The relentless push higher by stocks has many an analyst
scratching his or her head right now.
They can scratch away, because the bottom line is this:
companies continue to beat earnings expectations. There's no way
around that simple fact - so the market continues to move
Check this out - through last Friday, data compiled by Capital
IQ shows that 453 companies in the S&P 500 have reported, and
71 percent beat earnings expectations. The average upside surprise
has been 6.1 percent.
With the S&P 500 trading at 16-times estimated 2010 earnings
you might think large cap stocks are getting expensive. They're
really not - in a few weeks this fiscal year will be in the books.
Based on the number of companies beating earnings estimates,
forward earnings estimates should increase.
Right now, you can buy the S&P 500 for 14-times estimated
2011 earnings. That's not too bad when you consider that analysts
expect long-term average EPS growth for the S&P 500 to exceed
Remember, buying growth at a low PE is typically better, and
right now many large cap stocks look attractive.
***This signals to me that we should still be buying small cap
stocks because as I've said a thousand times,
small cap stocks always perform over the long
One of the best ways to find exciting small cap stocks is to
monitor new additions to the small cap indices - I prefer the
S&P 600 Small Cap Index, and the Russell 2000 Small Cap
On February 28
, I found 2 'new' companies that were added to the S&P 600:
Navigant Consulting: (
: This is a $485 million market cap company that provides
specialized consulting services for things like change management,
risk, and uncertainty. Its customers include hospital operator
MedCath Corporation (Nasdaq: MDTH)
, privately held Ontario Power Authority, and the
British Sky Broadcasting Group (LSE: BSY)
Why consider Navigant? Because uncertainty is virtually
guaranteed these days, meaning this company should have a long list
of potential customers. Also, analysts expect the company will
increasing earnings by 19 percent this year. They have a price
target on shares of $12.83, or 37 percent above yesterday's
Cardtronics (Nasdaq; CATM):
Electronic payment processors have been hot stocks lately, and as
an operator of ATMs and financial kiosks, Cardtronics is in the
right industry. The company has a market cap of $811 million.
Analyst, earnings projections are pretty impressive for
Cardtronics - the consensus estimate for normalized EPS in 2011 is
$1.21, a 92 percent increase over 2010. GAAP earnings estimates are
less aggressive, so I'd encourage you to investigate what's going
on in the 'unusual items' section of the company's income
statement. In the past year the company has paid off long-term debt
and sold off some assets. In 2008, the company recorded a $50
million impairment to goodwill. All of these items impact GAAP
At first blush, these unusual items tell me the company had to
get reorganized internally, and its recent addition to the S&P
600 indicates that its efforts are paying off. Four analysts rate
the stock a buy with a consensus target price that is 20 percent
above yesterday's close.
***A word of caution before you rush out to buy anything: the
market has been on a one way track higher lately. In recent
sessions we've begun to see a loss of momentum, so while many
stocks are still attractively valued that doesn't mean go buy
everything you want right now.
Put together a watch list of stocks you want to own, and figure
out the price that you want to pay. Then use volatility in the
market to get your price. If you have a number of stocks ready to
pounce on, than chances are your number will come up on at least a
Navigant Consulting and Cardtronics are two stocks to consider,
especially since inclusion in the S&P 600, or Russell 2000, can
be the beginning of a longer run higher.
A month or so ago, small cap analyst Tyler Laundon put together a
report on five small cap stocks that he felt had the chance to
deliver big gains for subscribers to
Small Cap Investor PRO
. One of these stocks is up 240 percent since being recommended in
August of 2010. Another is up 111 percent. You can access the
these companies here.
Within the next week, another report will be published that
features the next group of high potential small caps technology
stocks. As a subscriber, you'll be among the first to receive the