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Small-Cap
Value Stocks
2 Small-Cap
Stocks that Could Make You MUCH Richer than Your Friends and Neighbors
How many times have you heard
someone say something along these lines: "I wish I had bought Wal-Mart
20 years ago," or "I'm looking for the next Microsoft."
It's easy to share that sentiment, as well as the frustration of not being
able to spot future bellwethers when they are still in their early growth
stages.
Of course, some farsighted investors did see the potential of those two
blue-chip companies and bought them long before they became household names.
In November 1980, Wal-Mart
was trading at a split and |
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dividend-adjusted price of $0.01 per share. With a recent price around
$50, the stock has skyrocketed about 5,000 times in value since then,
meaning someone who invested a modest $1,000 in the up-and-coming retailer
back then would now be a millionaire several times over.
Meanwhile, an investor who had the foresight 20 years ago to see that
Microsoft was about to revolutionize the software industry could have picked
up the stock at an adjusted price of $0.12 per share. We all know the rest
of the story -- MSFT has since soared more than 200 times in value.
Hit the Restart Button
The vast majority of investors regret not having bought Wal-Mart or
Microsoft 20 years ago, long before they became the behemoths they are
today.
Consider this, though: many investors in 2028 will probably look back at the
opportunities available in today's market with a similar sense of regret.
Without a doubt, the giants of tomorrow are out there right now -- and there
is still time to act.
Of course, finding future leaders is never easy. In all likelihood, though,
the companies that will deliver the biggest gains over the next 20 years are
probably quite small today.
This is because stock prices are a derivative of earnings growth. It stands
to reason that a small company with $10 million in earnings can double or
triple that figure far quicker and easier than a corporate giant with $10
billion in earnings -- richly rewarding its shareholders in the process.
Our
System of Finding Undervalued Securities
Can be Found Only at Half-Priced Stocks
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Each
month, our dedicated, independent staff uncovers some of the
market's most undervalued stocks by using a proven, time-tested
technique called Discounted Cash Flow (DCF) Modeling.
To
determine a fair value price for a company, we first project the
amount of operating cash flow that the firm is likely to produce
in the years ahead. From there, we determine how much those
future cash flows are worth in today's dollars by discounting
them back to the present at a rate sufficient to compensate
investors for the risk taken. After doing this, we then arrive
at a fairly accurate estimate of each firm's true, risk-adjusted
intrinsic value. Our method of calculating fair value is exclusive
to us -- you can ONLY find our proprietary "fair
value" rankings in our Half-Priced Stocks newsletter.
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Long-term performance numbers bear this out:
Over the past five years,
small-cap companies have outpaced their large-cap
counterparts. In fact, the Russell 2000 Index has delivered an impressive annualized return
of about +15.2% over that period -- well ahead of the
+12% average annual return posted
by the S&P 500. Meanwhile, over the same time frame, value stocks have
soundly outperformed growth stocks.
At the confluence of those trends, the small-cap value sector has been one
of the
single best performing asset class, delivering annual gains of nearly +17% over
the past five years.
Of course, the markets are cyclical, and anything can happen over short
periods of time. Therefore, long-term performance figures tend to have far
more predictive power.
On that front, small-cap value stocks still look superior . . .
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1927
- 2005 Returns
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Value |
Growth |
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Large-Cap |
+9.2% |
+6.2% |
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Small-Cap |
+12.1% |
+5.8% |
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As the table shows, small-cap value
stocks have climbed at a healthy +12.1% annual clip over the past eight
decades. Yet during the same time period, based on well-documented research, the stock market as a whole has
risen an average of just +6.7% annually.
Over the long haul, that difference can add up to a substantial amount of
money.
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Growth
of $10,000 |
10
Years |
20
Years |
30
Years |
40
Years |
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All
Stocks (+6.7%/yr) |
$19,127 |
$36,584 |
$69,973 |
$133,837 |
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Small-Cap
Value (+12.1%/yr) |
$31,337 |
$98,200 |
$307,729 |
$964,327 |
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Based on the 40-year time period shown above, investors in small-cap
value stocks would have earned 7.2X greater returns
when compared to investors who placed their money in the broader market. And
over an 80-year time period, that figure jumps to 52X greater returns!
