There is nothing like a few small cap gems to get an investor’s juices flowing. Historically, small caps have outperformed their larger cap brethren and have the potential for outsized gains. Additionally, smaller stocks have taken a hit of late, so there could be some bargains here. The returns can get even spicier when combined with the proven Zacks #1 Rank.
The Zacks Rank favors smaller companies as it is since it is easier for a small cap stock to receive bigger estimates revisions. Additionally, fewer analysts cover these stocks, so it is easier to get the analyst agreement portion of the Zacks Rank in sync.
I combined Zacks Rank #1 stocks with companies that have a market cap less than $1 billion. Also, I added the requirement the forward earnings estimates rose by more than 5% over the past four weeks. The official definition of what a "small cap" is seems to differ according to whom you ask, but under a billion is a safe bet.
Here is a list of the companies we found:
Badger Meter (BMI) – All three covering analysts have lifted forecasts over the past month.
Apogee Enterprises (APOG) – Company has posted an average surprise of 25% over the past four quarters.
Metalico Inc. (MEA) – This year’s estimates have increased 24% over the past month.
American Dental Partners (ADPI) – Only one covering analyst, but estimates have soared 63% over the past week.
The important thing to remember is that bigger is not always better. The Zacks Rank is particular adept at finding solid small cap stocks. Our numbers don't lie.
Mr. Zacks is the Syndication Manager at zacks.com. Investment Ideas is a weekly article by Alex Kolb or Roopak Chakravarty. Alex Kolb and Roopak are Editors at Zacks Investment Research. For more information, visit www.zacks.com or for the RSS Feed of this article: www.zacks.com/external/rss.php?f=32
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