The status of many global economies is in flux right now. I
recently looked at several foreign economies that could be headed
toward a downward spiral and
how it could affect your portfolio
As a result, companies that have fairly minimal foreign exposure
may have the most robust near-term prospects. The U.S.
may not be the picture of health, but possible 2% gross domestic
product growth in 2012 looks a lot better than many of our
key trading partners.
The companies with greatest domestic exposure are likely to have
capitalizations. These firms, (which I define as having market
values between $200 million and $1.5 billion) are often too small
to staff a set of foreign sales offices, and their lack of foreign
exposure looks like a real plus right now.
I went looking for small-cap stocks that appear poised for solid
sales growth in 2012 and again in 2013. I removed any companies
form the list that derive more than 20% of sales from foreign
markets. Lastly, it pays to be sensitive to valuations at this
tricky time in the market. Each stock on the list trades for less
than 12 times projected 2013 profits.
Domestic energy plays
The small-cap universe is filled with a range of oil and gas
producers, along with other commodity-focused firms. Of course,
prices for their products are often dictated by global market
conditions, so weakness in European and Asian economies would
clearly dampen profits. Only the natural gas producers are
insulated from global market trends, because that
is primarily produced for domestic consumption.
Companies in this group that have exposure to gas (and oil) include
Comstock Resources (NYSE:
Carrizo Oil & Gas (Nasdaq:
Bonanza Creek Energy (Nasdaq:
. It's notable that the gas-focused plays on this list are expected
to boost sales at a solid clip in 2012 and 2013, even as gas prices
remain at multi-year lows. If natural gas prices started to rise,
then these stocks could see a series of upward sales and
There are more than a dozen non-energy companies that also make the
A few of these companies are heavily exposed to the U.S.
consumer, and your view of them should depend on your outlook for
consumer spending. Still,
Spirit Airlines (NYSE:
Gordman's Stores (Nasdaq:
all appear poised for solid sales growth through internal
expansion, and each trades for less than 11 times projected 2013
profits. If and when consumer spending moves onto a higher plane,
then sales and profits could build a further head of steam for
You'll also note
BGC Partners (Nasdaq:
Interactive Brokers (Nasdaq:
Evercore Partners (NYSE:
Each of these firms are building
in financial services as the industry's bigger players are
retrenching from certain niches.
Two other stocks in this group have also caught my eye.
1. Santarus (Nasdaq:
This small drug maker has been popping up in my research after I
read more reports that the popular cholesterol-lowering drugs known
as statins have troublesome side-effects. (I'm on a statin myself
and am mildly concerned.)
Santarus buys the rights to drugs that target people with diabetes
and cholesterol issues. The company recently acquired rights to
Fenoglide, which is a nonstatin cholesterol reducer, and the
company appears to have a deepening relationship with specialty
physicians, as evidenced by rising sales. This stock has moved up
recently, and an appropriate valuation is still unclear to me right
now, but it's surely a name for further research.
2. American Axle (NYSE:
I'm a big believer in the thesis that the U.S. auto industry is on
the mend. Domestic demand for cars and trucks keeps rising, even as
demand is slumping in Europe. This makes this auto-parts supplier
quite appealing. Much of its sales are tied to Chrysler and
truck production. Notably, GM is set to roll out a brand new line
of full-size pickup trucks next year, which is why analysts
a steady build up in sales as we head into 2013.
are nicely-priced at around four times projected 2013
. Shares have fallen roughly 20% since the middle of February to
below $11, yet Merrill Lynch and Citigroup, each of which has a
"buy" rating, sees shares rebounding to $15.
Risks to Consider:
If the stock market falls deeply from current levels, then
investors may flock to the perceived safety of large-cap stocks,
even as these small caps have arguably better growth
Action to Take -->
With a predominant exposure to the U.S. economy, these stocks are
at less risk of seeing downward estimate revisions if European
economies take a tumble. The fact they generally sport low
price-to-earnings (P/E) ratios only adds to the value case.
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-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.
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