So if you want to outperform the
broader market over the long haul, then you need to have exposure to
small-cap value stocks. With this in mind, in today's report we'll profile
two standout small-cap companies that are well on their way to becoming the
blue-chips of tomorrow.
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TABLE
OF CONTENTS:
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Free
to All Web Site Visitors:
Introductory analysis explaining how and why small-cap value stocks
can be used to establish solid returns for your portfolio. This includes:
(1) Needle in a Haystack
(2) On the Fast Track
Available
Exclusively to Paying Customers:
Throughout the remainder of this report, we provide an in-depth look at
two of our favorite
individual small-cap value stocks we believe have the largest potential for gains
in the coming months and years.
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(1.)
Needle in a Haystack
Not every acorn grows to become a towering oak tree.
Similarly, it goes without saying that not all small companies will
eventually grow to become industry leaders one day.
For every small-cap stock that will deliver massive gains of +500% or more
over the next decade, there might be ten others that produce modest returns,
lose ground, or possibly even go bankrupt. The challenge lies in finding those select few small-caps that are poised to
stand out from the crowd. From a research standpoint, this can be a
difficult and time-intensive task.
Because most small companies are under-followed and have little Wall Street
analyst coverage, there is often only a bare minimum of public information
available. In many cases, particularly when it comes
to tiny companies, there are no conference calls, no published earnings
estimates, and certainly no Forbes cover articles -- meaning inquiring investors must
often pore over recent SEC filings to learn more.
On the bright side, this lack of readily available information keeps many
prospective investors on the sidelines, and with relatively few people
actively tracking these stocks, they are often thinly traded and can be very
inefficiently priced.
Therefore, if you are willing to get your hands dirty by digging deeper than
others, then the rewards can be well worth the additional effort.
Learn
the Name of our Favorite Undervalued Stock!
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If you're a value-oriented
investor looking for discounted stocks, then you need to learn
more about our current "Undervalued Stock of the Month." In
recent issues we've profiled a major provider of cable 36%
below fair value, a lending company with a 108% discount,
and a publisher trading 56%
below its fair-value estimate.
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(2.)
On the Fast Track
When it comes to searching for
these future stars, we see little reason to alter our basic value-oriented
formula. Instead, investors should typically look for many of the same characteristics that
are admirable in larger companies, including . . .
- Proven track records --
rapidly growing top and bottom-line growth over the past three years.
- Optimistic outlooks --
projected earnings growth of +15% or better over the next five years.
- Light capital requirements
-- when capital expenditures are low as a percentage of sales, this
leads to stronger free cash flow (FCF) generation.
- Expanding margins --
current gross margins should be above each firm's historical five-year average.
- Compelling valuation levels
-- shares trading significantly below their estimated fair value.
We recently hunted through our
database of thousands of stocks in search of companies that met these strict
quantitative requirements. Although a fair number of stocks passed the test,
numbers alone don't tell the whole story.
Therefore, we also took a hard look at the qualitative factors driving those
numbers. Most notably, we singled out firms with experienced management and
identifiable competitive advantages, as well as those that appear capable of
scaling their business models as they continue to grow.
Finally, even a well-managed company may struggle against the tide if it
operates in an industry that is going nowhere over the next several years.
Therefore, we focused on firms that operate in dynamic industries with
attractive long-term fundamentals.
After countless hours of research, we finally zeroed in on two promising
young companies with plenty of upside potential . . .
END OF FREE
CONTENT
The
remainder of this report is available exclusively to paid subscribers.
In it, we provide in-depth analysis of two of our favorite small-cap value stocks. Each company was handpicked by our research
team and should be attractive to any value investor.
Thanks for reading
today's special report -- Small-Cap Value Stocks.
Good investing!
-- Research Staff
StreetAuthority.com
http://www.StreetAuthority.com
StreetAuthority LLC
839-K Quince Orchard Blvd.
Gaithersburg, MD 20878-1614
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should buy or sell for themselves. Site users should always conduct their
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loss or damage caused by a reader's reliance on information obtained in
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The information contained herein does not constitute a representation
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Our opinions and analyses are based on sources believed to be reliable and
are written in good faith, but no representation or warranty, expressed or
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12 issues of Half-Priced Stocks 