A Pair of Spry Plays for a Pullback

 | Apr 12, 2012 | 9:42 AM EDT  | Comments
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The market had its first up day in a while Wednesday. It was nice to see a pullback, as I'd built up some cash in March, and the move allowed me to deploy some of it back into new positions. I don't think the market is past this latest bout of turbulence, so I'm keeping a list of stocks I would love to pick up -- whether it's adding to existing positions or starting new ones -- in the next downturn. One part of that list is dedicated to small-cap stocks selling for about $5 a share. Here are two of those names.

Air Transport Services (ATSG) has a niche servicing the airline industry by providing airline operations, aircraft leases and aircraft maintenance primarily to the cargo transportation and package-delivery industries.

Here are four reasons Air Transport Services has considerable upside at $5 a share.

• Insiders have been active buyers of the stock. They have bought over a million shares in the company over the past eight months.

• The current stock price is far under analysts' price targets. The median price target for the five analysts that cover the stock is $9 a share.

• It's cheap. Shares are trading at just under 5.5x forward earnings. As for its price-to-earnings ratio relative to growth, its five-year projected figure is significantly under 1 (0.63).

• It has the largest fleet in the world of converted 767 freighters. It should also benefit from growing worldwide trade -- analysts have it growing revenues by more than 13% in 2013. Air Transport also sells for around 3x operating cash flow and just 19% above book value.

The other name is Glu Mobile (GLUU), which designs mobile games worldwide. Some of its games include Big Time Gangsta, Blood & Glory, Bug Village and Contract Killer.

Here are four reasons Glu Mobile is a solid buy at just under $4.50 a share.

There's been a surfeit of merger-and-acquisition activity in the social media space, with the big players Facebook and Zynga (ZNGA) being particularly active. So it would be easy to see this small-cap firm being snapped up by a bigger entity.  This is a growth story with a possible acquisition kicker attached. Every time there is a takeout in this space, the stock has a large upside reaction, as it has to be included on the "Who's Next?" social-media target list.

Glu Mobile's balance sheet is solid, as it has net cash worth more than 10% of its market capitalization.

The median price target on Glu is $7 a share by the seven analysts that cover the stock. In addition, it has been upgraded to a Buy by both Canaccord Genuity and Northland Secruties in the last two months. Needham initiated it with Strong Buy and an $8 price target, as well.

It should produce a profit of $0.18 a share in 2013, according to analysts, even though it is currently losing money. The key to this stock is its projected revenue growth. It is expected to have sales growth close to 20% in 2012 and over 40% next year.

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