Making the Microcap Index adds Cache
The list of new stocks on the Russell small and microcap indexes gives me plenty of material to write about - and loads of research to complete. After patiently waiting to see which stocks made the final cut, institutional investors that manage funds tracking the indices now have to establish positions. That means these fledgling companies have more institutional interest and coverage - and perhaps even a little more cache as well.
But while cache is good for fashionistas, I'm a small cap investor in search of big returns - not just looking for stocks that made the party list. So over the past couple of weeks, I've been perusing companies just added to the Russell Microcap index, an index that includes 1,000 of the smallest companies in the Russell 2000 Small Cap Index (Note: Don't confuse this index with the Russell 1000 which covers a segment of the large-cap asset class).
Several of the companies that have been selected to join the microcap index have the potential to make significant gains over the second half of this year - but just making the index alone doesn't guarantee share price appreciation. The companies need to perform - and we only want to get in on the best ones.
I came across three sleeper stocks that you should put on your radar right now. What do I mean by sleeper stocks? Those that don't have super compelling business descriptions - the kind of companies you begin to read about only to find that you've slipped off the couch and into a deep sleep on the floor.
But these companies are waking up to prospects of future growth - so get vertical again and let's take a quick look at the under-appreciated industries these companies are in. In tomorrow's letter I'll introduce you to the three companies and you can decide for yourself if their worth adding a position in.
***The Packaging & Container Industry includes any company that manufactures or distributes plastic, paper, metal, or glass packaging products. Think cardboard, bottles, cans, and foam storage containers.
Stay with me...
The Chemical Industry includes companies that make and sell specialty chemicals, paints, coatings, sealants, and ... explosives. I love explosives, and with the fourth of July in recent memory, I'm trying to get my hands on some serious mortars for next year's celebration. I'll let you know how it goes...
Companies in these sectors make the millions of items that we hardly notice, like soda bottles and coolers. But they also make the parts that go into all the things that we do notice - like paint for your car, sealant for asphalt driveways and caulk for that weather proofing job you have yet to complete.
Companies in these industries are poised to grow in 2010 and 2011 if the economic recovery takes hold. Now that's not guaranteed, but I'm an optimistic person and that means I'm a buyer of stocks that have potential - not a short seller of those I want to see get crushed.
The Packing & Container and Chemicals industries should rebound in 2010. And while there are areas of weakness in the U.S. and in Europe, a few of the companies I'll discuss tomorrow have international exposure - i.e. some level of diversification.
One of the positive catalysts for companies in the chemicals industry, and more specifically protective coatings companies, has been a dramatic shortfall in raw materials supplies. These include titanium dioxide and acrylics. That means companies that supply these products to coatings companies can charge more. And despite the higher costs, analysts expect coatings makers to post significant earnings gains on the back of increasing demand.
Valspar (NYSE: VAL) is a $3.1 billion market cap coatings company that is expected to grow earnings per share by 24 percent this year. PPG Industries (NYSE: PPG), another coatings company, is expected to grow EPS by 46 percent this year. These aren't my micro-cap ideas, but both pay dividends and are worth checking out as well.
What's more, manufacturing activity continues its upward trend. According to a recent survey from the Institute for Supply Management, manufacturing has expanded for the last nine months. This will have a positive effect on the industry moving forward.
I'll introduce you to my three sleeper micro-cap stocks tomorrow so you'll have time to check them out over the weekend.
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