The economic slowdown of 2008 and 2009 was especially unkind to
stocks of smaller companies. Their shares were the first to be sold
off when investors panicked, and many of them remain out of favor
while economic concerns persist. Indeed many small caps may be well
off of their 52-week lows, but remain far from highs seen just a
few years ago.
Here's a look at four companies that are moving in the right
direction. If theeconomy can start to improve in 2011, these stocks
may see their shares move back to the peaks of a few years ago.
1. Intermec (
($756 million market cap.) -- This maker of barcode systems had a
steady-as-she-goes business until the economic storm hit. Annual
sales routinely came in around $800 to $900 million, and from 2005
to 2008, its shares traded in the $20 to $30 range. The economic
slowdown led to a -26% plunge in sales in 2009, and shares now
trade for around $12.
But signs are emerging that sales may finally start to rebound in
coming quarters. We got the first sign last week, when barcode
ScanSource (Nasdaq: SCSC)
noted that September quarter sales had surged. That was a sure sign
that small and medium-sized businesses were finally starting to
invest in new equipment. Equally important, Intermec is set to
embark on a new product cycle, with plans to release a raft of new
profits in the fourth quarter of 2010 and the first quarter of
You'll know that Intermec's sales are on the mend when retailers
start to step up spending again on warehouse automation. Many
retailers have been conserving cash in the face of anemic sales.
Yet lower expenses are once again leading to rising retail profits,
and many of them are long past due in terms of investments in the
warehouse inventory monitoring tools that are Intermec's specialty.
If you exclude the company's $3.60 a share in net cash, shares of
Intermec trade for just 0.75 times projected 2010 sales, well less
than the multiple of two that shares used to garner.
As a final kicker, Intermec holds dozens of patents in the area of
radio frequency ID (RFID), which some believe may eventually
supplant bar code readers. That hasn't happened yet, but if it
does, Intermec would reap ample royalties.
2. Christopher & Banks (
($242 million market cap.) -- Sticking with the retail theme, this
purveyor of women's business casual clothing developed a strong
customer base when the
was strong. Sales rose at a steady +10% to +15% annual clip from
2003 through 2007, pushing total revenue past the $500 million mark
and per share profits close to $1. That helped to push shares to
almost $30 by 2006 as investors saw the company as a steady growth
vehicle with ample room for expansion.
Since then, the tight economy has led many women to make-do to with
their existing wardrobes, yet as we all know, clothes eventually
wear out from usage. So at some point, same-store sales should
rebound for Christopher & Banks, which still has a strong
reputation in its niche. Right now, though, the retailer is going
through a tough stretch, as its summer assortment of new clothes
apparently missed the mark with consumers. Shares have fallen from
$11 in late April to a recent $7, a far cry from that $30 peak in
Could a turn be at hand? Sterne Agee's Margaret Whitfield notes
that a "positive response was noted to new September merchandise
with fall colors and versatile items resonating with consumers."
She notes that shares are too cheap, with $3 in net cash and
price-to-sales ratio below 0.5. She predicts shares will move back
up $11 once Christopher & Banks is able to show a better
merchandising touch. That could happen soon, if those September
impressions are any guide.
Longer-term, shares have the potential to move well above that $11
target price. That's because CEO Lorna Nagler, who took the reins
in 2007, has worked to streamline many aspects of the retailer's
operations. Highlights include a $15 million investment in new
technology, $20 million in cost reductions and more targeted
promotions. Those improvements are being masked by still-weak sales
but should be in evidence once employment picks up and shoppers
file back into stores.
3. Exide Technologies (Nasdaq: XIDE)
($417 million market cap.) -- This battery-maker was dealt a severe
opted to stop using its batteries in the auto department. Sales,
which would have grown nicely in fiscal (March) 2011, instead will
likely be just flat.
Yet a new technology should give a boost to sales in coming years.
An increasing number of new cars are expected to be sold with
stop-start technology which saves fuel when a car is temporarily
stopped. To cycle an engine on and off many times over the course
of a day, and to keep the air-conditioning and other items running
when the engine is off, means that more robust batteries will be
needed. As an added kicker to growth, the company has entered the
South American market with a recent office being opened in Brazil.
That's the fastest-growing car market in the world, outside of
And don't worry about the lost Walmart business. Exide concluded
that profit margins were too low on that contract and were dragging
down the company's pricing power with other customers that demanded
similar pricing. Management is now focused on generating the most
robust gross margins possible. Gross margins have risen from 16% in
2008 to 20% in 2010, and should exceed 21% by next year. That's why
a +7% jump in sales next year is expected to lead to a +150% jump
in profits. Further sales gains in subsequent years, should propel
earnings per share (
growth at an even higher clip.
4. Zoltek (Nasdaq: ZOLT)
($343 million market cap.) -- Thanks to its light weight and high
strength, carbon fiber has long been eyed as a great replacement
material for heavier steel and less-strong aluminum. But its high
price meant that it was only suitable for advanced applications.
And many of those advanced applications made less sense in tough
economic times. That was bad news for this company, which had
embarked on a major capacity expansion just as the economic crisis
hit. The new higher level of
turned a $0.22 per share profit in fiscal (September) 2008 to a
$0.12 per share loss in 2009, as sales fell -25%. What was once a
$45 stock back in 2007 -- is now a $10 stock.
The good news: signs are emerging that demand may finally start to
rebound in coming quarters, leading analysts to predict that sales
will rise +26% in the
that just began, to $178 million. Even better news: the 2008
capacity expansion means Zoltek can produce $300 million worth of
carbon fiber with minimal further investment. That should
eventually lead to 30% gross margins and 20% EBITDA margins.
Zoltek's near-term results are likely to be lackluster, so these
shares may not start rebounding until we move into 2011.
Action to Take -->
Even as the market has rebounded sharply after the 2008 economic
crisis, many individual stocks remain well below pre-recession
levels. These companies did just fine when the economy was more
robust. As the economy rebounds, these shares should post outsized
-- David Sterman
David Sterman started his career in equity research at Smith
Barney, culminating in a position as Senior Analyst covering
European banks. David has also served as Director of Research at
Individual Investor and a Managing Editor at TheStreet.com. Read
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Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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