Sifting Through Small-Caps

 | Sep 17, 2013 | 2:00 PM EDT  | Comments
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Stock quotes in this article:

omer

,

nvax

,

swft

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cvgi

,

mcep

Omeros (OMER) rose more than 60% yesterday on the back of some positive test results and a huge price target upward revision at Wedbush. I first mentioned this small biotech company a few weeks ago on Columnist Conversation, as it seemed to be getting buzz around some new compounds and picking up positive analyst chatter.

This follows a couple of other small-caps in my portfolio that have more than doubled over the past year, including Novavax (NVAX) and Swift Transportation (SWFT). What did all of these small-capitalization stocks have in common? They had several insider purchases prior to their big rises.

I believe insider buying is possibly a bigger positive catalyst at smaller companies than larger ones, which generally get much more extensive analyst coverage. They tend not to move as much on positive news because more is known about the company's developments and there are fewer true surprises. On the flip side, small-caps tend to make significant moves when a previously "unknown" catalyst hits the wires. Knowing what management and the directors are doing with their stock purchases becomes that much more important.

I am constantly sifting through the list of small-cap stocks with recent insider buying to find possible unappreciated gems. Here are two smaller companies with recent insider buying that look intriguing.

Commercial Vehicle Group (CVGI) is a leading global supplier of a full range of cab-related products and systems for the global commercial vehicle market. The company has a market capitalization of approximately $250 million. Two insiders have bought approximately $1.5 million in stock this month. This follows smaller purchases by another insider in August.

The company has faced a challenging 2013 and is tracking to a small profit this fiscal year on an approximate 6% decline in sales. Insiders seem to be anticipating a better environment for the company in 2014. The three analysts who cover the stock have a consensus projection calling for $0.77 in earnings per share (EPS) in 2014 on back of a low double-digit revenue gain.

The company is well diversified across product, geography and customer lines. Less than 80% of its revenues come from domestically where growth is stronger than in Europe. The company intends to increase sales overseas to 50% of overall revenue in the years ahead, mainly from faster growing emerging markets.

Mid-Con Energy Partners (MCEP) is a limited partnership that develops and produces oil and gas from its properties in Oklahoma and Colorado. It has a market capitalization of just below $500 million. An insider has purchased just under $400,000 in new shares so far in September. This follows some smaller purchases by another insider in August.

Like most stocks in high yield sectors, MCEP is down from its recent highs, due to the recent sharp rise in interest rates. Insiders might be assuming that interest rates are close to near-term plateaus and that the pullback offers a good entry point right now.

The company is experiencing rapid revenue growth with sales tracking to a 45% gain this year and analysts penciling in mid-double-digit growth for next fiscal year as well. Mid-Con offers a substantial distribution yield of 8.6%. The company came public in late 2011 and still has limited analyst coverage. The stock is priced at less than 11x forward earnings.

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