It’s a Small Cap World (for Now) – Russell 2000 Index Up nearly 18 Percent for Year

Graphic courtesy of Russell Investments

 

The stock market finally “took a breather” on Monday of this week, as the Wall Street Journal characterized it. The resilient bull market of 2013 has seen only four sessions in May that had a decline in the Standard & Poor’s 500-stock index and Monday was one of them. This year’s bull market rally has recently been across the board–Asian markets have been up, European markets turned up, and market watchers are anxiously waiting for tomorrow, Wednesday, May 22, when Federal Reserve Chairman Ben Bernanke is scheduled to testify to Congress and the Fed releases the minutes from its last public policy-setting meeting. Will Bernanke offer up any clues about his next steps?

Most importantly for Smallcap World, the Russell 2000 index, which tracks the performance of smallcap U.S. equities, climbed above the 1,000 level for the first time Monday, a metric that MarketWatch considers “psychologically important” for smallcap stocks. As of Monday morning, May 20, the Russell 2000 was up 17.9 percent for the year-to-date, according to FactSet (The Associated Press reported the Russell 2000 up 17.5 percent for the year).

The conventional wisdom is that small caps stock are doing well because they are more U.S. focused than the large caps, which tend to be multi-national. And the U.S. economy is recovering as opposed to other economies around the world. But many large caps are doing well, too,

You don’t have to look far to find small cap stocks at 52-week highs, even “all time highs.” Of course the question always is, how much higher can these stocks go? Buy now or wait for the correction that so many experts have been predicting is right around the corner for months now?

We’ve selected a few stocks we know are at all-time or 52-week highs, and others we’ve covered lately that seem to be on the upswing.

Calabasas, CA-based National Technical Systems * (Nasdaq: NTSC, http://www.nts.com/) is a relatively unknown smallcap stock but also the world’s largest independent engineering services and testing company. It’s biggest markets include aerospace and defense, but also works in the automotive and telecommunications markets, among others. NTSC closed at an all-time high of $13.09, up 94 cents on May 21, with a market cap now of about $150 million. NTSC is lightly traded, only about 7,500 shares a day, although that is trending up. 

Northville, MI-based Gentherm * Incorporated (Nasdaq: THRM, http://www.gentherm.com/) is a global developer and marketer of thermal management technologies for a broad range of heating and cooling and temperature control technologies. Best known for its Climate Control Seat systems that actively heat and cool seats in more than 50 vehicles made by the world’s leading automobile manufacturers, Gentherm (formerly called Amerigon) has branched out into heated and cooled bedding systems, cupholders, storage bins and office chairs. THRM also reached a 52-week high of more than $18 this week, then closed May 20 at $17.78, down 33 cents for the day. Its market cap is now $594 million. As recently as last July THRM was trading at just above $10.

We recently featured Cincinnati-based LSI Industries (Nasdaq: LYTS, http://www.lsi-industries.com/) , a company that offers a different take on an LED lighting company. LYTS creates LED video screens and LED specialty lighting for sports stadiums and arenas, digital billboards and entertainment companies. It closed April 29 at $7.09 with a market cap of $170 million. LYTS closed May 21 at $8, up 1 cent for the day, with a market cap now of $192 million.

Analysts at CRT Capital recently upgraded Atlanta-based Beazer Homes USA (NYSE: BZH, http://www.beazer.com/), a company that builds and sells single-family and multiple-family homes in 16 states in the U.S., to a “Buy” with a $29 price target. BZH also acquires, improves and rents homes. The company operates through commissioned home sales counselors and independent brokers. As recently as last Sept. 14 BZH was trading for $3.77. It closed March 20 at $16.86 with a market cap of $410 million. BZH closed May 21 at $21.75, down 98 cents for the day. Its market cap is now $538 million.

San Jose, CA-based SunPower Corp. (Nasdaq: SPWR, http://www.sunpowercorp.com/), like many solar stocks, have been on the upswing lately. SPWR closed May 8 at $15.36, down 6 cents for the day, with a market cap of $1.8 billion. It closed May 21 at $21, down $1.70 for the day but got up to $23.76 just last week. Its 52-week trading range is now $3.71-$23.76.

