Few companies double their earnings in just three years. Those that do have the potential to earn investors exceptional returns. But since everyone wants to own large- or mid-cap monster stocks like Baidu, they'll usually cost you an arm and two legs.
But there is an area in the stock market where the fastest growers are frequently overlooked -- because they're too small to attract big Wall Street firms' attention. In anxious markets like these, a small cap on fire can make an outrageously cheap stock.
With that in mind, I used our CAPS screening tool to pick out some of the fastest-growing small companies. The following three companies have doubled their earnings (26% annual growth) over the past three years, quite a feat considering all that the market has been through these past few years.
They also have:
- Price-to-earnings ratios under 35.
- Market capitalizations between $100 million and $1 billion.
- Five-star ratings, the highest possible, from our Motley Fool CAPS community.
|
Market Cap |
EPS Growth Rate (past 3 years) |
P/E Ratio |
CAPS Rating | |
|---|---|---|---|---|
|
AgFeed Industries (Nasdaq: FEED) |
$134 million |
34.5% |
14.8 |
***** |
|
Neutral Tandem (Nasdaq: TNDM) |
$419 million |
86.6% |
10.6 |
***** |
|
Paragon Shipping (Nasdaq: PRGN) |
$203 million |
149.3% |
3.2 |
***** |
Source: Motley Fool CAPS, as of July 22, 2010.
Of course, screens are merely a first step in the stock-selection process. Let's take a look at these.
AgFeed
AgFeed is an animal feed and pig producer in China, the largest pork-consuming nation in the world where pork makes up 62% of all meat eaten in the country. AgFeed produces just a small portion of the 645 million hogs produced a year in China. The amazing thing is, the demand for pork from China's middle class is so large that China still needs to import pork from U.S. producers such as Smithfield Foods (NYSE: SFD), the United States' largest hog producer and pork processor.
AgFeed has recently been having cash flow issues. Its customers have been squeezed by falling pork prices and rising feed costs leading to a worrisome growth in receivables. However, this did not stop the company from announcing on Tuesday the purchase of U.S. hog producer M2P2 for $16 million in cash and stock. AgFeed plans to use M2P2's expertise and incorporate Western techniques and practices into its hog production farms. With modern farming methods and new Western-style hog production farms, the firm believes it can almost triple its hog production by 2015 from 700,000 hogs to 2 million. This is surely one to watch!
Neutral Tandem
Neutral Tandem provides switching services to telecommunications firms. The "neutral" in its name refers to its market positioning. It provides a neutral service, allowing competing telecommunications firms to not have to rely on a competitor to route information in the most efficient manner.
Many investors believe Neutral Tandem is cheap. For deep dives on this stock, check out this blog post from CAPS member AAOI (Above Average Odds Investing), which contains an interview with Islamorada Investment Management's Cale Smith, or this blog post and research report from CAPS member BetapegLLC.
Paragon
Just a week ago, the Baltic Dry Index, which tracks shipping rates, had fallen more than 60% from a month before, which was certainly not helping shipping companies DryShips (Nasdaq: DRYS) and Eagle Bulk Shipping (Nasdaq: EGLE). However, in the past week the index is up, and already analysts are calling the bottom. If shipping is truly back on track, these stocks are sure to do well as the Dry Bulk Shipping Index is currently at a P/E of 5.2.
Is this a good time to hop on a Chinese hog producer, a niche telecommunications company, or do dry shippers catch your eye? Let us know in the comments box below!
