We can safely assume that small caps as a whole will outperform during bull markets, and underperform during bear markets. In fact, it's only natural, and although we can't predict by how much they may over or under perform, we can look back and see that over time, this general bet has been a relatively safe one. With this in mind, and with the strong possibility of a bull market getting underway and lasting for a at least a year or two, it makes sense to snatch up some possibly undervalued small caps in sectors that stand to do the best. Here are a few possibilities that stand out right now that may warrant a closer look.
Merge Healthcare Incorporated. (NASDAQ:MRGE)
This company develops healthcare information software solutions that automate healthcare data and diagnostic work flow. These solutions are expected to be needed on an unprecedented scale in the coming months and years, and it's not just an aging population to hold liable, but an aging medical information infrastructure as well. Throw in a ton of cash, tax advantages and favorable legislation from the recent stimulus and healthcare bills, and we may just have something here. Lets look at MRGE specifically. The company has seen some very substantial top line growth over the past year, and is forecasting even more to come. Over the last four quarters, the company has reported $19, $20, $29 and $45 million respectively in revenue. The company and four analysts expect revenue to be $50 million for this most recent quarter, and around $235 million for all of 2011.
Samson Oil & Gas Limited (NYSEMKT:SSN)
Samson is involved in the exploration, development, and production of oil and gas properties in the United States. The company owns interests in Wyoming, North Dakota, New Mexico, and Texas. Both Oil and gas are expected to either stay high, or continue to climb in a short to mid term time frame. High oil prices do not always translate to bigger profits, especially with small and micro caps. Samson seems to have followed along quite well from a top line perspective. Over the last five years, total sales, which were between $1 and $3 million in 2005 and 2006, climbed to between $7 and $8 million in 2007 and 2008. Then sales dropped to $4.4 million in 2009, and have started to climb a little bit to $4.8 million for their fiscal year 2010. Over this time period, however, the company has improved it's margins, and posted a slight profit for 2010, being the first profitable year for the company in at least the last five.
On Track Innovations Ltd. (NASDAQ:OTIV)
Mobile commerce is another exciting area for the coming years, and On Track Innovations is right in the thick of it. The company provides contactless smart card solutions for homeland security, payments, electronic passports, national IDs, petroleum payments and other applications. The company has seen some losses in the past, but all of that seems to be changing. A very low amount of shares outstanding, 1.5 million in 2000 has climbed to 23.9, still a pretty small number. The compnay brings in about $30-40 million a year, and has improved margins and share structure enough to finally squeak out a tiny profit during the most recently reported quarter. The timing of their profitability may be just right, as mobile commerce continues to garner more and more attention.
Cimatron Ltd. (NASDAQ:CIMT)
Cimatron engages in the design, development, manufacture, marketing, and support of computer-aided design/computer aided manufacturing (CAD/CAM) software products. They provide tools, applications, and process-automation solutions for the tooling and manufacturing industries. They serve customers all over the world in the automotive, aerospace, medical, consumer plastics, electronics, and other industries. As you can tell, this stock could be a great play on the whole global economic turnaround thing. The company has remained with around 9 million shares outstanding for the last 10 years, and has started to become profitable over the last couple of years, despite continued economic drudgery. The last two quarters specifically, however, have seen a lot less red.
Wireless Telecom Group Inc. (NYSEMKT:WTT)
Wireless Telecom Group designs and manufactures radio frequency (NYSE:RF) and microwave-based products for wireless and advanced communications industries. The company is tiny, with a mere $30 million dollar market cap. Recently, they announced a contract with the Department of the United States Navy to supply a Power Meter in support of a Naval Sea Systems Command project. The total value of the contract is approximately $1.5M and a considerable portion of the order is expected to be realized over the next two years. The company has had sporadic earnings in the past, but this deal could help bring some more stability to their balance sheet.
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