Fremont, CA-based Procera Networks (Nasdaq: PKT, http://www.proceranetworks.com/) works with mobile and broadband network operators providing intelligent policy enforcement solutions for managing private networks. PKT’s products are sold under the PacketLogic brand name to more than 600 customers in North America, Europe and Asia. PKT’s 52-week trading range is $10.12-$25.99. At mid-day May 2 it was trading at $11.22, with a market cap of $229 million. At market close May 21 PKT was trading at $13.89, down 3 cents for the day, with a market cap of $282 million.

* Denotes client of Allen & Caron Inc., publisher of this blog.

Advertisements

Recovering Chinese Economy Sparks Record High Demand for Oil

China’s economy is recovering, according to media reports, and with it comes a significant increase in its demand for oil. According to Platts, China’s oil demand reached record highs in December, suggesting that demand for 2013 will also spike.

Citing data from China’s National Bureau of Statistics, the Platts report noted that China’s economy rebounded by 7.8

Photo courtesy of heatingoil.com

Photo courtesy of heatingoil.com

percent in the fourth quarter of 2012 after bottoming out in the third quarter. Along with that recovery, China’s oil demand rose 7.7 percent year on year in December, or an average of 10.58 million barrels per day, the highest on record. Oil demand “was boosted by record refinery throughput.”For the entire year 2012, oil demand in China averaged 9.68 million barrels per day, a 3.4 percent increase over 2011. If the government continues its stimulus measures and the economy continues to improve, “growth this year could surpass” these figures, the Platt report noted.

This report prompted another look at small cap oil services and oil industry stocks.  Here are four we started following back on Aug. 1, 2012 and two others we have added to the list:

Houston-based Flotek Industries (NYSE: FTK, http://www.flotekind.com/), a company that develops and supplies a portfolio of drilling and production related products and services to the energy and mining industries worldwide, closed back on Aug 1 at $9.71 with a market cap of $480 million. When we checked a little over a month later on Sept. 11 it closed at $12 and its market cap was $596 million. On Jan. 24, FTK closed at $13.44, down 8 cents for the day. Its 52-week trading range is now $8.46-$14.73.

Norwalk, CT-based Bolt Technology Corp. (Nasdaq: BOLT, http://www.bolt-technology.com/) operates in the offshore drilling segment. It manufactures and sells marine seismic data acquisition equipment and underwater robotic vehicles. In January 2011 Bolt purchased SeaBotix Inc. BOLT closed Aug. 1 at $14.45 and Sept. 11 at $14.90, with a market cap of $126 million. BOLT closed Jan. 24 at $15.43, up 3 cents for the day. Its 52-week trading range is now $11.65-$16.09.

Houston-based Tesco Corporation (Nasdaq: TESO, http://www.tescocorp.com/) operates in four divisions serving drilling contractors and the oil and natural gas industry: Top Drives, Tubular Services, Casing Drilling and Reseach and Engineering. In October 2011 Tesco purchased Premiere Casing Services-Egypt SAE. Back on Aug. 1, TESO closed at $11.31. By Sept. 11 it had dropped to $10.39. On Jan. 24, TESO closed at $11.86, down 16 cents for the day. Its 52-week trading range is now $8.70-$16.88.

The Woodlands, TX-based Newpark Resources Inc. (NYSE: NR, http://www.newpark.com/) provides products mainly to the oil and gas exploration industry. It operates in three segments: Fluid Systems and Engineering, Mats and Integrated Services, and Environmental Services. In April 2011 it acquired the drilling fluids and engineering services business from Rheochem PLC. Back on Aug. 1 it closed at $6.68 and by Sept. 11 it was up to $7.67. On Jan. 24 it closed at $8.35, up 2 cents for the day. Its market cap is now $725 million and it 52-week trading range is now $5.19-$9.82.

The Woodlands, TX-based TETRA Technologies (NYSE: TTI, http://www.tetratec.com/) has five different business segments including oil and gas exploration, a products and services segment serving the oil and gas industry, and production testing. Since March 2012 TTI has made three acquisitions. TTI closed Jan. 24 at $8.55, up 3 cents for the day. Its market cap is now $668 million. Its 52-week trading range is $5.35-$10.66.

Houston-based Cal Dive International (NYSE: DVR, http://www.caldive.com/) is a marine contractor specializing in platform installation and salvage services, pipe inlay and burial for a diverse customer base in the oil and natural gas industry. DVR owns a fleet of 29 vessels and barges. It closed Jan. 24 at $1.74, up 5 cents for the day. Its market cap is now $169 million and its 52-week trading range is $1-$4.

