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Looking for promising small-cap stocks that have yet to show up on Wall Street's radar screen? Marc Robins says he can help you. Robins, editor-in-chief of the biweekly publication RedChip Review, claims the stocks that RedChip comes up with are "tomorrow's blue chips."
Robins focuses on emerging growth companies, and "believe it or not, the 30 stocks in our 2001 recommended list beat the market quite handily," he proudly says. Robins employs a dozen analysts to sift through the huge universe of small-cap stocks for the Portland (Ore.) magazine.
Indeed, RedChip's top stock picks posted an impressive return of 16.67% in 2001, outscoring the Dow Jones industrial average, which lost 3.23%, and the Standard & Poor's 500-stock index, which lost 9.87%. The Russell 2000 index, which represents the world of small-cap stocks, fell 6.82%. But the biggest loser was the Nasdaq composite index, which skidded 17.76%.
TOP NO-NAMES. RedChip's performance wasn't bad for a relatively unknown market newsletter that analyzes companies not many people have heard of -- and probably would want nothing to do with, at first glance. "But research is everything," says Robins, whose subscribers include some of the largest Wall Street investment houses and fund managers, as well as thousands of small investors.
Among the no-name top performers for 2001 in RedChip's portfolio: D&K Healthcare Resources (DKWD
), a full-service wholesale drug distributor whose customers include independent and chain drugstores, hospitals, and alternative health-care facilities. The stock jumped a stunning 295%, from 15 to 59.25 as of Dec. 31. Vivus (VVUS
), which develops therapies for the treatment of men with erectile dysfunction, advanced 158%, from 2.75 to 7.11. And BEI Technologies (BEIQ
), which makes electronic sensors, motors, actuators, and motion-control products used for applications ranging from aviation and space systems to office automation, saw its stock vault 67%, from 12 to 20.
But what might RedChip Review do for your portfolio now? As usual, many of its recommended stocks for 2002 are quite obscure. Here are some of Robins' top picks in his current 30-stock list.
FOUR TO WATCH. eUniverse (EUNI
), which operates a network of entertainment-related Web sites focused on music, films, and interactive entertainment. InFocus (INFS
), which makes multimedia projectors that use liquid-crystal display and digital light-processing technologies to project video, audio, graphics, and data from electronic devices, such as PCs and VCRs. Southwall Technologies (SWTX
), which produces thin-film coatings that selectively absorb, reflect, or transmit electromagnetic radiation such as heat and ultraviolet light. And WestJet Airlines (WJA
), a low-fare scheduled short-haul passenger-jet airline that serves Western Canada.
Robins says eUniverse is very different from the typical Internet company circa 1999. "It has Sony as a partner and a balance sheet that looks like a survivor," he says. Robins regards it as an old-fashioned company with a huge list of e-mail addresses -- and one of the low-cost operators in the business. He figures eUniverse will earn 40 cents to 50 cents a share in the year ending Mar. 30, 2003, and the stock could trade up to 13.50 a share, nearly double its current price of 7. "If the numebrs are better, the stock could approach 20," says Robins.
InFocus is a play on corporate spending, which he believes will start to rebound in 2002. RedChip analyst Jeff Martin says the company will benefit from its acquisition in 2000 of Proxima, a leader in high-end projection systems. Martin figures InFocus will post operating earnings of $1.34 a share in 2002, up from an estimated $1.29 in 2001. Now trading at 21 a share, the stock could climb to 34 in 12 months, says Martin.
FAST MOVER? Southwall Technologies will catch fire when it starts to show a little more strength and when demand for film coatings from the auto industry shoots up, says Robins. He expects operating earnings of 59 cents a share in 2002, up from an estimated 44 cents in 2001. "If earnings turn out to be as good as I suspect, it could propel the stock to almost three times its current price in 12 months," says Robins. Specialty-chemical companies, he notes, usually produce high returns on sales and strong cash flow.
WestJet was founded in 1996 and now operates 27 Boeing 727s that serve most cities in Western Canada. The Calgary (Alberta)-based airline's strategy is modeled after the successful approach of Southwest Airlines, notes Robins. Currently trading at 23 (Canadian) a share on the Toronto Stock Exchange, the stock could approach 30 in 18 months, based on a projected earnings multiple of 25. Its current multiple is around 21 times projected 2002 operating earnings of $1.07. Estimated earnings for 2001 are 75 cents.
Robins thinks WestJet could sustain a growth rate of 40% in the coming years. His price target for the stock could be raised if the company's traffic figures hold up and if no significant new competition materializes in the near future, he says.
Robins and his analysts are enthusiastic about the coming year, expecting RedChip's recommended stocks to outscore the major indexes once again. If their prognostications are on the money, the world of small-cap stocks is in bullish territory and is the place for investors to be in 2002 -- just as it was last year.
Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
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