales through Radio Shack, Circuit City, and other retailers. For the full year 2003, sales should grow 70%, with an additional 50% in 2004. We also look for profitability in the second half of 2003 due to strong product sales.
"e-Diets.com (EDET NASDAQ), in the Internet space, should do very well in the future. It is a leading provider of online diet programs, and currently has over 200,000 subscribers who pay $5 a week for membership to its Web site. The company has developed a system that allows members to enter personal information online (such as height, weight, exercise routine, weight loss goals, etc.) and then the company recommends a diet plan. The company offers not only in-house diet plans, but also the Atkins diet, the Zone, and the Jenny Craig alternative plans.
"Bentley Pharmaceuticals (BNT ASE) operates two units. First, it develops and markets some 30 generic drugs in Spain. We see the opportunity for the company to expand to other European countries. We also think the firm’s operations could be an attractive acquisition for a larger drug company. The firm’s second unit is its US specialty pharmaceuticals business, which uses a proprietary compound–CP 215–which enhances drug absorption rates. It is currently being used in a testosterone product and will also be used in a product for nail fungus. Earning could increase from $0.08 in 2003 to $0.27, with another 100% increase in 2004. We’re very excited about the sales and earnings potential for this company."