Mary Lisanti: Continued Corporate Earnings Growth in 2013 (When the Federal Government Resolves the Budget)

Mary Lisanti is president and portfolio manager of AH Lisanti, an investment management company currently focused on small cap growth companies. She is a 33-year veteran of small cap growth research and investing. For the first 12 years she was a small cap analyst and strategist on Wall Street. During the past 18 years, she has managed small cap portfolios at premier asset management companies. As CIO of ING Investments LLC, (1998-2003) she was responsible for building the active equity management team, and assets under management in her area grew from several hundred million to several billion dollars. Prior to ING, Mary was at Strong Capital Management as Senior Portfolio Manager for both the Small Cap Growth and Mid Cap Growth Strategies and was Managing Director and Head of the Small/Mid Cap team at Bankers Trust Company. Mary was named Fund Manager of the Year in 1996 by Barron’s. She was named #1 small cap analyst in 1989 by Institutional Investor’s All-Star Research Team. In addition, she was ranked #2 and #3 in 1987 and 1986 respectively.

Mary-headshot

I had the pleasure of talking to Mary just before the New Year’s holiday at her office near Rockefeller Center.  We had first met in the late 1980s when she was interested in a technology company that proposed the radical idea of a keyless car ignition or computer security system using a fingerprint.  Interesting how what seemed futuristic now seems almost as old hat as, well, men on the moon.

JA:  How are you feeling about the year ahead?

ML:  Undecided.  I’ll give you some positives and some negatives.  One big positive is that corporate profit growth will still be decent.  Corporations are at very high profit margins, but when you break down what’s going on, there’s no reason they shouldn’t go higher.  Virtualization – the use of cloud computing, and other aspects of today’s high tech should help them cut costs.  For that trend to stop, two things would have to happen: a long period of negative revenue growth, accompanied by fast-rising wages.  Neither of those things is happening.

That will be a positive for the market.  Corporate profits are growing 8-10% and we believe that can continue, and that is widely dispersed across the board.  Small caps can grow even more,we believe, although again there will be wide dispersion in individual results.  This will be a classic stockpicker’s market.

The biggest negative for the market is that we cannot seem to govern ourselves.  That weighs on multiples.  That’s why, four years into this recovery, multiples are still low, particularly when you take into account where interest rates are and how  GDP growth, although below trend, continues to chug along at 2% or so.  In that scenario, logic would have it that multiples would be in the range of 18-19, but they are not.  Why not? I believe it is because of our inability to govern. Politicans are behind the curve;as they usually are, in addressing our structural issues to bring the long term deficit issues under control. Will they address the longterm issues or not?  If they do so now, it will require only modest changes to entitlements and spending. The extent to which we address those issues will affect the performance of the market going forward.

It is psychologically important to multiples: if you can slow the growth in spending at least a bit, you give people more confidence.  In the Clinton years they managed to slow the rate of growth in spending, and Clinton left office with a surplus.  I believe we will spend most of 2013 arguing about entitlements and other budget issues.  Next year it will be the Democrats saying no to entitlement reform, just like this year it was Republicans saying no to taxes.  I don’t know how much it is possible to get done, because it is being done in a fishbowl and from ideological positions that don’t accommodate compromise.

If they do not get something done, I fear that US debt will get downgraded again.

JA:  And would any of the DC politicians feel responsible if that happened?

ML:  I do not believe so, no.  Politicians, in my opinion, are in the business of passing the blame.  If there were another downgrade, it would affect President Obama’s legacy, and I don’t think he wants to be the president who oversaw two debt downgrades in his time in office.  Both sides will have an incentive to compromise and hopefully they will.  The biggest risk to all of us, and to the market, is that the dollar loses a bit of its luster as the currency of last resort.

When you look at Japan and China and Europe, they are getting their act together with regard to being attractive places to invest and could even potentially be attractive as reserve currencies in a few years.  My biggest concern is that we permanently change corporate behavior: if you have a climate of uncertainty for long enough you make people afraid.  Business overall has been clear with Washington that the uncertainty is damaging.  R&D tax credits, farm and agriculture bills, accelerated depreciation – Congress has been handling these as though they were annual issues, and they’re not.  They affect multi-year planning.  When the R&D tax credit was put in place in the early 1980’s, it was in place for 4.5 years.   That would be better—it would give businesses the ability to plan longer term..

