5 small cap companies to have on your radar

Independent Investor risk. Sure, a small cap company’s stock price can sometimes be very volatile. If you are selling on a ‘bad’ market day you might take a big hit. But many small companies are highly profitable, sitting on lots of cash and/or pay a dividend. Their fundamental risk may not be as high as you think. Put another way, which is riskier, a small company with no debt and good cash flow, or a much larger company losing money and bleeding cash? Financial advisers are also not keen on recommending small caps to their clients, because some small companies will certainly perform poorly, and these will make the adviser’s judgment look bad. However, the real reason why many investors avoid small cap companies it that they have simply never heard of them. Let’s try to change that today, with a list of five small companies we think have some solid longterm investment potential. report. It has no debt and more than $30 million cash, with projected earnings of $0.09 per share this year. PHO makes optical switches, sensors and other products for the medical, oil and gas and technology sectors. In the fourth quarter, sales rose 47 per cent and the order backlog increased 57 per cent. The company has been profitable on an annual basis each year since 2009. Insiders own 6 per cent. If the company can deliver continued growth, the stock looks very cheap. PHO is certainly starting to gain some traction with investors. market cap $48 million, has been around a while, but new management seems to be doing a very good job these days. The stock is up 60 per cent in a year, trades at 18X earnings, and the company has no debt and around $8 million cash. Revenue grew by 39 per cent in 2016 with net income of $2.2 million for the year. Recent contract wins set up decent growth prospects for this year as well. ITC develops and sells embedded devices, including products used in the Internet of Things sector. Insiders own about 12 per cent.

We like dividend increases from companies, as they tend to telegraph future results. Companies do not raise dividends without careful consideration of their future. So when a dividend gets raised 50 per cent, as it did in early March with

we tend to pay extra attention. When that dividend increase is followed by the declaration of a special dividend (65 cents per share) as well, then we really take notice. ZCL, which makes composite underground storage tanks for the oil and gas and water sectors, has been doing very well. The stock (market cap $417 million) is up 78 per cent in the past year. Its dividend yield is 3.5 per cent, and earnings growth in the 20 per cent range is predicted in the next two years. It has no debt and $38 million in cash as of the last quarter. Its business looks good as environmental regulations provides asset management, asset tracking and asset monitoring solutions through wireless technology. We just issued a research report on the company, although it does have some other coverage on Bay Street. Market cap is $125 million, shares are up 56 per cent in a year, and insiders own 2.6 per cent. Crescendo Advisors, who are often looking to help sell a company, own 10 per cent. It has no debt and about $10 million cash. Revenue grew 17 per cent in the last quarter, to $18.4 million. EBITDA rose 33 per cent and the company is buying back stock. Based on forecasts, it trades at 15X earnings.

If you noticed, most of the companies listed here have no debt and are profitable. A couple of them pay very nice dividends. So yes, they are small, but with a dividend and a clean balance sheet, and profitability, they may not be as risky as you might think. Yes, their stock prices may fluctuate more than, say, a Canadian bank stock. But we think most investors will find them way more fun, and — if things work out — way more profitable.