Denise, Your suggested format for this forum looks great. You can judge whether I have conformed to your suggested format, but here are five small caps that I believe easily qualify as having a prospect of doubling or better within two years (actually, my suggestions range from micro cap to almost mid cap). They are all in my own portfolio, and they have the further advantage of existing Silicon Investor forums loaded with information (all found under the Canadian Stocks forum except for one, as noted; incidentally, I started two of the boards). All of these five companies are in mundane, easily-understandable industries, and all are very profitable with outstanding growth records. What they have in common is extreme undervaluation (based on PE ratios and balance sheet considerations) combined with very good continuing growth prospects and good management. Hence, they can gain due to reasons of both value and growth, supplemented by increased market recognition of their merits. The "last prices" noted are for yesterday's closing prices.
Global Election Systems (TSE: GSM). A leading producer of equipment and software for elections purposes. Rapidly growing and solidly profitable for the last few quarters. With a trailing earnings per share of $0.33 (nontaxable) and a last close of $2.05, this one sports a PE of just 6.2. I can see this one doubling much more quickly than two years, if their projected sales growth continues; by the two-year mark it could easily be a three-bagger or better.
Far West Industries (TSE: FWT). A niche producer of high-quality Gortex and other upscale outdoors and sports wear, this company survived the early 1990s devastation for its industry and has thrived anew. Well-managed and pursuing a managed growth strategy. 1997 EPS were $0.18 (mostly taxable), and at its last close of $1.20, that's a PE of just 6.6. (Peak EPS prior to the recession were $0.33.) This company is radically undervalued, well-suited for the the small investor because of its low liquidity (which means you have to buy and sell slowly, and in modest quantities; large bid-ask spreads).
Breakwater Resources (TSE: BWR; this one is on the Mining and Resources board, at www3.techstocks.com. A major producer of zinc (also lead and silver), they earned 16 cents per share in 1997 and are developing new mines. Last price $2.35 versus 52-week high of $9.50; temporarily hurt by recent sharp fall in zinc prices, but this one will recover with the market, should see $5 or better within two years. They are well financed (they had the smarts to issue 10 million shares at $9 each last year when zinc prices were peaking) and well managed. Share prices are down sharply not only because of depressed zinc prices but also concerns about production problems at their new Caribou mine in New Brunswick.
Leroux Steel (MSE: LER.B). A superbly managed and rapidly growing steel service centre company, with major operations in Ontario, Quebec, the Maritimes, and select U.S. areas. They look much more like a growth company (both internal growth and astute acquisitions) than one in a cyclical industry. Last 12 months EPS were $0.95, for a PE of just 6.8 based on last close of $6.50. The company recently added Frank McKenna to its board, and it has been family managed (and near majority-owned in multiple voting shares) with the long-run interests of the public shareholders at heart. This one could run up quickly once it attracts institutional interest.
American Eco Corp. (TSE: ECX; NASDAQ: ECGOF). A diversified supplier of industrial services to the petroleum, petrochemical, pulp and paper, and other industries. Has just about the most rapid growth of the several firms in its sector, and has been quite profitable. Earned US$1.08 per share for 1997, which gives it a PE of about 8 at its last close near US$8.80 (it trades with far greater liquidity on NASDAQ than on TSE, so buy on the former if your broker will allow you to do so). The peers in its industry are trading at PEs of more than double this, despite their lower growth rates. Apparently Eco was hurt by missing its own more ambitious forecast of US$1.20 per share for 1997 and by a failed recent attempt to take over struggling Dominion Bridge Company (NASDAQ: DBCO).
Of course, I can't guarantee that all of these companies will see doubles in their share prices over the next two years, but some will undoubtedly do much better than that (assuming that the overall stock market advance remains intact). Hence, someone wanting to put a portion of their total portfolio into the small-cap segment would do well to buy a bundle of these five. Check them out on their individual forums, then do your own due diligence, and let's hear what you think. Jay |
