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

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

Unmanned Aerial Vehicle (UAV) Market: It’s Taking Off

Unmanned Aerial Vehicles, or UAVs, or drones are making headlines daily, as part of military exercises or in a variety of other ways. The market for these vehicles has begun to grow and is expected to keep growing in the near future.

Shadow UAV photo courtesy of Wikipedia.org

 Market research estimates the global UAV market is now about $15 billion this year, with growth to up to $20 billion annually by 2020. Part of the reason for the growth is the FAA is opening up air space to commercial activities.

There are several high-profile, large cap companies such as Lockheed Martin and Boeing, active in this space. But so are many smallcaps, including:

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.  Revenue in 2012 reached $325 million with fully diluted earnings per share of $1.36, representing compound annual growth of more than 20 percent since 2010.  Its market cap is now $503 million and the 52-week trading range is $21.14-$34.28.  The stock has taken a beating lately and at the close of market July 24 was trading at $22.96, down 88 cents for the day.

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.  It offers an end-to-end UAV service including the design and integration of a payload, help with building a POD, testing of UAVs, even flying missions.  The Company’s 52-week trading range shows it was trading for as low as $4.02 in November, but has been reaching new highs in the low $7s this month.  Its market cap is currently around $81 million. It closed July 24 at $7.12, down 1 cent on the day.

Carson, CA-based Ducommun Incorporated (NYSE:DCO; http://www.ducommun.com/) provides engineering and manufacturing services to the aerospace, defense, and other industries through a wide spectrum of electronic and structural applications.  Its capabilities include aviation and UAV sensors.  The stock is trading near the bottom of its 52-week range ($7.71-$23.54), and the market cap is around $105 million. It closed July 24 at $9.94, up 1 cent for the day.

Austin, TX-based Astrotech Corp. (NASDAQ:ASTC; http://www.astrotechcorp.com/), through its subsidiaries, has provided support for manned and unmanned launch vehicles for the last 30 years.  It is a leading provider of commercial aerospace services, and one of the first space commerce companies.  Its market cap is about $21 million and its 52-week trading range is $0.50-$1.34. It closed July 24 at $1,11, down 3 cents for the day.

Edgewood, NY-based CPI Aerostructures Inc. (NYSE:CVU; http://www.cpiaero.com/) is engaged in the contract production of structural aircraft parts principally for leading the U.S. Air Force and other branches of the U.S. armed forces.  As a subcontractor to leading defense prime contractors, the company delivers various pods, and modular and structural assemblies for military aircraft.  The Company’s 52-week trading range is $8.78-$16.42, and the market cap is currently about $75 million. It closed July 24 at $10.69, down 11 cents on the day.

Dulles, VA-based Orbital Sciences Corp. (NYSE:ORB; http://www.orbital.com/) develops and manufactures small- and medium-class rockets and space systems for commercial, military and civil government customers.  The company`s primary products are satellites and launch vehicles, including low-Earth orbit, geosynchronous-Earth orbit and planetary spacecraft for communications, remote sensing, scientific and defense missions; human-rated space systems for Earth-orbit, lunar and other missions; ground- and air-launched rockets that deliver satellites into orbit; and missile defense systems that are used as interceptor and target vehicles.  The market cap is currently about $739 million and its 52-week trading range is $10.59 to $18.48. It closed July 24 at $12.53, down 17 cents for the day.

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

Business Services Are Enablers of Growth, Offer Value Opportunities

As the US economy begins to nose upward, and economic indicators seem to be showing more strength (unemployment at 8.3%, GDP growth speeding up), it is a good time to look at those companies whose job it is to enable businesses to grow, to bring new products to market, or to make their operations more profitable.  As a group, these companies are frequently referred to as Business Services, and they cover a long stretch of waterfront.  What they share is that they act as part of the infrastructure that businesses can call upon to help them move forward.  We will not be considering any accountancies — but they are an example of a Business Service.

Lightning simulation testing of a nosecone, courtesy NTSC

Philadelphia-based CDI Corp (NYSE: CDI; http://www.cdicorp.com/), for instance, provides engineering and information technology project outsourcing solutions and professional staffing services  in the US, UK and Canada.  CDI’s service is a wrap-around capability, offering business startup services (especially to medical-industry startups), a very broad range of engineering & design, head-hunting and personnel systems.  This sort of company allows its clients to “stick to their knitting” instead of worrying about administrative burdens.  For the third quarter of 2011 they reported revenues of $272 million, up nearly 10% from the previous year, with $0.15 per share of earnings, and a cash dividend of $0.13 per share.  Shares closed on Friday at $14.97 vs a 52-week high of $20.34, with below-average daily volume of about 40,000 and an overall market cap of about $287 million.  Because they are difficult to classify, these companies, in spite of good growth and good results, frequently suffer from neglect, and may well offer a deep value opportunity as a result.

