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As corporate profits continue to improve with the economy, many small companies that previously suffered through hard times will find good opportunities.
That means investors who can dig a little deeper to find these “nuggets” will be able to do well in this stock market climate. In bear markets, the going is often tough for small companies. So, it is often wise to pass on them during that time.
Several years ago, I was at an analyst meeting and the president of the company making the presentation stood up and said: “IBM is trading at $5.40.” Everyone was a little surprised and bewildered. And then, the executive boasted: “We are the IBM of the 21st century.”
Well, obviously, that was just corporate hype. The company was still a small, struggling firm. The savvy analysts just shrugged it off. Many small firms are making presentations at many analyst meetings now. I go to them once in awhile or speak to analysts who attended them. The most important thing for you to remember is not to get caught up in the promises.
You want to look for solid products or services that are resulting in growing profits now. The market often pays up for a stock of a company that is turning in “powerful earnings”.
So, your goal when shopping for “nickel and dime” stocks -- and I don’t mean penny stocks; I mean $5 to $10 stocks -- is to find those with:
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Strong earnings' growth
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Good products or services
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A stock that exhibits "wellness"
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Placement in a strong industry sector
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Good liquidity
Earnings are the key. If a firm has a good product and service, it means the profits have a good foundation on which to rest. Technically, the stock needs to act well. If it is not, then there must be some flaw. Perhaps the market is worried about competition, or management or something else. So, beware of weak-acting, low-priced stocks, despite what story is floating around out there.
Often times, a small or low-priced stock that is in a strong industry sector will get “sucked higher” by investor enthusiasm. Buyers will be willing to bend down and buy these low-priced stocks.
Finally, low-priced stocks need to have enough stock outstanding that can attract some institutional interest. You just need a few “hungry” institutions willing to bite on these stocks, and they will take off in price.
Dime Stocks to Watch
There are several “dime” stocks -- I mean $10-type stocks -- that look good now. One of them is Omnicell Inc. (OMCL), which provides inventory management for some 1,500 hospitals and nursing homes. Its systems help track medicine dispensation and supply.
This year, the firm with annual sales of approximately $100 million, is expected to show an 837 percent surge in net to 38 cents a share from 4 cents a year ago. Going out to 2007, net should climb 59 percent to 60 cents a share.
This year, the stock has climbed from $6 to $12. It is now in a seven-week base and poised to break out as of mid-March. Omnicell has 26 million shares outstanding with funds holding 4 million, or 15 percent. So, there is good institutional sponsorship.
Another “dime” stock that is looking good is Ubiquitel Inc. (UPCS), which is trading at $9.73. This year, net for this provider of wireless communications services should leap 133 percent to 37 cents a share, up from 16 cents a year ago.
Nickel Stocks
Among “nickel issues, or stocks in the $5 range”, Ceragon Networks Ltd. (CRNT) is now acting strong, having rallied from $3.40 to $4.89 as of mid-March. The Israeli firm makes products used for high-speed wireless Internet service. Its key product is microwave transmission terminal hardware.
This year, Ceragon’s profits should jump 71 percent to 24 cents a share from 14 cents a year ago. Going out to fiscal 2007, net should rise 63 percent to 39 cents a share. It has 25.8 million shares outstanding with funds holding 3.9 million.
Some other “nickel stocks” that look good are Amex-traded Home Solutions of America Inc. (HOM), trading at $6.46 and Triquent Semiconductor Corp. (TQNT), which is now at $4.50.
You can mine for some good-looking, low-price stocks by using the eSignal Power Scan. The scan can be set to look for stocks trading at 20-day highs with a price below $10, but above $3.
The next step is to check the charts to see if the stock's earnings are trending higher. If so, go on to step two, which is to check their earnings' outlook. If that is good, you have a basis for continued research to see if they could be potential winners.
Note: The charts in this article were captured from eSignal. To find out more about how you can get streaming, real-time quotes from all the markets, plus streaming charts, news and Market Depth, go to: www.esignal.com.
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