Investment Underground took a look at some very promising mid-sized and smaller firms with market caps under $4 billion that have hedge funds interested. Here are some promising names for your due diligence:
Chicago Bridge & Iron (CBI): Highly levered to the liquified natural gas (LNG) field, CBI, has derived a majority of its earnings from construction of related infrastructure over the past several years. When considering whether CBI is a good match for your portfolio, take a look at your own estimations of where you see construction in this sub-sector headed. It has a market capitalization of $3.9 billion and should have steady EPS growth, centered in the mid-teens, over the one-, two- and five-year benchmarks. That is something of a descent from great heights given its 66% growth in EPS over the past 5 years, but it is nothing to sneeze at either. It currently trades near the top of analyst targets at $38/share, but again, we’d advise looking at your thesis for the LNG sub-sector to see if this might be a good ancillary play to tie in with your infrastructure outlook.
RF Micro Devices (RFMD): The maker of radio frequency devices has a lot of potential ahead of it in a giant market for RF chips and compound devices. The company made $978 million in revenues in FY 2010 through March, an increase of 10.37%. EBT margin was 8.67% in FY 2010. Through the 9 months ending in December 2010, revenues were up 16.8% to $838 million. For the same time period, EPS was $0.36 versus $0.16 9M09. EBT margin was 13.6%. The company is on the up and up. The next earnings results are released on April 25. RFMD has a market cap of $1.6 billion.
SunPower (SPWRA): Trading under the fair value estimate of analysts that have placed that number near $19/share, SunPower is a smaller player in the solar market, with $1.5 billion in capitalization in this fast evolving sector. SunPower has faced stiff competition from low-cost competition, most notably from Chinese competitors, but has aggressively moved to cut costs. It may be able to close the gap—it may or it may not adopt a less linear strategy to circle round its competitive challenges. If solar demand takes off, SunPower will be a key beneficiary of this trend.
URS Corporation (URS): An Engineering and Construction group with $3.7 billion in market capitalization, URS is currently trading at $45.5/share, just a couple pieces of change below fair estimate values. The stock marries a forward P/E of 12.8 with a PEG of 1.29, and modest but steady EPS growth projections at 7.7%, 8.7% and 10.2% over the 2011, 2012 and 2016 horizons, respectively. URS will be a key player in the infrastructure revival in North America.
A123 Systems, Inc. (AONE): A123 Systems designs, develops, manufactures and sells rechargeable, lithium-ion batteries and battery systems, primarily in the U.S. The company's current profit margin is -156.77% and operating margin is -153.52%. However, A123 recently announced a production contract with an unnamed, "major North American automaker" to provide batteries for an electric car debuting in 2013. A123 Systems is a new holding for T. Boone Pickens, an energy guru we highlighted recently.
BioScrip (BIOS): This company grew revenues by 23.2% to $1.63 billion in 2010, after dropping by 5.16% in 2009 and rising by 17.05% in 2008. The company produced a net loss of $69.1 million due to pricing concessions on various specialty drugs, reimbursement pressures, AWP standardization changes, and the weak economic environment. However, the company acquired and integrated CHS, and enhanced its competitive position in Infusion and Home Health Services.
Moreover, with the impending retirement of the baby boomer generation, the company has a good business model. As so, in 2011, the Street expects an EPS in the range of $0.14 to $0.30, after posting - $1.37 in 2010. The company has a D/E ratio of 1.18. The company is a national provider of specialty pharmacy and home care products and services that partners with patients, physicians, hospitals, healthcare payers and pharmaceutical manufacturers to provide clinical management solutions and delivery of cost-effective access to prescription medications. The company’s services are designed to improve clinical outcomes for chronic and acute healthcare conditions while controlling overall healthcare costs.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.