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Let’s face the reality that while every investor wishes they found Apple (AAPL) and or Microsoft (MSFT) when they were early in the game, few were actually looking for them. Sometimes the best investments in plain view are cluttered in the small cap arena, and investors are simply unwilling to sort through the clutter. Today we made the process a little easier though by highlighting some small cap names that have strong profitability but have had bad streaks in the market, making them cheaper potential opportunities.

The operating profit margin is the bread and butter of every company when it comes to profitability. It lets investors see how much a company is even keeping after variable costs are covered. A small cap that illustrates a clear ability to generate high operating margins has a better chance of growing into a larger company, and also rewarding investors with better earnings.

We first looked for small cap stocks with impressive profitability over an extended period of time (1-year fiscal operating profit margin > 30%). From this narrowed pool, we then looked for those that have recently fallen out of favor with the investment community by underperforming the S&P 500 over the last 3 months.

This list was ranked from highest to lowest by the 1-year fiscal operating profit margin:

1. Safe Bulkers, Inc. (SB)

Sector

Industrials

Industry

Shipping & Ports

Market Cap

$475M

Beta

2.27

The company has an 1-year fiscal operating profit margin of 77.65%. SB has fallen by -4.99% in the last three months. The short interest was 2.00% as of 09/30/2011.

2. Getty Realty Corporation (GTY)

Sector

Real Estate

Industry

REIT - Retail

Market Cap

$534M

Beta

1.03

The company owns and leases retail motor fuel, convenience store properties, and petroleum distribution terminals. The company has an operating profit margin of 62.12%. GTY has fallen by -36.77% in the last three months. The short interest was 10.10% as of 09/30/2011.

3. PDL BioPharma, Inc. (PDLI)

Sector

Healthcare

Industry

Biotechnology

Market Cap

$815M

Beta

0.19

The company develops and markets innovative therapies for severe or life-threatening illnesses. The company has an operating profit margin of 61.19%. PDLI has fallen by -5.83% in the last three months. The short interest was N/A as of 09/30/2011.

4. Pioneer Southwest Energy Partners (PSE)

Sector

Energy

Industry

Oil & Gas E&P

Market Cap

$922M

Beta

0.42

The company has an operating profit margin of 58.16%. PSE has fallen by -13.2% in the last three months. The short interest was 1.60% as of 09/30/2011.

5. Universal Health Realty (UHT)

Sector

Real Estate

Industry

REIT - Healthcare Facilities

Market Cap

$475M

Beta

0.57

The company operates health care and human service related facilities. The company has an operating profit margin of 52.99%. UHT has fallen by -10.60% in the last three months. The short interest was 3.80% as of 09/30/2011.

6. Diana Shipping, Inc. (DSX)

Sector

Industrials

Industry

Shipping & Ports

Market Cap

$670M

Beta

1.48

The company operates a fleet of dry bulk cargo ships worldwide. The company has an operating profit margin of 48.52%. DSX has fallen by -18.33% in the last three months. The short interest was 1.90% as of 09/30/2011.

7. Seaspan Corporation. (SSW)

Sector

Industrials

Industry

Shipping & Ports

Market Cap

$997M

Beta

1.07

The company owns and charters a fleet of container ships. The company has an operating profit margin of 46.62%. SSW has only increased by 0.60% in the last three months. The short interest was 2.50% as of 09/30/2011.

8. Navios Maritime Partners L.P. (NMM)

Sector

Industrials

Industry

Shipping & Ports

Market Cap

$916M

Beta

1.01

The company has an operating profit margin of 46.00%. NMM has only incresed by 1.13% in the last three months. The short interest was 4.30% as of 09/30/2011.

9. Knightsbridge Tankers, Ltd. (VLCCF)

Sector

Industrials

Industry

Shipping & Ports

Market Cap

$429M

Beta

1.06

The company operates operates a fleet of crude oil transport ships. The company has an operating profit margin of 45.01%. VLCCF has fallen by -18.88% in the last three months. The short interest was 9.90% as of 09/30/2011.

10. National CineMedia, Inc. (NCMI)

Sector

Consumer Cyclical

Industry

Marketing Services

Market Cap

$644M

Beta

0.88

The company offers advertising, business meetings, and event services that allows it to distribute a variety of advertisement media. The company has an operating profit margin of 44.58%. NCMI has fallen by -22.03% in the last three months. The short interest was 5.50% as of 09/30/2011.

We hope this list helps as investors do their own due diligence and research on small cap stocks with strong profit margins that have recently fallen out of favor with investors.

Source: 10 Oversold, Profitable Small Caps With Great Upside Potential