Small Stocks Should Outpace Economy

03/08/2010 12:00 pm EST

Focus: STOCKS

James Oberweis

President, Oberweis Asset Management, Inc.

Jim Oberweis, editor of The Oberweis Report, recommends two niche companies for which the time is right.

The next few years could be particularly advantageous for investors who can find smaller companies likely to experience growth even if the broader economy stagnates. In addition to the absolute growth in earnings, we expect investors will pay a premium price to buy shares in fast-growing companies when growth is not easily found, assuming that Great Depression II is off the table and that investors are willing to accept a reasonable level of risk.

Acme Packet (Nasdaq: APKT) enables the delivery of first-class interactive communications, including voice, video, and multimedia sessions, and data services across IP networks. Acme Packet is a leader in the market for network equipment, such as session border controllers (SBCs) that ensure quality service while satisfying critical security and regulatory requirements.

As enterprises upgrade their legacy networks to next-generation networks based on Internet Protocol (IP) technology, they require Acme’s products to ensure quality delivery of IP communications. In the company’s latest reported fourth quarter, sales increased approximately 35% to $41.3 million from $30.6 million in the fourth quarter of last year. Acme Packet reported earnings per share of [11 cents a share] in the latest reported fourth quarter versus [nine cents] in the same quarter of last year. (Acme Packet shares closed Friday at around $18—Editor.)

Impax Laboratories (Nasdaq: IPXL) is a pharmaceutical company that develops and manufactures both generic and branded drugs. In its generic segment, the company focuses on developing generics for branded drugs with controlled release technologies.

With several blockbuster drugs coming off of patent protection in the current and upcoming year, including Flomax and Effexor, Impax is well-positioned to capitalize on a growing generic marketplace.

Most recently, the company has benefited from its generic version of Adderall XR, but expects its quarterly sales of the drug to be somewhat volatile. The company also is developing drugs in its branded division that treat central nervous system disorders and will start Phase III clinical trials for a drug that treats Parkinson’s disease in the first half of 2010.

In the company’s latest reported fourth quarter, sales increased approximately 294% to $176.1 million from $44.7 million in the fourth quarter of [the prior] year. Impax Laboratories reported earnings per share of 69 cents in the latest reported fourth quarter versus a loss in the same quarter of [the prior] year. (Impax shares closed Friday at $16.48—Editor.)

Disclosure: Clients of Oberweis Asset Management own shares of both stocks.

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