Wave Systems Corp. (fka WAVXQ)

[Snackman]

TheStreet.com
Ten U.S. small-cap stocks that may keep soaring
Jake Lynch

Boston— TheStreet.com
Published Friday, Oct. 01, 2010 7:58AM EDT
Last updated Friday, Oct. 01, 2010 8:09AM EDT


Stocks that double or triple over one year are usually best sold. Except when analysts predict they'll keep rising.

Here are 10 obscure small-cap stocks that just might do that. They're ordered by their one-year gain, from big to biggest.

10. HeartWare (HTWR-Q66.30-2.46-3.58%) is a medical-device company focusing on products for advanced heart failure. HeartWare's second-quarter loss widened to $10 million (U.S), but the per share loss narrowed to 73 cents due to dilution. Revenue more than tripled to $9.8 million. The gross margin climbed from 55 per cent to 59 per cent.

HeartWare's stock sells for a book value multiple of 8 and a sales multiple of 25, substantial premiums to industry averages. Of analysts covering HeartWare, six rate it "buy" and four rate it "hold." A median target of $74.50 suggests a looming return of 7 per cent.

9. Key Tronic (KTCC-Q5.990.040.67%) sells electronic-manufacturing services to technology companies. Fiscal fourth-quarter profit rose sevenfold to $2.3 million, or 22 cents a share, as revenue increased 36 per cent to $62 million. The operating margin rose from 0.7 per cent to 4.9 per cent. Key Tronic's stock sells for a trailing earnings multiple of 7.1, a book value multiple of 1 and a sales multiple of 0.3 -- 66 per cent, 78 per cent and 90 per cent discounts to computer and peripheral peer averages. Of the stock's 15 largest holders, eight increased stakes in the latest quarter, five held steady and two lessened holdings.

8. Wave Systems (WAVX-Q2.250.010.45%) provides client and server software for hardware-based digital security. Its second-quarter loss widened to $970,000 from $340,000 a year earlier. But the per share loss remained steady at 1 cent. Revenue climbed 34 per cent to $6.5 million. The operating margin fell further into negative territory. Wave Systems shares trade at a forward earnings multiple of 11 and a sales multiple of 8.2 -- 59 per cent and 51 per cent discounts to software industry averages. MDB Capital values the stock at $6, suggesting it will more than double in 12 months.

7. Industrial Services of America (IDSA-Q15.400.020.13%) engages in scrap-metal recycling and waste-management services. Second-quarter profit more than doubled to $2.4 million, or 36 cents a share, as revenue more than doubled to $93 million. The operating margin inched up from 4.4 per cent to 4.5 per cent. The company's stock sells for a trailing earnings multiple of 13, a forward earnings multiple of 8.2 and a sales multiple of 0.4 -- 52 per cent, 59 per cent and 80 per cent discounts to commercial service peer averages. Taglich Brothers values the stock at $27, implying 76 per cent of potential upside.

6. Akorn (AKRX-Q3.96-0.08-1.97%) markets diagnostic and therapeutic pharmaceuticals. Its second-quarter loss widened 36 per cent to $9.4 million, or 10 cents a share, as revenue expanded 24 per cent to $20 million. The operating margin turned positive. Akorn's stock trades at a forward earnings multiple of 22, a book value multiple of 6.4 and a sales multiple of 4.7, massive premiums to pharmaceutical industry averages. Two analysts rate Akorn's stock "buy" and one ranks it "sell." A median target of $5.25 suggests a return of 31 per cent. Craig-Hallum Capital predicts a gain of 38 per cent to $5.50.

5. Joe's Jeans (JOEZ-Q2.10-0.01-0.47%) designs high-end denim and apparel. Second-quarter profit tumbled 60 per cent to $530,000, or 1 cent per share, as revenue surged 51 per cent to $26 million. The operating margin dropped from 9.6 per cent to 4.5 per cent. Joe's Jeans shares sell for a trailing earnings multiple of 5.3, a book value multiple of 2 and a sales multiple of 1.3 -- 77 per cent, 49 per cent and 31 per cent discounts to peer averages. They're expensive based on forward earnings and cash flow. Two researchers rank the stock "buy" and one ranks it "hold." Roth Capital projects a rise of 66 per cent to $3.50.

4. Amtech Systems (ASYS-Q18.030.070.39%) sells wafer-manufacturing equipment to solar and semiconductor companies. It swung to a fiscal third-quarter profit of $3.9 million, or 42 cents a share, from a loss of $240,000, or 3 cents, a year earlier. Revenue more than tripled. The operating margin turned positive. Amtech's stock trades at a book value multiple of 2.3 and a sales multiple of 1.9 -- 59 per cent and 43 per cent discounts to semiconductor industry averages. It's expensive based on cash flow. All four analysts covering Amtech rate it "buy."

3. Libbey (LBY-A13.430.261.97%) designs and sells tableware products. Second-quarter net income more than tripled to $9.6 million and earnings per share more than doubled to 47 cents. Revenue increased 3.7 per cent. The operating margin rose from 6.1 per cent to 13 per cent. Libbey's stock sells for a trailing earnings multiple of 4.6, a forward earnings multiple of 9.2, a sales multiple of 0.3 and a cash flow multiple of 4.2 -- 93 per cent, 70 per cent, 64 per cent and 39 per cent discounts to peer averages. Two analysts rate the stock "buy" and one ranks it "hold." Jefferies forecasts an advance of 52 per cent to $20.

2. WHX Corp. (WXCO-Q9.491.1313.50%) owns precious metals, tubing and engineered-materials businesses. WHX swung to a second-quarter profit of $6.3 million, or 55 cents a share, from a year-earlier loss of $4.1 million, or 28 cents. Revenue grew 32 per cent to $181 million. The operating margin rose from 5.1 per cent to 9 per cent. WHX's stock trades at a sales multiple of 0.2 and a cash flow multiple of 2.4 -- 98 per cent and 87 per cent discounts to materials industry averages. No sell-side analysts follow WHX, which has a market value of $99 million. WHX has grown sales 4.8 per cent annually, on average, since 2007.

1. Miller Petroleum (MILL-Q5.570.183.34%) explores for oil and gas in the U.S. Miller swung to a fiscal first-quarter profit of $680,000, or 2 cents a share, from a loss of $70,000, or break-even, a year earlier. Revenue surged ninefold to $5.2 million. The operating margin remained negative. Miller's stock sells for a trailing earnings multiple of 0.6 and a book value multiple of 0.6 -- 96 per cent and 85 per cent discounts to oil and gas peer averages. Three analysts rate the stock "buy" and one rates it "hold." A median target of $9.50 implies 76 per cent of upside.


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