Small-Caps with Big Potential?

06/04/2014 7:00 am EST


Running a screen through small-cap stocks, the staff at found four undervalued stocks under $10 with insider buying, and they wondered whether employee confidence suggested any upside.

The stock market is rallying again, and the S&P 500 closed at another record. Volatility is down as the market calmed somewhat.

A lot of the gains came from retail and small-cap stocks: the Russell 1000 index of small-cap stocks climbed 1.5% after falling 9.3% from its high point in early March.

In the event that small-cap stocks are still trading at a bit of a discount to their March prices, we decided to run a screen. We started with a list of stocks priced between $5-$10 with sales growth quarter-over-quarter above 10% (Sales Qr/Qr).

We then screened that list again for stocks with spikes in insider buying. Though insider trading is definitely shady, insider buying is completely legal under circumstances where a company's information is available to the public.

Insider buying is particularly useful when analyzing small-cap companies. That's because they're more cohesive, and individual employees are more likely to have wider knowledge of company plans.

In large multinationals, one particular employee buying shares doesn't always mean much. In all likelihood, it's probably just an employee readjusting their 401K. But at smaller companies, spikes in insider buying can suggest that employees feel the company is undervalued, or that they are optimistic new innovations in the pipeline will lead to future growth.

This screen left us with just four companies on our list.

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1. Breeze-Eastern Corporation (BZC): Designs, develops, manufactures, sells, and services lifting and restraining products for specialty aerospace and defense applications. Market cap at $92.8M, most recent closing price at $9.90.

2. Opko Health, Inc. (OPK): Engages in the discovery, development, and commercialization of novel and proprietary technologies primarily in the United States, Chile, and Mexico. Market cap at $3.22B, most recent closing price at $8.55.

3. RCM Technologies Inc. (RCMT): Engages in the design, development, and delivery of business and technology solutions for commercial and government sectors in North America. Market cap at $85.56M, most recent closing price at $6.33.

4. Resolute Energy Corporation (REN): Engages in the acquisition, exploration, exploitation, and development of oil and gas properties primarily in onshore properties in the United States. Market cap at $688.6M, most recent closing price at $8.13.

By the Staff of

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