These and other things are casualties of this ideological warfare in Washington.

JA:  What do you see as strengths in 2013?

ML:  It is an enormous positive that housing is recovering, and the recovery should continue, assuming Washington does not cut the mortgage deduction..  Unemployment is declining, although it is declining too slowly.  And we have cheap sources of energy.  . A number of industry sources believe that we will be energy independent in the next decade or so, which is a huge positive for our manufacturing competitiveness.

When you look at these things, once we make it through this budget and debt-ceiling problem, things look a lot better.

Governments all over the world have been spending money to fix the problems that caused the recession, and odds are that things will not fall apart again soon.  Over the past several years, we have had a major issue every year that has “terrified” us: last year it was the potential breakup of the Euro and Greek debt default, and this year it was the budget crisis in the U.S. Beyond the budget crisis, I do not see an issue that has the potential to scare investors as much as these two issues have. We should enter a period of more “normalcy,” where macro issues take a backseat to fundamental issues, and that change should allow multiples to increase. But belief in a more stable future will come slowly.

JA:  What should we look for in 2013 when we look at investments?

ML:  As small cap growth investors, we look for earnings growth.  But one of the great positives in this market is that there are many ways to make money in the market.  When I came into the business in the late 1970s, you could make get 7-8% returns several ways.  You could make money with yields –- those companies with no earnings growth offered very high dividend yields, say about 7%; those companies with earnings growth offered more modest dividends, say 2-4% dividends and 4-5% annual growth in earnings.  Growth stocks offered  very little in the way of dividends, but you could get capital appreciation as earnings would increase 10% to 15%.annually. Then, as we moved through the great bull market of the 1980’s and 1990’s, we got to the point where dividends were out of favor and capital appreciation was the only way to make money.. Now dividends are back and once again there are multiple ways to make decent returns in the stock market, depending upon one’s tolerance for risk..That is very, very positive for the equity markets.

JA: How about sectors?  Any of special interest, or any you would avoid?

ML:  There are good companies in every sector.  I would not recommend the utilities, but there are very good opportunities in materials, energy, consumer products and services, industrials and financial services,  In most of these the small caps usually have something unique about the way they do it, or the technology they apply to it.

Tech spending is not forecast to be up much in 2013.  There will be winners and losers.  We need to keep in mind that the corporate world is moving toward Software as a Service, which allows them to stop buying perpetual licenses, and to pay as they use software.  They are going from buying licenses and maintenance contracts, and now are basically paying just for what they use.  Same with cloud computing.  So they are going from spending $20,000 on software and a server to paying $1,000 month.  So even though tech spending is forecast to be close to flat, the companies that will be winners will have SaaS and cloud computing.  These trends will hold down spending.  It’s hard to see how the semiconductor companies are going to prosper in that environment, unless it is the specialty chipmakers who are specialized in populating ever-smaller chips with ever-larger amounts of circuitry for tablets and smart phones – or those companies that are specialized in the ability to manage the signals for those tablets and phones.  But other than those two, I don’t see a lot of growth there.  And I would be careful about traditional license-oriented software companies.  .

JA: What about healthcare companies?

ML:  Interesting.  It’s hard to guess how ObamaCare will play out.  There are some longterm secular trends in healthcare that are worth keeping in mind.  Keep your eye on the value proposition: better, faster, cheaper, more automated.  One of the most interesting areas is the second generation biotechs.  Think about AIDS, for instance.  Over the last 25 years it has become a livable disease – that is, we haven’t cured it, but we can make it possible to live with it, and to do well, not just to survive for a few more months.  Now the industry is working to make cancer livable in the same way; there are whole new classes of drugs that enable people to live with cancer, and not to just be blown away by it in a short time.  Possibly we are spending the same amount of money making cancer livable as we used to, but now we’re spending it over a longer period, and not all at the end of life.  Diabetes monitoring, for instance – the closer we get to continuous glucose monitoring, the better for diagnosis and treatment; One of our investments is Dexcom (DXCM), which has a promising technology for that.  All those big diseases are interesting, and medicine is getting its arms around them too.

JA: How about healthcare IT?

ML:  It has historically been mostly about billing and insurance, but now the future is to move on to quality of care.  Since we have had health insurance as a society, the focus has been on what you might call “industrial metrics,” such as how many patients you can process.  Now the quality of the outcome is more important, and best practices are more important.  There will have to be penalties for readmissions of the same patient.  Mobile apps for monitoring things like blood pressure, glucose, heart problems and blood gases – these things are going to become standard practice over the next 5 to 10 years.

