Here's a pitch you're not used to hearing if you're a small-cap investor:
"We're a defensive investment."
But if you attended the 5th Annual Roth Capital conference in New York City, you heard that pitch a lot. There was talk of rising unemployment, slowing consumer spending, and, worst of all, prolonged recession. An analyst from SAC Capital told me point blank: "I'm just here for short ideas."
Are you panicking yet?
While "defensive" investments have a place in almost every individual investor's portfolio, they're few and far between in the small-cap sector -- as evidenced by the sharp decline of the Russell 2000 since July.
In other words, small caps are no place to play defense. For that, turn to blue-chip consumer behemoths with healthy and sustainable dividends. You know the names: Honeywell
Now, however, is not the time to panic. And while there were a plethora of potential short ideas at Roth, there were also a lot of alluring opportunities made even more alluring by recent market volatility.
Yes, when others are panicking, it's often time to get greedy.
One worth watching
Case in point is Middleby, a maker of commercial kitchen appliances with a customer list that includes Bob Evans
Because, if you're not familiar with this $1.2 billion firm, CEO Selim Bassoul says there's still a lot to like going forward:
- The fast-casual restaurant segment is "recession-resistant."
- An oven-replacement cycle is about to hit in full force.
- The company's recent innovations will help customers save on energy and time costs -- a must in the current environment.
- Middleby "owns the emerging markets," with new technology on the horizon to cook tandoori, shish kebabs, and samosas.
Does this sound like a potential core holding worth buying in weakness?
More where that came from
Middleby is just one of many promising small-cap opportunities in today's market -- and there were a number of others at the Roth conference that, to my eye, looked cheaper and had more upside potential. We're dedicated to finding these opportunities at Hidden Gems and passing them along to our subscribers.
If you'd like to take a look at our top picks for new money now and have access to our notes from Roth, click here to join Hidden Gems free for 30 days. There's no obligation to subscribe, and you might just find that other people's panic is your profit opportunity.
This article was first published Sept. 10, 2007. It has been updated.