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In a recent Money magazine, the cover story is "101 Ways to Build Wealth." One of the ways recommended to profit from investing is to "Think Tiny" and buy shares of publicly traded companies with a market capitalization of less than $200 million.

As the Money magazine piece points out, "Micro-cap stocks, with market values of about $200 million or less, have historically gained about two percentage points more a year than larger stocks. Since not all of these businesses will withstand the test of time, invest via a diversified fund." It is better for investors to look for those micro-caps that have still have upside on its own, saving the administrative fees that greatly reduce gains from buying into mutual funds.

An excellent way to profit from micro-cap stocks is from those that cater to niche food sectors. Brand loyalty in this group is very strong. In addition, the macro factors such as the burgeoning consumer class around the world is adding billions of new consumers and additional trillions in spending. Much of this will be going for food items.

As the chart below shows, small and micro-cap consumer stocks have certainly done well for 2013. Up 44.63% for the year, G Willi International (NASDAQ: WILC) , has noodle soups and canned fruit among its many offerings. A boutique soup maker, Soupman (NASDAQ: OTCQB:SOUP), has gained more than 40% since the beginning of the year. Post Holdings (NASDAQ: POST), the maker of breakfast cereals such as Grape Nutes and Alpha-Bits, is higher by 26.34% for 2013. Down over the same period, Amiri Nature Foods (NASDAQ:ANFI),which packages and distributes packaged rice and other products throughout Asia, still has earnings per share growth of 86.29% for this year, with the analyst community projecting it to be more than 60% for next year.

Metric

Post Holdings

Soupman

Amiri Nature Foods

G Willi International

Market Cap

1.41b

23.6m

262m

89m

Price to Sales

1.5

8.9

0.3

1.2

Performance for 2013

26.34%

21%

(7.67%)

44.63%

Sources: Google, Finviz, Morningstar

The indicators for these firms are improving. The price-to-sales ratio for Soupman has become much more bullish. A dollar of sales for ANFi trades for about one-third of its value in the share price. Both POST and WILC are priced that way, too. Soupman is headed in that direction, too.

That is a sign of a classic value stock.

As such, there should be downside protection if the market does plunge. Investors eventually seek sanctuary in undervalued companies in adverse economic conditions. Firms in the consumer goods sector should be even more appealing. It will not take much buying to bolster the share price of a thinly traded small or mico-cap food stock that is undervalued.

That is proven the historic returns of micro-caps being about two percentage points higher. Due to the size, major institutions such as mutual funds and pension cannot purchase the stock. As a result, price drops. This creates a classic value buy, as appears to be developing, based on the price-to-sales ratio. By comparison, the price-to-sales ratios for large caps in the same sector are much higher with it being an average of 1.84 for the consumer sector.

With that being much higher than the price-to-sales ratio for Post Holdings (20%), G Willi International (50%), Amiri Nature Foods (600%) and heading that way for Soupman, the value appeal of these stocks is manifest. For the long term, it will become even more appealing, particularly for Soupman as it is rapidly expanding operations.

Source: For Value Investing, Look To Small-Cap Food Stocks