JA:  You mentioned the impact of technology on industry.

ML:  There are lots of new beginnings now, along with outmoding of old things.  Software as a service and the use of the cloud – this is the biggest piece of cost to cut.  If you can cut your IT costs you have overall better margins, and better processes too.  And industrial automation is interesting too.  The first generation of automation concentrated on, for instance, lasers to cut steel.  Now automobiles are being made with lighter materials, so new lasers are needed, lasers to cut nonsteel materials.  Aerospace is an interesting area for this.  Two things that are driving aerospace are new materials that lower weight and cost, and a continuing cutback on oil-based materials.  There is a bit of a renaissance going on in aerospace.

One of our investments is IPG Photonics (IPGP) for the new lasers needed to deal with new lighterweight materials.  Another is Polypore International (PPO), which is making the membranes needed for new electric vehicles like the Chevy Volt and the Nissan Leaf. By the end of 2013, they are expected to be supplying membranes for 24 models of cars.  That goes back to the fact that fuel efficiency standards by 2025 will be at 54.5 mpg.

Another of our investments is Aspen Technology (AZPN), which basically supplies SaaS for factories and plants.  If you are a refinery, for instance, you are required by law to take your systems down every so often for maintenance and test for a number of things such as safety and pollution.  Doing that manually is difficult; it can be done, but it is hard, and if you are global it is harder.  Aspen automates all of that, and they are in a field by themselves basically.

JA:  And energy?

ML:  The shale revolution will be a big job creator, and the move toward natural gas for vehicles is important.  Fleets will be moving to Compressed Natural Gas (CNG), and we believe the infrastructure will be built out for CNG refueling.  Federal Express, UPS and the other big fleets will be the drivers.  We are interested in Westport Innovations (WPRT) for the CNG engines.  And we are watching Clean Energy Fuels Corp (CLNE) for the CNG supply chain, but big oil will be the installer.  We also believe solar will become economical to use, with panels on the roofs, for instance, of warehouses, and power being sold back to the grid when it is not needed.  Between the increased supply of natural gas, shale energy, coal, oil and renewable, we can get to be energy independent.

JA:  How about housing?

ML:  Housing is fascinating.  What happened with housing is what happened with autos.  Now after a period of low sales, we probably need as a nation to do some catching up.  We could need 1.7 million new housing starts for a couple of years.  That would double the current rate.  The Echo-boomers (who used to be called Generation Y) are starting to buy houses; their demand for houses is growing at 5% per year, and will grow at 10% per year soon.  My personal opinion is that this housing cycle will be a long one, similar to what we saw after the housing collapse in the mid 1970’s. In the first few years, we will see a catchup in pricing, but after that we believe housing prices will probably go up a couple of percentage points per year. If they implement the rules on mortgages that are being talked about, the housing market will become a lot steadier and more stable, more like the Texas market, where they tightened the downpayment requirement and favor 30-year-fixed mortgages.  That will be positive for the housing market and for consumer confidence.

There is nothing better for consumers than to have their biggest asset become more valuable every year.  Three years ago if you hadn’t already lost your job, you were still afraid you might lose it.  Your 401(k) and your house were devaluing.  This recovery is more like the late 1970s than the 1990s.  People got burned in the mid-70s and it took a long time to feel better.  When we are operating at full potential, we should have 3-1/2% to 4% GDP growth, and that will come eventually.

JA:  And in 2013?

ML:  I think GDP this year will be 2-1/2% overall because of federal and state problems, but corporate GDP growth will be a good bit better than that, assuming there is a budget deal at some point.  The first half of the year if we watch the government argue about spending, it could be a bit of a damper on growth.  If we regain faith that the politicians will be able to compromise and come up with some answers, the market will go higher.  Having our debt downgraded shook everyone’s confidence.    So the market is at 12-13 times earnings as a result.

If we get a budget deal we could get much stronger investor confidence, but in the short term, our ability to govern ourselves is the big issue.  Once that is resolved, the market will lift.

JA:  Thanks, Mary.

For AH Lisanti:  For financial intermediary use only.  Not for use with investing public.

