In my weekly premium newsletter -- Undiscovered Micro-Cap Gems -- my goal is to introduce readers to a variety of promising micro-cap investing ideas that they may wish to consider for their portfolios. In doing so, I generally look for small, neglected companies that have been overlooked by conventional Wall Street sources. I also look for undervalued firms that are trading at a steep discount to their intrinsic value. Many of these individual investment ideas have the potential to deliver triple-digit percentage gains in the years ahead.

Below you'll find an in-depth look at one such investing idea that I introduced my readers to in a recent issue. To gain access to dozens of similar investing ideas each and every week, you'll need to subscribe to my Undiscovered Micro-Cap Gems service. In the meantime, I sincerely hope you enjoy today's sneak peak at one of my most recent micro-cap investing ideas...

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CCA Industries (CAW, $9.37)
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CCA manufactures and distributes health care products and beauty aids under brand names such as Solar Sense, Nutra Nail, and Wash 'N Curl. The company markets a wide range of whitening toothpastes, hair removers, sunscreens, skin creams, dietary supplements, beauty aids, perfumes, and shampoos. These products can typically be found at food & drug outlets like Walgreen's, discounters such as Wal-Mart, and at other well-known retailers.

Each of the investing ideas I profile in the pages of my fee-paid, members-only Undiscovered Micro-Cap Gems newsletter has something unique to offer -- a solid management team, a healthy balance sheet, profitable operations, popular brands, hefty share buybacks, generous dividends, compelling valuation levels, etc. While many companies may offer some combination of attractive features, CCA is one of the few to exhibit all of these credentials.

Over the last five years, the company has posted consistent top-line improvements. That trend has remained intact through the first half of this fiscal year, as revenues have climbed another +6.3% to reach $33.4 million. Meanwhile, earnings have dropped to $0.37 per share from $0.47 over the same period last year. However, much of the shortfall can be attributed to heavy advertising expenses booked in the second quarter. Due to competitive pressures, management has earmarked an extra $1 million for the company's advertising budget. While this added expense has taken a toll on recent bottom-line results, it should pay dividends during the second half of the year when these ads are actually scheduled to run.

Going forward, any improvements in net income should also be magnified thanks to a recently announced share buyback program. On August 22nd, the company unveiled plans to repurchase up to one million shares of its stock. Given its relatively small outstanding share count of just seven million, the new program has the potential to dramatically improve financial results on a per-share basis. Moreover, the decision reflects management's belief that CAW shares are currently trading well below their intrinsic value.

On that front, the stock's valuation level looks quite attractive relative to industry peers. The table below compares several of CAW's financial ratios to those of its average competitor.

I was first attracted to this stock by its steady revenue and earnings growth, its strong balance sheet and its impressive free cash flows. However, I have since uncovered a potential catalyst that might possibly send the shares racing sharply higher.

According to the firm's 8K filing posted last month, management appears to be in active discussions with an undisclosed NYSE member firm. No definitive details have yet been divulged, but the company has reached an agreement that could include anything from "the acquisition of new trademarks" to "merging with another company" to "selling out to a financial group who may be interested in taking the company private." While it may be too soon to speculate what this deal could entail, the announcement -- coupled with the share repurchase program -- clearly underscores management's recent efforts to enhance shareholder value.

Even if recent merger talks break down, CCA's improving fundamentals are encouraging. Gross margins, operating margins, and net profit margins all now stand well above their five-year historical average. Furthermore, with cash flows on the rise, management has been able to initiate recurring dividend payments. After bumping up the payout three times in the past year and a half, the stock now offers a respectable yield of 1.7%. It should also be noted that with a modest payout ratio of just 18%, management is still leaving plenty of cash on hand to fund future growth.

Though CAW has delivered a market-beating +14.2% average annual return over the past decade (and +56.5% annually over the past five years), this undervalued stock still only trades at a forward P/E of just 10. Since climbing to a 52-week high of $13.80, the shares have retreated sharply, shedding nearly one-third of their value. But with a ramped-up advertising campaign, a new stock buyback program and a possible merger in the works, the recent pullback could provide long-term investors with an outstanding opportunity.

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Important Note: The above article was merely a small excerpt from a recent issue we sent to subscribers of our premium value investing service -- Margin-of-Safety Investing. In each issue of that newsletter, editors Nathan Slaughter and Paul Tracy deliver an in-depth look at a variety of other deeply discounted stocks that should provide investors with a solid margin of safety at current prices. To receive your copy of our most recent issue of Margin-of-Safety Investing, as well as other guidance similar to this twice per month, you'll need to subscribe to this publication. To learn more, please visit:
https://www.streetauthority.com/subscribe-msi.asp

Thanks for reading!

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