This market has been painful for many investors.
of many large and
stocks are off 20% to 30% in just the past month or two. And the
lower down the food chain you go, the worse it gets. By the time
you get to micro-cap stocks, you start to see just how deep the
carnage has been. Many of these stocks have lost half of their
value in a short period and can't find any investors willing to
take a chance on them. But if the market starts to stabilize, then
the trend is likely to reverse, since some of the hardest-hit
stocks in this summer swoon could post a solid snapback rally.
Here are four micro-caps currently trading at bargain prices that
look poised for a rebound.
1. Biolase Technologies (Nasdaq:
I profiled this company
in January with a case of impeccable timing because shares shot up
from $1.50 to $3 in less than two weeks. They eventually moved up
toward the $7 mark after this maker of dentistry and ophthalmology
lasers delivered solid first-quarter results.
This run would lead to profit-taking from long-standing investors
and, by Monday, Aug. 8, the recent market rout pushed the stock
down to just $2.28. This led management to issue plans to buy up to
two million shares of company stock back from investors. Judging by
just-announced quarterly results, the buyback looks to be a wise
investment: Shares rallied up to about $3 on the news, but still
look quite cheap.
Biolase had struggled for years to gain real traction for its
dental lasers, which are expensive, but
much better patient outcomes and allow dentists to treat more
patients in a day. Dentists are now coming on board. Sales have
doubled in the first half of this year in comparison with 2010,
while management has just guided for a very strong third quarter.
has been international sales, though. Biolase had given exclusive
international sales rights to dental distributor
Henry Schein (Nasdaq:
, but Schein dropped the ball, so Biolase re-acquired its
international rights with plans to take a more direct sales
approach. Analysts at Needham say shares can more than double to
about $7, based on a multiple of 20 on projected 2012
earnings per share (
of $0.35. The real
for this stock: Biolase has partnered with
Procter & Gamble (NYSE:
with plans to develop a half-dozen dental products. Look for more
announcements on this front in coming months.
2. BigFive Sporting Goods (Nasdaq:
Consumers are ill-inclined to spend on outdoor goods right now, so
this retailer is suffering from flat sales and a 40% drop in
projected profits in 2011. Shares, which had been slipping all
year, really cratered in the past few weeks and now trade right
Despite its woes, the company remains on track to earn about $0.65
a share this year. But you need to look past the current economic
ennui to see the stock's true value. Big Five has earned at least
$0.94 a share in five of the past six years. Shares trade for just
six times the average
in this period. Shares trade right at book value and are very cheap
in relation to normalized earnings, so this stock looks like quite
the bargain. Analysts at Needham say shares could rebound to $14
(about 100% above current levels), but caution "the company needs
to show sustained sales improvement for the stock to approach that
3. TheStreet Inc. (NYSE:
This is a fairly easy stock to trade. In the past two years, it has
moved up to the $3.50 mark when interest in financial information
stocks rises, and it falls below $2.50 when gloom sets in. Any
price under $2.50 is a great entry point, simply because it means
is at parity with its $75 million cash balance. TheStreet (which is
also a former employer of mine), doesn't burn cash, so the cash
balance is safe. New management has made a broad set of changes to
the business plan, some of which are paying off, while others look
ill-conceived. Still, look for this stock to move up 30% to 40%
once the market mood turns. In the interim, shares have likely
found a floor.
4. Talbots (NYSE:
When this women's apparel retailer reported fiscal (April)
first-quarter results in early June, management admitted many of
its aggressive merchandising moves -- which aimed to bring in
younger buyers -- had not worked, especially in a line of sheer
sweaters that would never be worn by the retailer's traditional
50-something clientele. Those sweaters have been deep-sixed and the
fall product line has been designed to be a bit more conservative.
Investors shrugged anyway, sending shares down roughly 40% to $2.63
in just one session -- just a tenth of where they traded five years
ago. In fiscal 2011, Talbots managed to earn $0.61 a share, but an
equivalent loss looks to be the case this year. To move back into
the black, Talbots will close more than 100 of its worst-performing
stores (out of a current 580), while also expanding a set of
revamped stores that evoke a French-couture environment.
Before any of this can happen, private-equity investors are
circling while shares are so cheap. In early August, Sycamore
Partners announced it had amassed a 9.9% stake in Talbots, with
plans to discuss steps to unlock the stock's value with management.
This helped the stock rebound to $4. Management subsequently put in
" that would trigger lots of unwanted
if Sycamore or others made a move to buy the company, so shares
dropped again near the $3 mark. But the poison pill is likely a
formality to get all parties to sit down and agree on a new plan.
Whether it's an outright sale or a fresh management team, catalysts
are in play for this stock, which trades for just 0.2 times
trailing sales -- about as low as it gets.
Action to Take -->
Micro-caps have taken it on the chin, just as they did in late 2008
and early 2009. When the stock market stabilized in 2009, many
micro-caps posted stunning snapback gains. These four stocks could
repeat that history. Meanwhile, they appear to have protection in
the form of buybacks, low price-to-earnings ratios, strong balance
sheets, or private-equity interest.
-- David Sterman
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Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.
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