This is the third in our series of mid-year updates on stocks that we have featured in 2012. The previous updates focused on our diversified dividend portfolio and our precious metal investments, with the goal of informing our readers of our current opinion regarding those companies. This article will review the performance and current status of 12 stocks from diverse industries that were featured for their earnings growth potential.
|Crimson Exploration||CXPO||$ 3.13||$ 4.85||55%||BUY|
|Ocean Bio-Chem||OBCI||$ 2.36||$ 1.87||-21%||SELL|
|Telular Corp.||WRLS||$ 8.08||$ 9.28||15%||BUY|
|Homeowners Choice||HCII||$ 10.90||$ 20.66||90%||BUY|
|Allied Motion||AMOT||$ 7.25||$ 6.10||-16%||HOLD|
|SunOpta||STKL||$ 5.62||$ 5.08||-10%||BUY|
|Landec Corp.||LNDC||$ 7.07||$ 9.02||28%||HOLD|
|US Home Systems||USHS||$ 8.73||$ 12.48||43%||SELL|
|Craft Brewers||BREW||$ 7.32||$ 7.94||8%||HOLD|
|Regional Managemnt||RM||$ 13.50||$ 16.63||23%||BUY|
|Anika Therapeutics||ANIK||$ 12.12||$ 14.76||22%||BUY|
|Quality Distribution||QLTY||$ 10.14||$ 10.41||3%||BUY|
In this portfolio, we had nine stocks that appreciated and three that declined in price. The average gain was about 20%, with an average holding period of approximately four months. That would equate to about a 60% annual return, not including dividends.
We are not including in this portfolio other featured stocks that were primarily included for reasons besides earnings growth: good value, global diversification, special situations. These stocks are included because their most important feature is double-digit growth. Because we have a basic value bias, most of these stocks share good value metrics also; however, we will not focus on those qualities in this article. We want to know if they are still growing to expectations.
The first five stocks on this list were featured in our popular Shadow Stock Series, which compares the similarities of a microcap to a popular blue chip in the same industry.
We think any growth portfolio should include an oil exploration company, and Crimson Exploration (CXPO) is ours. CXPO has had success in the Woodbine and Eagle Ford formations in Texas, doubling oil production in the last quarter over 2011. The future looks good, as CXPO has six producing wells in the Woodbine averaging over 1000 Boe per day, and more than 100 additional locations for drilling. They are just beginning in the prolific Eagle Ford formation and the initial result from the first well is over 500 Boe and CXPO has about 200 additional well capacity in that valuable area. We think CXPO is a BUY.
We originally liked Ocean Bio-Chem (OBCI) as a play on the high-end consumer, providing maintenance products for the marine, automotive, power sports, recreational vehicle and outdoor power equipment markets. OBCI ended 2011 with exceptional growth, but in the first two quarters of 2012 OBCI has been moving backwards, and its new product introductions apparently are not gaining traction. OBCI is a SELL.
We have included both Telular Corp (WRLS) and Homeowners Choice (HCII) in our dividend portfolio, and we updated their performance in our dividend portfolio update. We had not planned to include them here again, but since they were originally featured as "Growth stocks with a 5% dividend payout," we decided that some readers may be following them as growth stocks, missing the previous update. These two have performed very satisfactorily, with continued revenue/EPS growth and increasing distributions since their original selection. They both remain long-term BUYs in our opinion. HCII has been a roller coaster and not for the faint of heart, but it has good value metrics, pays a nice dividend and for a long-term holding we can tolerate the dips.
Allied Motion Technology (AMOT), a manufacturer of precision motors, gearing and components, registered a 23% increase in earnings in the latest quarter, but it has been facing three big headwinds. Earnings have been reduced by the costs associated with the recall of some products due to a flaw in a subcontractor's part, the reduced volume in Europe and the negative impact of global exchange rates against the strong dollar. We originally featured AMOT as a value stock, but it has a niche position in the high-growth medical instrument and robotics markets. The company continues to have good value measures (low price to earnings, book and sales, with no debt) and pays a little dividend. However, as a growth stock, we expect AMOT to continue to be impacted by the Euro decline, although we expect the exchange rate to reverse direction short-term. The recall was a one-time issue, but we expect AMOT will need to rebuild the customer confidence in the precision of its products, although it has little competition in its growth niche. We rate AMOT a HOLD.
Like oil exploration, we think that food is a macro factor that should be represented in any portfolio. We include SunOpta, Inc. (STKL), which is a leader in the hot "organic" foods market. In its latest quarter, it has increased revenues and profit margins, and EPS increased 37% over the 2011 quarter. We think that the price has been held back as raw food product prices have been skyrocketing. STKL has global sources of its products and has been able to pass some mark-ups through. We think that its Opta Minerals segment will be spun off or sold eventually, a nice bonus for stockholders, and, despite the challenges of high grain prices, we see STKL as a BUY.
Landec Corporation (LNDC) calls itself a specialty chemicals company, but we see it as a small conglomerate. It manufactures food packaging film that extends freshness of foods, sells pre-packaged fruits and vegetables and provides components for the healthcare industry. LNDC has been hitting on all cylinders and revenue for the year ending May 2012 increased 15% over 2011. EPS actually more than tripled, although much of that is due to gains on company evaluation of non-market securities. We think LNDC has a good long-term future, but with the latest run-up we see it as a HOLD at its current price.
We doubt that stockholders would criticize Home Depot for acquiring US Home Systems, a no-debt cash cow.
SELL to HD.
Craft Brew Alliance (BREW) is codependent on Anheuser Busch (BUD), and recently reported a net sales increase of 12% year-to-date, and an increase of 150% in cash flow. Frankly, we were hoping for a little more earnings to support a relatively high PE. We call BREW a HOLD.
Regional Management (RM) was our pick from IPOs that stumbled from the starting blocks. This diversified specialty consumer finance company announced a 40% earnings increase in the latest quarter and has managed to get back to its IPO price. RM still looks good from a growth and value perspective and is a BUY to us.
We also think any growth portfolio should include at least one leading-edge biotech company. Readers know we prefer producers with positive cash flow in silver mining and oil exploration enterprises, and we have a similar bent regarding biotech discovery companies. It helps that Anika Therapeutics (ANIK) has generated 22% revenue growth and 53% EPS growth in the latest quarter. ANIK was the top selection from our article about "Hot Pharmas with Skin in the Game." We like that ANIK was able to overcome the Euro decline and continues to fund R&D, and we rate it a BUY.
Finally, in our article on trucking stocks, we mentioned that growth drivers for Quality Distribution (QLTY) could be the need for hauling Natural Gas Liquids, as well as water and chemicals for fracking. In the latest quarter, revenue increased by 12% and EPS by much more, due to special one-time gains. Analysts expect QLTY to appreciate by 50% this year and we see no reason to change our BUY rating.
The microcap market is made of small company stocks that can exhibit great volatility. Some of the stocks in this portfolio are lightly traded and can move drastically in either direction over the short term. We look at these as long-term investments, as each of these has some exposure to a high-growth industry or macro trend that will play out over the coming years. For those readers that are not prepared for the surprises that these small companies can provide, good and bad, it may be better to look for larger and more stable investments. We try to focus on under-the-radar stocks, such as these, that are in their growth stage. Like children, they will have slips and falls, but the strong ones should grow to achieve great things.
Disclaimer: Quantitative information is derived from YAHOO reports, the company releases and other publicly-available sources. We do our best to reflect this information accurately, but take no responsibility for its accuracy. Investors should do their own research and analysis to determine if these investments are appropriate for their circumstances.