The information provided should not be considered a recommendation to purchase or sell any particular security.  It should not be assumed that any security transactions, holdings, or sectors discussed were or will be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance discussed herein.  The views expressed reflect those of the portfolio manager as of 12/31/2012.  The portfolio manager’s views are subject to change at any time based on market and other various conditions. The performance reflected herein is not representative of performance of AH Lisanti individually managed accounts or comingled vehicles that AH Lisanti advises.

 

Looming Tax Hikes Could Prompt Surge in Corporate Stock Buyback Plans

With new taxes, or at least the possibility of tax changes, looming in 2013, some investment experts are predicting a surge in company stock buyback plans, according to the New York Times (http://www.nytimes.com/2012/11/28/business/companies-are-expected-to-increase-buybacks.html). The Times cites a recent survey by the financial data firm Markit of 100 American companies. Half of them told Times reporter Nathaniel Popper that if tax rates on dividends increase, as has been suggested, they would consider using corporate funds to buy back their own stock.

Photo courtesy of buydearborn.com

Generally speaking, there are two ways a company can return money to investors, the story notes: dividends and buying back stock, also called a share repurchase. Stocks that are bought by a company are absorbed meaning the total number of outstanding shares is reduced, which increases the value of each share still on the market.

Most often, stock buybacks are accomplished in two ways, as outlined in a recent Investopedia article titled “A Breakdown of Stock Buybacks” (http://www.investopedia.com/articles/02/041702.asp#axzz2DY4Vf9xy):

Open market. In this case a company buys shares just like an individual investor, on the open market. That’s the path chosen by Poway, CA-based Digirad * (Nasdq: DRAD, http://www.digirad.com/), which has two business divisions: one manufacturers and sells medical diagnostic imaging systems including solid-state gamma cameras; the other, called Digirad Imaging Solutions, provides diagnostic imaging services to physicians at their offices. DRAD has a market cap of about $43 million and a 52-week trading range of $1.72-$2.44. DRAD closed Nov. 29 at $2.09, down 3 cents on the day. In Digirad’s case, the Board of Directors approved spending up to $4 million in its stock repurchase program.

Tender offer. In this case shareholders are presented an offer, called a tender offer, by a company to submit (or tender) a portion or all of their shares for a certain designated time period. Typically, the company will pay a price at a premium to the market price. That’s the path chosen by Mountain View, CA-based IRIDEX * Corporation (Nasdaq: IRIX, http://www.iridex.com/), which manufactures and sells laser-based medical systems and delivery devices for the ophthalmology market. IRIX has a market cap of $36 million, a 52-week trading range of $3.07-$4.50 and closed Nov. 29 at $4.00, up 1 cent on the day. In its tender offer, IRIX has offered to buy back 5.5 percent of their currently issued and outstanding shares (487,500 shares) at $4.10 until Dec. 7 (although that deadline could be extended).

The Times article outlines some of the criticism of buybacks, basically suggesting that they can lead to the misuse of corporate funds. One of the main complaints is that the money could be better used investing “in their businesses and staff.” But in recent months many large companies have announced stock buyback programs, including Chipotle, Starbucks, BeBe Stores, Proctor & Gamble and News Corporation.

* Denotes client of Allen & Caron Inc., publisher of this blog

Business-Jet Market Expected to Show ‘Solid’ Growth in Short, Long Term

One business sector that is expected to be experiencing solid growth in both the short and long term is the business-jet market, according to The Economist (http://www.economist.com/blogs/gulliver/2012/10/business-aviation). Honeywell Aerospace recently put out its annual Business Aviation Outlook, a forecast based on surveys of 1,500 business-jet operators worldwide.

According to the survey (and The Economist), “between 680 and 720 new business jets will be sold this year, a ‘single

Photo courtesy of priog.org

digit’ increase over last year.” The survey then predicts will get much bigger over the next 10 years with about 10,000 jets expected to be sold at a total price of $250 billion.

The article notes that the good news for the business-jet industry is not so much a reflection of positive global economic conditions as buyers wanting the various new features offered in newer jets. Honeywell’s report indicates that today’s buyers want jets with more range, more comfort and larger cabins.

Other statistics in the article include regional numbers. A total of 46 percent of the buyers in BRIC countries expect to buy a new jet in the next five  years; the Russian business-jet fleet is expected to expand by 15 percent by 2017; the Indian and Chinese fleets by 18 and 30 percent, respectively. North America continues to lead the business-jet industry by a long shot “because of its massive installed base of jets…the region is expected to account for 53 percent of all sales in the next five years.”

