Industrial Sector Ideas

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Goldfield -- >>> 3 Small Caps That Got Away And May Keep Running



August 1, 2012

by: Alex B. Gray


includes: GV, REED, SNAK



http://seekingalpha.com/article/768191-3-small-caps-that-got-away-and-may-keep-running?source=yahoo



With so many possible investment opportunities in the stock market, it is nearly impossible to find every winner, and even when you do find a stock that eventually moves higher, you have to pull the trigger in order to participate. As an investor, I follow many stocks, but only invest in a few. My goal is to find stocks with limited downside and a potentially rewarding upside. Unfortunately, I have to make cuts and not make the plunge in many stocks that look interesting.

One such opportunity was Goldfield Corporation (GV), which provides electrical transmission construction and maintenance services to the energy infrastructure industry. These services include the installation and maintenance of electrical transmission lines for utilities, the installation of fiber optic cable and the construction of concrete foundations, distribution systems and substations. The company also has a small subsidiary that is involved in the development of residential real estate on the east coast of Florida.

I have been following Goldfield for many years and watched this small-cap stock push near the $3.00 mark in 2006 only to collapse and trade just under $0.30 per share as recently as February of this year. Then on February 27, 2012, the company was selected as prime contractor for a 110-mile long 345kV transmission line in Texas as part of a Competitive Renewable Energy Zone project. Goldfield estimates the revenue recognized by this project will be approximately $52 million. The project is required to be completed by July 31, 2013. This helped push the company's backlog from only $12.2 million on December 31, 2012 to approximately $77.8 million on February 27, 2012. Of this backlog, the company expects to complete $55 million during 2012.

Within a week of this announcement, the stock had already doubled in price. Shortly thereafter, the company reported its annual results for 2011 which showed a $1.6 million or $0.06 per share profit in the fourth quarter, which sent the stock higher. The good news continued when the company announced a first-quarter profit of $2.7 million or $0.10 per share. The stock finally topped out earlier this month reaching a high of $2.58 before dropping to the current price of just over $2.00 per share.

Goldfield Corporation 1-Year (click to enlarge)

There is little doubt the risks are high with such a small company whose share price is being driven by a single contract, but this reversal could just be a breather before the stock reaches new heights. I initially did not make an investment in this stock due to a lack of a catalyst, but the improved earnings and the large contract should continue to support the stock in the short-term and if the company can continue to add to its backlog, this could be long-term winner. However, if the company fails to add additional large contracts to the backlog, an investor should be prepared to quickly sell and leave this one behind. I currently see Goldfield as only a short-term trade. It's only a long-term investment if additional large contracts are added to the backlog. SA contributor, The GeoTeam, wrote their case for a significant increase in the stock price on June 7, 2012 when the stock was still trading around $1.60 in Goldfield: A "Four-Bagger" In The Making.

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