Conservative investors tend to flock to large cap stocks with sensible valuations. While this approach may work for some, it is not going to suit investors with a penchant for risk. Small caps with reasonable valuations can appeal to both ends of the spectrum. Here are four small cap prospects suitable for value investors and growth investors alike.
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By the Book
The bookseller Barnes & Noble (NYSE:BKS) is a household name, but with a market cap of just over $900 million, it is a relatively small company. The company's stock carries a price-to-book ratio of 1.0 and a dividend yield of 6.6%. Both of these characteristics are attractive to your typical value investor. Year-to-date, shares of BKS are down over 20%.
Barnes & Noble is banking on its Nook eBook reader to hold its ground against the Kindle from Amazon (Nasdaq:AMZN) during this holiday shopping season. Shareholders recently approved a measure that will limit any single shareholder from acquiring more than 20% of the company. Activist investor Ron Burkle owns approximately 19% of the company and had been pushing for a larger stake in an effort to seek out strategic alternatives to increase shareholder value.
CONMED (Nasdaq:CNMD) is a small medical device company based in Utica, NY with a market cap of a little more than $630 million and a price-to-book value of 1.06. Analysts are projecting the company to grow its top line between 3.0% and 5.0% through the end of 2011. The company has a history of topping analyst estimates though. Shares of CNMD are down slightly on the year, but the stock's 50-day moving average recently broke above its 200-day moving average.
Partly Sunny Skies
The solar industry has had a topsy-turvy year, and although it has rallied more than 50% since its low this summer, Canadian Solar (Nasdaq:CSIQ) is still a value play. Its price-to-book ratio of 1.2 is still reasonable and with a market cap of just over $600 million, it has plenty of room to grow.
The company is coming off of a formidable Q3 in which its gross margin improved to 17.3% from 13.6% in Q2. Canadian Solar has been the beneficiary of increased vertical integration as well as favorable non-silicon processing costs. Shares of CSIQ have fallen 49.6% on the year.
Another small cap player in the solar space that is trading at an attractive valuation is Solarfun Power Holdings (Nasdaq:SOLF). The stock trades at a price-to-book of 0.9 and has a market cap of just under $510 million. Shares of Solarfun have had a better fate than Canadian Solar so far this year. SOLF shares are up 18.0% year-to-date.
The Bottom Line
Value investing does not have to be restricted to slow growing large caps that have already established their market presence. There are plenty of small cap stocks out there with room to run that are also trading at inexpensive valuations. These are just a few to take note of. When investing in any of these kinds of small cap stocks, be sure to conduct your own diligence prior to placing a buy order. (For related reading, take a look at The Value Investor's Handbook.)
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