The big guys largely have reported their quarterly results, so over the next couple weeks we will be treated to a slew of earnings from smaller-cap companies. I enjoy this part of earnings season -- it helps hone the farm team and it always produces fireworks. The lesser-known, less-liquid and more-inefficient nature of small-caps makes for wider risk/reward frameworks, so precision is key.
Rexnord (RXN) reports tonight. RXN's Zurn subsidiary, which provides non-residential water distribution and infrastructure products from drains to urinals, should help offset the cyclicality in its Power Transmission segment. Zurn's margin structure and tailwinds are attractive attributes, but Rexnord's stock has been volatile due to restructuring, destocking in distribution and above-average balance sheet leverage. The dream spot to nibble on this industrial of reasonable quality has been under $18. We'll be watching for volatility around the quarter.
Cognex (CGNX) also reports this evening, and similarly has been dealing with volatility in large orders over the last few quarters. The stock sports a lofty valuation and a major cash position on the balance sheet despite weakness in its core Machine Vision business (these are basically pretty awesome scanners that capture and analyze visual information). Amazon (AMZN) is a large customer and CGNX likely will benefit from AMZN's recent announcement that it will increase the number of its distribution facilities by 14 into year-end. This is clearly a reason for the resilience in CGNX shares despite choppy quarterly guidance and order flow the last year or so.
Xylem (XYL) reports tomorrow. I love this collection of global water infrastructure assets. XYL shares have been on a tear, likely because of strong municipal and commercial spending for anything water these days, but also because Danaher's (DHR) recent spinoff of Fortive (FTV) likely opens the door to more acquisitions in various areas, including water infrastructure.
A historical favorite of mine -- and I've been laughed at in the past because of it -- is ACCO Brands (ACCO) . ACCO is a leader in office supplies, such as Swingline staplers and paper clips. Things that could go away? I don't think so. The company's free cash flow has been quite strong in recent years, opening the door for a more comprehensive and flexible capital allocation process. As the valuation in consumer staples group expands, shares in ACCO can continue to move higher -- not to mention that there is always the opportunity for ACCO to do something transformative in office products from here.
Finally, for Part 1 of this week's small-cap earnings preview, Maxwell Technologies (MXWL) reports on Tuesday. MXWL makes ultracapacitors -- dense power packs for buses, trucks and autos. The company has a robust technology and decent margins compared to other battery producers and a compelling tailwind in the truck and auto markets. This one is one to watch. Volatility around the company's municipal bus exposure in China will likely continue. Something that is well-understood by some interested in this well-run, research-and-development-based company is that quarterly reports sometimes can create entry points for long-term investors. MXWL is on my radar.
