Fresh Picks for a Stellar Start to 2013

 | Jan 03, 2013 | 9:00 AM EST
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On Wednesday -- on the back of the completion of some sort of "fiscal cliff" deal -- the major U.S. indices surged more than 2% across the board. It was one of the biggest rallies for stocks since the market bottom in March 2009. I think the action was a bit overdone, as the nation has still done little to address its long-term deficit problems, and many battles lie ahead in the coming months. But it sure was nice to start 2013 with such a great day in the market.

By nature I am a cautious, contrarian investor. So, ordinarily, I would outline the reasons I believe the market overreacted, and I'd profile a couple of cheap equities that look OK to pick up during the inevitable ensuing pullback. However, I'll be doing something a little different in today's column and let the positive vibe of the New Year takes us in a slightly more optimistic direction.

Specifically, I'll be highlighting the stocks of two small, fast-growing and relatively uncovered companies. I have these in the "wild side" portion of my portfolio, putting some 5% of my overall allocation into these sorts of small-cap more speculative equities. They're what keep investing fun, as they can rise or fall much more quickly than the core positions in the rest of my portfolio. Quite a few of these companies have been bought out at solid premiums over the years, too.

Both of today's picks are growing revenue in the low-double-digits, are selling for a few bucks a share and have recently enjoyed some positive comments from analysts. If the animal spirits return to the market, and mergers-and-acquisitions activity picks up, I could also see either of these as a "bolt-on" acquisition for a larger player in their respective industries.

Radiant Logistics (RLGT), based in Bellevue, Wash., is a non-asset-based firm that offers services in domestic and international freight-forwarding and door-to-door delivery.

Here are four reasons this stock is a cheap speculative play at $1.60:

● The company grew revenue at a little better than 10% in fiscal 2012 (ended June), and the three analysts that cover the equity think close to 15% sales gains are in store for the current fiscal year. For its price-to-earnings ratio relative to growth (PEG), the stock sports a five-year projected number of 0.88 -- in the desirable under-1 area.

● Stern Agee reiterated its Buy rating on Radiant Logistics this week, and has a $3.50 price target on the shares, more than double the current level. The analyst firm thinks a recent arbitration victory should lift an overhang on the stock.

● The stock is cheap at just under 9.5x forward earnings. The company also just announced a stock-repurchase program that could take out a little more than 5% of the stock float out of circulation by the end of 2013 at current stock prices.

● This industry is fairly fragmented, and the company is situated to continue growing by gobbling up smaller firms. That, or it could become an M&A target itself. It has an enterprise value of just $75 million, including debt, and is priced at less than 20% of annual revenue.

Zix (ZIXI) sells email-encryption products in a software-as-a-service model in U.S. (It's also a longtime holding in the Stocks Under $10 model portfolio.)

Here are four reasons Zix is a solid small-cap growth play at under $3 a share:

● Revenue -- after growing at better than 10% in 2012 -- is expected to rise another 15% for 2013, according to the two analysts who follow Zix. The company also has a five-year projected PEG of under 1, at 0.87.

● The stock sells for 14x forward earnings, but net cash totals around 15% of market capitalization.

Meldrum Group has now become the largest shareholder in Zix, with a more-than-10% stake in the company's outstanding shares. The firm recently appointed two independent directors to Zix's board of directors.

● Given the small market capitalization of under $200 million and growing niche, a larger technology firm could target Zix for acquisition to build out its product line. The median price target on the shares is $5, and a small analyst firm reiterated its $5.25 target on the stock earlier in the week.

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