Small Cap Stock Pick #1: Aladdin Knowledge Systems (ALDN)
ALDN broke out from the horizontal resistance mark around $10/share Monday on heavy volume in the face of a collapsing market. This breakout suggests a possible move to fill the gap in the low 13 area which implies a possible 30%+ potential gain here. Looking at ALDN's numbers, the company expects some very strong earnings growth, nearly 75%, in 2009, which is quite significant as we don't see these kind of estimates very often in this weak economy. Analysts are expecting $0.68EPS in 2009, which gives ALDN a future fair value among its industry peers of $16.10/share compared to its closing price of $10.17 on Monday. I'm long at $10.06.
Small Cap Stock Pick #2: Overhill Farms (OFI)
OFI has been making a huge run in 2008, starting off the year around $2.50 and currently closed at its all time high of $8.87 on Monday, on an excellent looking ascending triangle pattern with heavy volume confirmation. This is a very bullish pattern as the price broke out of a strong pattern to all time highs on volume with nothing but blue skies and no resistance ahead.
This stock is still undervalued at these prices. Taking a look at the analyst estimates for OFI's forward earnings of $0.85 and an industry average earnings multiple of 19.33, this suggests that OFI carries future fair value among its industry peers of $16.43/share compared to yesterday's closing price of $8.87. I'm long at $8.94.
Small Cap Stock Pick #3: Gulf Resources [GFRE.OB]
GFRE.OB has one of the most impressive undervaluations I've seen in a while. I still don't understand why this stock has been beaten down so much, other than this dry economy and bearish market. But things look like they might be making a turnaround for the better as GFRE.OB's stock is shaping up nicely from a technical point of view with a strong bottom, ascending triangle pattern, and large volume spikes in play.
This stock is deeply depressed in value among its peers in the specialty chemicals industry as they are expecting a 65% increase in revenues for 2008 on $0.25EPS and looking forward they expect to report $0.31EPS, giving this small cap a very attractive forward p/e ratio of just 2.52x compared to the industry average trading multiple of a whopping 34x earnings! Given these estimates, theoretically GFRE.OB is fairly valued among its trading peers with a share price of $0.31EPS x 34 P/E = $10.54/share or 1250% above Monday's closing price of just $0.78. I'm long at $0.84.
Small Cap Stock Pick #4: Vision China (VISN)
VISN has made some big moves in 2007 that i capitalized on earlier this year for some solid gains. Now the company has reported results above expectations and raised guidance:
Reports Q2 (Jun) earnings of $0.12 per share, $0.03 better than the First Call consensus of $0.09; revenues rose 49.3% year/year to $20.3 mln vs the $20 mln consensus. Co issues upside guidance for Q3, sees Q3 revs of $34-36 mln vs. $33.43 mln consensus. Co issues upside guidance for FY08, sees FY08 revs of $101-105 mln vs. $100.90 mln consensus.
I think it's time to start looking into buying this stock for round two. I missed the 20% move on earnings where the price peaked near the stock's all time high resistance near $23/share. But, I think this can be a good time to buy this stock on profit taking. I'm looking to buy VISN around the midpoint of Friday's breakout candle, which is near $21/share. While this stock doesn't share the huge forward growth and undervaluation from a industry comparison as the other stocks I have mentioned, it does carry a heavily weighted bullish sentiment from its earnings reports and its stock chart. Momentum is in favor on the bulls' side for VISN, and I want a piece of the action. My best guess is that we will see all time highs in the coming weeks.