Some investors view small cap stocks as too risky. But narrowing the playing field to small caps that have ample cash reserves helps alleviate some of the risk. Having a high level of liquidity positions a company to remain flexible when opportunities for growth occur as well as when new challenges arise. Today, the small cap stocks we chose to evaluate all have strong cash reserves and recent " Strong Buy" ratings from industry analysts. Use our findings as a starting point for your own analysis.
The current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a quick ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).
We first looked for small cap stocks. We then looked for businesses that have a substantial amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We then screened for businesses that analysts rate as "Strong Buy" (mean recommendation < 2). We did not screen out any sectors.
Do you think these small-cap stocks hold value that has yet to be priced in? Use our screened list as a starting point for your own analysis.
1) Multimedia Games Inc. (MGAM)
Multimedia Games Holding Company, Inc., together with its subsidiaries, engages in the design, manufacture, distribution, and maintenance of gaming machines, video lottery terminals, and associated systems and equipment. The company provides a range of networked gaming systems that control and operate Class II gaming machines, video lottery terminals, and bingo terminals at Native American and commercial gaming facilities. It offers various classic 3-reel and 5-reel mechanical reel games, which provide players with a slot gaming experience; Side Action series of slot games; Maximum Lockdown, a hybrid mechanical reel game; Treasure Top series, a range of 3-reel mechanical games that includes LED lights and a video spinning wheel; TournEvent, a slot tournament system, which allow operators to switch from in-revenue gaming to out-of-revenue tournaments; and High Rise Games.
The company also offers back-office accounting and slot management systems that are used to manage the floor operations; and server-based centrally-linked player terminals, which are placed and sold in Class II, video lottery terminal, and bingo settings, as well as standalone player terminals that are placed and sold in Class III settings. It provides its gaming systems to Native American and commercial casino operators in North America; domestic and selected international lottery operators; and charity and commercial bingo gaming facility operators. The company was formerly known as Multimedia Games, Inc. and changed its name to Multimedia Games Holding Company, Inc. in April 2011. Multimedia Games Holding Company, Inc. was founded in 1991 and is based in Austin, Texas.
2) Micrel Inc. (MCRL)
|Industry||Semiconductor - Integrated Circuits|
Micrel, Incorporated, doing business as Micrel Semiconductor, engages in the design, development, manufacture, and marketing of analog power, mixed-signal, and digital integrated circuits (ICS) primarily in North America, Europe, and Asia. It offers power conversion products, including LDOs, DC/DC converters, analog power switches, PMIC devices, RF PA bias products, solid state lighting products, and FET drivers; supervisory and reference products; and general linear parts, such as op amps, thermal measurement devices, timers, and other general devices. The company also offers power analog circuits for notebook computers, tablet PCs, and smart phones; and radio frequency (RF) data communications products, including QwikRadio family of RF receivers and transmitters for use in garage door openers, lighting and fan controls, automotive keyless entry, and remote controls, as well as RadioWire transceivers for applications, such as remote metering, security systems, and factory automation.
In addition, it develops and produces timing, clock management, high speed physical media devices, and interface integrated circuits for communications products targeted at fiber optic modules, active cables, backplane management, and data and clock management applications; and offers Ethernet products, including physical layer transceivers, media access controllers, switches, and system-on-chip devices for use in the digital home, enterprise, industrial, and automotive markets. Further, the company manufactures custom analog and mixed-signal circuits; and provides wafer foundry services for customers, who produce electronic systems for communications, consumer, and military applications. Its products are used in cellular handsets, portable computing, enterprise and home networking, wide area and metropolitan area networks, digital televisions, and industrial equipment. The company was founded in 1978 and is headquartered in San Jose, California.
3) Zygo Corporation (ZIGO)
|Industry||Scientific & Technical Instruments|
Zygo Corporation designs, develops, and manufactures ultra-high precision measurement solutions to enhance its customers' manufacturing yields, and optical sub-systems and components for original equipment manufacturer and end-user applications in the Americas, the Far East, and Europe. It operates in two segments, Metrology Solutions and Optical Systems. The Metrology Solutions segment offers 3-Dimensional surface metrology products, precision positioning systems, and custom engineered solutions that are used to measure surface characteristics and critical parameters, including topography and roughness, shape, dimension, thickness, optical characteristics, and defects.
This segment primarily provides NewView Series 3D Optical Profilers for fuel injector components; ZeGage to measure and visualize various materials, including rubber, paper, metal, plastic, and ceramics; VeriFire Asphere system that provides high resolution 3-Dimensional surface metrology for aspheric shaped surfaces; VeriFire Systems, which are optical systems; GPI and VeriFire systems for the defense/aerospace market; and semiconductor products. It serves automotive, consumer electronics, medical, aerospace, military, materials research, optics, flat panel displays, and semiconductor industries. The Optical Systems segment manufactures high precision optical components and electro-optical systems used in the semiconductor, defense, life-sciences, and research markets.
It offers defense-related products comprising lenses, windows, freeform optics and assemblies, and meter class optical components; life-science products, such as laser eye correction, dental 3D imaging, and genomic analysis instruments; and custom components and assemblies used in the manufacture of semiconductor chips. The company markets its products through direct sales force, as well as through independent agents and distributors. Zygo Corporation was founded in 1970 and is headquartered in Middlefield, Connecticut.
4) Ultratech, Inc. (UTEK)
|Industry||Semiconductor Equipment & Materials|
Ultratech, Inc. develops, manufactures, and markets photolithography and laser thermal processing equipment. It supplies step-and-repeat photolithography systems based on one-to-one imaging technology to semiconductor device manufacturers for applications involving line geometries of 0.75 microns or greater and to nanotechnology manufacturers. The company's steppers are also used to manufacture semiconductors that are used in various applications, such as telecommunications, automotive control systems, power systems, and consumer electronics.
It also supplies 1X photolithography systems to thin film head manufacturers; and offers LSA100, a laser-based thermal annealing tool used by the semiconductor industry for various process steps, including activation of implanted impurities, dielectric film formation, formation of silicides, and stabilization of copper grain structures. Ultratech, Inc. sells its systems to semiconductor, advanced packaging, high-brightness light emitting diodes, thin film head, and various other nanotechnology manufacturers in North America, Europe, and Asia. The company was founded in 1979 and is headquartered in San Jose, California.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/25/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.