Hey there, Fools. I'm back again to help you identify more promising small caps worthy of your investment dollars. But this week, we're going to take it down a notch by narrowing our search to microcap stocks only. Why? Because:
- Underfollowed microcap companies offer great returns -- and sometimes even the best returns.
- Wall Street is covering fewer stocks than ever before, making now a great time to start looking for tiny treasures.
- Microcap stocks can burn you if you don't do your homework, so we try to shed more light on the asset class for you.
In search of a micro marvel
This column uses our Motley Fool CAPS community intelligence database to turn up promising stocks. The system asks amateur and professional investors alike to rate whether stocks will outperform or underperform the market. CAPS then compiles a rating for each stock -- and each investor.
The end result? While only huge companies such as Procter & Gamble
Drumroll, please ...
Here are five five-star CAPS stocks with market caps between $100 million-$250 million, covered by no more than four professional analysts.
|
Company |
Market Cap |
Total CAPS ratings |
Analysts |
Current Analyst Recommendation |
|---|---|---|---|---|
|
Sterling Construction |
$222M |
20 |
Four |
Strong Buy |
|
Exactech |
$177M |
14 |
Four |
Buy |
|
TESSCO Technologies |
$162M |
36 |
One |
Hold |
|
Collector's Universe |
$117M |
32 |
Two |
Hold |
|
Datalink |
$102M |
35 |
Two |
Buy |
As always, don't view these stocks as hearty formal recommendations, but rather as appetizing starters for further analysis. Agreed?
With that settled, Collector's Universe might just be a small wonder worthy of your Foolish due diligence.
It's a small universe, after all
I love simple businesses. Investing is about being able to predict, with some reasonable degree of certainty, the cash flows that a business will produce for its owners. Although most biotech and reinsurance firms can make the average investor's head hurt, Collector's Universe has a business model that anyone can grasp, which makes forecasting its cash flows a bit easier.
If you're into collectibles, you know firsthand how the threat of counterfeits can affect your buying decisions. There's nothing more disheartening than shelling out $2,000 for a Michael Jordan autograph, only to find out it was really signed by a guy named Moe with a steady hand and an eBay seller's account.
Collector's Universe, the largest third-party authenticator of coins, cards, stamps, autographs, and even diamonds, gives collectors the assurance that they're avoiding these phony goods. The company benefits handsomely from the rampant growth of e-purchases, giving lazy consumers like yours truly the confidence to buy rare collectibles sight unseen. The company serves as a trusted auditor for collectibles, providing independent certification of authenticity and a grade of quality based on "uniform quality standards" -- like GAAP in the accounting world, but better.
Without certification standards, honest dealers and eager collectors would have a tough time doing business. Collector's Universe fills a much-needed industry niche, and to date, the company has no direct, publicly traded competitors.
Collecting cash flow
To be fair, Collector's Universe has its share of struggles. For the last quarter, the company posted an operating loss of $875,000, mostly from the continued development of its diamond-grading business. The coin authentication segment also suffered a loss, because of investments in improving turnaround time. Fortunately, revenue was up 18%, and as always with Collector's, its financial position remained rock-solid.
The company ended the year with $44 million in cash, not a speck of long-term debt, and more than enough free cash flow to repurchase shares and pay dividends -- a common management practice lately. For the past four years, the company has posted double-digit free cash flow-to-sales ratios.
With all that and impressive gross margins, too, Collector's Universe is a tiny treasure owning a decent-sized moat. Think I'm just a phony? Here are three more CAPS contestants who consider the shares worth collecting:
- rrockw: "A company that has a solid moat around several of its divisions (cards, coins). If they can effectively deploy cash and make the gem division work, this could work out very well for its shareholders."
- modelportfolio: "Diamond in the rough. CEO is well-established figure in the collectibles industry ... he will find a way to make this one work over time."
- Garranova: "I think that there is at least one Christmas and one Valentine's Day every year. People like to buy bling on these days, and the bling has to be bona fide. These guys authenticate."
Are we on the same micro-wavelength?
Do you believe Collector's Universe is an authentic microcap marvel, or just a nasty counterfeit waiting to be exposed? Log on to CAPS and let us know how you feel. It's absolutely free, and within seconds, you'll have access to thousands more potential stock ideas. Join now -- there are more teeny-tiny treasures awaiting discovery.
For more CAPS-y coverage:
Discover more tiny companies with huge potential each month in Motley Fool Hidden Gems. You can sample Tom Gardner and Bill Mann's small-cap investing service free for 30 days.
Growing up, Fool contributor Brian Pacampara collected authentic Transformers, Thundercats, and (though he's loath to admit it) Cabbage Patch dolls and Gloworms. He owns no position in any of the companies mentioned. The Fool's disclosure policy is always 100% certified.
