Sleeper Stocks That Wake Up

Nothing is more satisfying than finding a quiet sleeper stock that takes off after institutional investors find out about the story.

ICO Inc. (NASDAQ/ICOC) is a great example of a recent sleeper stock success story. For one thing, the company’s name isn’t that inspiring, and not too many people get excited about the specialty resin business. This is evident by the stock’s lackluster performance over the last three years. The stock went up, but it drifted only slightly higher during this period.

For a while, the company was reporting very good financial growth. Nothing earth-shattering, mind you, but solid growth nonetheless. Like most raw material prices, the market for specialty resins and concentrates is strong. So, with a well- established business, as demand for these products rise, so do their prices. Commensurately, so do revenues and earnings.

One of the great things about the stock market is that there are always a lot of people out there constantly looking for great investment opportunities. It doesn’t take too long before an attractive asset is recognized. In ICO’s case, the company was generating very good financial growth, and the stock was just sitting there trading at a very reasonable price. I found this stock earlier this year by running my screens looking for cheap stocks.

Just a little interest from a few small-cap value investors and – boom — you’ve got the makings of a strong rally in the stock. ICO has more than doubled in value since February this year, and the stock still trades at a reasonable valuation.

ICO is a great example of a sleeper stock that got recognized in the marketplace. If the story is good enough, you can pretty much be assured that a growing business will eventually get recognized by the Street. In my opinion, it almost always pays to have a sleeper stock in your portfolio. You might not know when it will get recognized, but when it does, the payoff is usually substantial.