On a related note, Lockheed Martin (LMT) hit a 52-week high Nov. 6, closing at $94.88.

There are a host of small cap stocks that work in the business-jet/aircraft industries. Here are a few randomly chosen companies to look at:

Wood Dale, IL-based AAR Corp. (NYSE: AIR, http://www.aarcorp.com) has a variety of aircraft-related businesses and does a lot of business with the US government. AIR sells and leases used commercial aircraft; repairs, leases and sells airplane parts, components and instruments;  provides logistics services, designs and installs in-plane cargo loading systems, just to name a few of its business sectors. AIR was founded in 1951. Its 52-week trading range is $10-$23.67. AIR closed Nov. 6 at $15.06, up 11 cents.

South St. Paul, MN-based Ballistic Recovery Systems (PINK: BRSI, http://www.brsparachutes.com) is tiny, only slightly over $1 million in market cap. It makes rocket-deployed parachute systems for general aviation and recreational aviation aircraft that are designed to parachute the entire plane to safety in the event of an in-air emergency. BRSI stock barely trades at all, averaging only about 3,900 shares a day. Its 52-week range is $0.05-$0.30. It traded 10,000 shares Nov. 6 and closed at $0.14, up 4 cents.

Portland, OR-based Erickson Air-Crane Inc. (Nasdaq: EAC, http://www.ericksonaircrane.com) manufactures and operates Erickson S-64 Aircrane heavy-lift helicopters. One side of its business maintains, overhauls, repairs and provides aircraft services, the other side uses its fleet to aide in firefighting, timber hauling and infrastructure construction. AIR has a 52-week trading range of $5.35-$8.50. It closed Nov. 6 at $7.49, up 3 cents.

Calabasas, CA-based National Technical Systems * (NASDAQ:NTSC; http://www.nts.com/) is a leading provider of testing and engineering services with the largest network of test laboratories and engineering service centers in North America and more than 50 years of experience.  The majority of its revenues come from the aerospace and defense industries. It also offers end-to-end unmanned aerial vehicle services. NTSC’s 52-week trading range is $4.22-$8.80.  Its market cap is currently almost $91 million. It closed Nov. 6 at $7.92, up 8 cents for the day.

Monrovia, CA-based AeroVironment, Inc. (NASDAQ: AVAV; http://www.avinc.com/) engages in the design, development, production, support, and operation of unmanned aircraft systems, and efficient energy systems for various industries and governmental agencies.  In late July, its market cap was $503 million and AVAV stock was trading for about $23. By early November it had not changed much. It closed Nov. 6 at $22.60, down 3 cents.

* Denotes client of Allen & Caron Inc., publisher of this blog.

Report: Investments in Smart Grid Technologies to Reach $200 Billion by 2015

New investments to so-called Smart Grid technologies to replace the current decades-old electrical grid technology will total $200 billion worldwide by 2015, according to a recent research report by Pike Research, a market research firm that specializes in global clean technology markets (http://www.pikeresearch.com/newsroom/smart-grid-investment-to-total-200-billion-worldwide-by-2015).  While smart meters are “the highest-profile component of the Smart Grid,” the investments will mostly go to “grid infrastructure projects including transmission upgrades, substation automation and distribution automation,” said Clink Wheelock, Pike’s managing director.

If accurate, that opens up a whole lot of potential revenue for a wide variety of companies large and small. Some of the bigs include Qualcomm, Duke Energy and JDS Uniphase, just to name a few. But several small caps are thriving in different niches of the market. Here are a few randomly chosen companies involved in this market.

Newton, MA-based Ambient Corporation (Nasdaq: AMBT, http://www.ambientcorp.com/) provides utilities with solutions for Smart Grid initiatives. It has designed a secure, flexible and scalable smart grid platform called the Ambient Smart Grid communications and applications platform. Ambient announced Oct. 4 that it was establishing a European subsidiary to focus on the “growing and vibrant” European market. AMBT has a market cap of $83 million and a 52-week trading range of $4-$9.75. It closed Oct. 9 at $4.89, down 11 cents on the day.