Wilmington MA-based UniFirst Corp (NYSE: UNF; http://www.unifirst.com/) is in the uniform business, providing protective wear, flame resistant clothing, laboratory gear, coveralls — and cleaning services, including decontamination services for various toxic substances.  They also supply restroom supplies and first-aid cabinets to a dizzying breadth of customer industries.  Founded in 1936 during a deep economic downturn, UNF reported strong rebound revenue growth of 14.6% in their fiscal first quarter ended Nov 26, 2011, with $313 million and $1.30 per share in earnings.  The Q1 dividend is $0.0375 per share.  CEO Ron Croatti was a hirsute laborer in a recent episode of CBS’s “Undercover Boss,” and you can see the whole episode on the UNF website.  Shares are selling for about $61.61, near the top of its 1-year range, and average volume is about 58,000 shares — again, lower than one might expect, given how well the company is performing.  Market cap is about $1.2 billion.

Calabasas CA-based National Technical Systems Inc* (Nasdaq: NTSC; http://www.nts.com/) is an outsource for engineering services and testing products to find out how long they last, what makes them fail, how rugged they are, etc.  They do a lot of government and aerospace work (testing flight instruments and landing gear, for instance), but also work for the auto industry, telcom companies, energy suppliers and makers of consumer products.  With more than 50 years of experience, NTSC also helps clients with engineering expertise and supply-chain management, and certifies ISO standards compliance.  Even so, it is probably the only pure-play testing lab listed on a major US exchange, and it languishes as a result because they are a one-of-a-kind company.  For the first nine months of their fiscal year ended January 31, 2012, NTSC revenues increased to $115 million, up 6.2% over the previous year, and earnings from continuing ops were $0.03 per share.  A substantial book loss from closing a Canadian facility led to a net loss, vs previous-year “normal” earnings of $0.10 per share.  Like CDI and UNF, NTSC is largely invisible to the public, and its stock sells for about $5.00 vs a 52-week range of $4.02 – $8.00.  Daily volume is low, at less than 6,000 shares, but the float is small too, with insiders as major holders. Market cap is about $57 million, about a third of annual revenue, in spite of a robust base business.  Look at this video if you want to be impressed: http://www.nts.com/resourcecenter/multimedia#videodialog_10.

NYC-based Volt Information Sciences Inc (OTC: VISI.PK; http://www.volt.com/) is a sizeable company, with 4th-quarter revenues in the range of $473 million, up from the previous year.  They hit a speed bump and are having to restate financial results for 2008 and previous years, and have not reported audited results for 2009 or more recent periods.  There is a big ongoing restatement assignment for their accountants, but they have been giving quarterly “estimates” of what is going on.  They operate globally and their clients are mostly Fortune 100-type companies.  They provide outsourced IT, engineering and workforce staffing for projects or fast-growth companies and divisions.  They also provide IT services, and a lot of engineering and construction services, as well as infrastructure services like operator services, directory printing (like yellow pages), etc.  Clearly difficult to categorize as well as in a ditch due to accounting difficulties.  Even so, cash balances seem to be improving, which may be a good sign, and VISI shares are selling for $6.99 vs a 52-week high of $10.80.  Daily volume is paltry (16,000 shares), and market cap is $146 million, less than 10% of annual revenues, which may point to a deep value opportunity for investors with patience and healthy blood pressure levels.

Finally, look at Minnetonka MN-based G&K Services Inc (Nasdaq: GKSR; http://www.gkservices.com/).  Also in the uniform business, GKSR has  additional product lines for the workplace, including special-purpose floor coverings, such as traction mats and anti-fatigue flooring.  They also provide maintenance products and linens.  Not a very exciting business compared to biotechs with a cure for cancer, but GKSR has been doing what they’re doing since 1902, and they are scooting along with 7.4% growth for their second fiscal quarter ended December 31, 2011, reporting revenues of $217 million and EPS of $0.51 per share.  Last week they declared a quarterly dividend of $0.13 per share.  Not shabby, especially with the stock selling for $31.20 vs a year-high of $36.54 on volume of about 83,000 shares.  Market cap, in spite of great financial performance, is only $587 million, about 50% of revenue, and that’s with a dividend yield of 1.7%.

Please do your own research.  We do not make recommendations; we just write about interesting companies.

* NTSC is a client of Allen & Caron, the publisher of this blog.  We do not hold or trade NTSC shares.