It has been a lousy market for small caps for quite a while, but the good news is that some very interesting opportunities are developing. Small caps, especially low-priced ones, tend to be mispriced far more often, but they carry much higher risk because their businesses can be so inconsistent. However, if you do find one that is just embarking on improved conditions, the moves can be quite dramatic. The key is entering at the right time, and we will use the charts to help us do just that with four stocks.
None of these stocks, other than Mitek Systems (MITK), look very good technically right now, but the stories are interesting and they have the potential for big moves. We are not interested in buying them right now, but we want to put them on the radar and watch to see how they develop. Overall market conditions will be a big factor in determining whether these stocks work or not.
Mitek Systems: The company describes itself as a global leader in mobile capture software, the technology that allows consumers to deposit checks into their bank account remotely by snapping a photo of the check using a camera-equipped mobile phone.
Mitek has had accelerated sales growth over the last four quarters and is working to expand its mobile banking success into commercial check deposits, which is a much bigger market.
Technically this is a solid chart at this point, and we are looking to accumulate within the trading range between $4 and $5.25
Energous Corporation (WATT): It has developed technology that can enable wireless charging of a device at a distance of up to 15 feet. There is huge demand for a product of this type, and WATT has 175 patents to protect its technology. In November the company raised capital, and just this past week it announced two contracts with Tier-1 Internet of Things clients.
At some point this technology is going to roll out and will garner substantial attention. In the present market there is little appetite for story stocks, but we'll be watching for conditions to change.
Second Sight Medical Products (EYES): The company has developed implantable prosthetic devices used to restore some functional vison to the blind. The company claims there is a backlog of 800 patients interested in the technology and it should see rapid revenue growth in 2016. There are issues with Medicare reimbursement and the need for cash, but with the stock hovering at all-time lows we will see if it can find support.
Technically the stock is struggling at the lows and needs to build a base and turn back up before we would consider any major buys.
BioTelemetry Inc. (BEAT): It provides technology that allows for the monitoring of irregular heartbeats and related disorders. Rather than sit in a hospital and be watched, as has been the typical approach, patients can be monitored from home. This obviously cuts medical expenses dramatically, and the company has made strides in obtaining Medical coverage.
The company is expected to grow earnings to 57 cents in 2016, which would be up 36% from 2015 levels. It not only is an interesting story, but also the valuation is attractive and the potential for upside considerable.
The main problem is that the chart looks terrible. It has crumbled in the recent carnage and now is struggling to find support around the $10 level. The stock needs to move back up over the $12 area to signal that it is on track.
We have been in a poor small-cap environment for a while and it is looking particular rotten right now. We are in no big hurry to buy these stocks, but the stories are of interest and we'll be watching to see if the charts improve.
