How Did My 2011 Small-Cap Picks Do?

 | Jan 06, 2012 | 11:06 AM EST
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Overall, 2011 was not a great year for small-caps, with the Russell 2000 index down about 4% and the S&P 600 Small Cap flat. The smallest of the small fared even worse, as the Russell Microcap Index was down 9%.

As in previous years, last January I published a column focused on identifying profitable small-caps with healthy amounts of cash. This screen, which has shown some success over the years, was designed to identify companies with the following attributes:

  • Market caps between $100 million and $3 billion
  • Price-to-earnings ratio less than 15
  • Long-term debt-to-equity ratio less than 50%
  • Profitable during the trailing twelve months and latest fiscal year
  • Cash in excess of 20% of market cap
  • Price-to-book ratio less than 1
  • Quick ratio less than 1
  • All sectors but financials

Not surprisingly, just six made the cut. Value was fairly hard to find in 2011.  But, on average, these stocks performed fairly well since the column ran, up about 13%. 

Four out of the six had positive results. The laggards included the ever-frustrating Ingram Micro (IM), down 6% and Tutor Perini (TPC), down 40%.  The biggest winner was Allied Healthcare International, which was acquired in October for $3.90 share, up 60% since last January. 

Another very strong performer was Rex American Resources (REX), up 45%.  REX is an interesting company, which some may remember as a retailer, that has made the transition into the world of ethanol, with investments in six ethanol plants. The company also owns 24 of its former retail locations, five of which are leased, with the others available for sale or lease. REX's balance sheet is fairly solid, with $87 million, or $9.40 per share in cash, and $73 million in debt.

I'm the first to admit that I'm not crazy about ethanol because I don't believe it is viable long term. Earlier this week, Congress did not renew the 45 cents per gallon ethanol subsidy or the 54 cents per gallon tariff on imported ethanol. Whether this is ethanol's death knell remains to be seen. This could raise some uncertainty for REX, which has been knocking the cover off the ball recently.  Last quarter revenue rose more than 20% to $84.5 million and earnings rose 59% to 70 cents per share.

Rounding out the list of 2011 small-caps with cash, were former net/net Voxx International (VOXX), formerly Audiovoxx, which was up 12% and Photronics (PLAB), which gained 7%. All in all, there were two winners, one big loser and three somewhere in the middle. 

This weekend I'll be crunching the numbers for 2012's list. It should be interesting, as early indications show a healthier number of companies making the cut.

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