San Jose, CA-based Echelon Corporation (Nasdaq: ELON, http://www.echelon.com/) is an energy control networking company. Echelon technologies currently connect more than 35 million homes, 300,000 businesses and 100 million devices to the smart grid. ELON offers a wide variety of products focused on smart buildings, smart cities and the smart grid and it recently announced that two of its products were granted China State Grid approval. ELON’s market cap is currently $166 million and its 52-week trading range is $2.50-$7.43. It closed Oct. 9 at $3.88, down 5 cents on the day.

Irvine, CA-based Lantronix (Nasdaq: LTRX, http://www.lantronix.com/) makes products that make it possible to access and manage electronic products over the Internet or other networks. The company offers smart machine-to-machine connectivity solutions and other miscellaneous products that offer remote access, control and printing for data center, enterprise manufacturing, branch office and home applications. LTRX has a current market cap of $27 million and a 52-week trading range of $1.15-$3.40. It closed Oct. 9 at $1.82, down 12 cents for the day.

Calabasas, CA-based National Technical Systems * (Nasdaq: NTSC, http://www.nts.com/) is a diversified engineering services company, providing a wide range of testing and engineering services to the aerospace, defense, automotive, telecommunications and energy industries worldwide. NTSC now offers a comprehensive certification program for Smart Grid devices that includes areas identified by major utility companies as vital for new products in Smart Grid networks. NTSC’s market cap is now $86 million and its 52-week trading range is $4.02-$8.80. It closed Oct. 9 at $7.48, down 8 cents for the day.

* Denotes client of Allen & Caron Inc., publisher of this blog

Starbucks, Square Alliance Renews Scrutiny on Campaign to ‘Digitize Your Wallet’

Much was made about the recent announcement that Starbucks was joining forces with Square, a San Francisco-based technology start-up that created the Pay With Square app that allows consumers to pay merchants with a mobile phone.  The New York Times asked readers if that means “your phone will soon replace your wallet?” The story didn’t actually answer the question, but the headline suggested that “the campaign to digitize your wallet is intensifying” (http://www.nytimes.com/2012/08/10/technology/the-campaign-to-digitize-your-wallet-is-intensifying.html?_r=1).

Graphic courtesy of piyushratnu.com

If so, the biggest challenge for a company like Square (or a retailer like Starbucks) may be “convincing people that paying with a phone is safer and more convenient than using cash or a credit card,” according to the Times. It’s the “safer” part that piqued our interest. There’s little doubt that security is a big question when it comes to using a phone to pay bills.

This prompted us to look for companies that provide businesses and consumers security for their information. One of the big guys would be Mountain View, CA-based Symantec Corp. (Nasdaq: SYMC), but at nearly $13 billion in market cap it’s no fit for our small cap blog.

Smaller cap stocks generally in this field include (all chosen randomly):

San Diego-based Websense (Nasdaq: WBSN, http://www.websense.com/) provides web, email and data security solutions to protect an organization’s data and users from cyber threats, malware attacks and information leaks, among other threats. TheStreet Ratings downgraded WBSN from buy to hold on Aug. 16, noting that while the company has seen growth in earnings per share and an increase in net income, the stock itself has shown weakness. WBSN’s market cap is $547 million and its 52-week trading range is $14.26-$22.15. It closed Aug. 22 at $15.05, down 3 cents on the day.

Pasadena, CA-based Guidance Software (Nasdaq: GUID, http://www.guidancesoftware.com/) provides digital investigative solutions to government organizations and corporations. The company’s EnCase Cybersecurity forensic solution exposes, triages and remediates threats. Its market cap is $259 million and 52-week trading range is $5.54-$11.87. GUID closed Aug. 22 at $10.41, up 4 cents on the day.

Israel-based Commontouch Software (Nasdaq: CTCH, http://www.commtouch.com/) provides messaging, anti-virus and Web security solutions to OEM customers, enterprises and service providers. CTCH offers its solutions to network and security vendors offering content security gateways, unified threat management solutions, and antivirus solutions, for example. CTCH has a market cap of $70 million and a 52-week trading range of $2.41-$3.64. It closed Aug. 22 at $2.85, down 9 cents for the day.

Lee, MA-based Wave Systems Corp. (Nasdaq: WAVX, http://www.wavesys.com) produces and markets products for hardware-based digital security. In particular, these include security applications and services that are complementary to and work with the specifications of the Trusted Computing Group, an industry standards organization. Its market cap is $99 million and its 52-week trading range is $0.53-$2.92. It closed Aug. $1.03, up  2 cents for the day.