After quite a lull, I’m beginning to see a lot more exciting small- cap companies that are attractive in this market. If we get a strong reversal in stock prices, these high-growth/high-risk stocks should benefit the most.
Remember Shengdatech, Inc. (NASDAQ/SDTH)? I like this small company, but it’s not as if it operates in a very exciting industry. This company, which manufactures what is known as nano precipitated calcium carbonate (NPCC), is just one of many small- cap Chinese companies that are growing fast while meeting the raw material demands of a fast-growing economy.
I’ve had good luck this past year identifying solid, wealth-creating companies that operate in unexciting industries. I’m convinced that, in any speculative equity portfolio, it pays to mix up the kind of businesses you own stock in — not just for the sake of diversification, but in order to make money from what institutional investors like to invest in. You don’t necessarily want to own a bunch of stocks that are traders’ favorites. The volatility can be hard on you.
I recently discovered an exciting jewelry company that’s growing fast servicing the Chinese marketplace. Not that the jewelry business is that exciting, but the company is growing very quickly.
This small company operates its business in both the retail and wholesale end of the business. This is the best and only way to be successful in the jewelry/accessory business. In its third quarter of 2007, the company’s revenues grew 90% to more than thirty-six million dollars, while profits grew 200% to $2.7 million. The company plans a major expansion of its business in 2008 and the stock is currently trading for under 16 times’ this year’s earnings.
I’m hopeful that small-cap stocks can reaccelerate over the near term. I know from following this sector for more than a decade that great opportunities seem to occur in waves. I think we’re at the beginning of a new wave of exciting investment opportunities right now.