As the saying goes, good things come in small packages. For investors, many of today's successful corporations started off significantly smaller in size and scale. Finding small caps with the potential of becoming big time winners is part skill and part luck. Below are a few names that offer investors some intriguing opportunities; however, as always, there can be no substitute for one's own research and analysis.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.


Making a Comeback
The market turbulence of past several years has taken big businesses and turned them into small businesses, at least from a market capitalization perspective. In most instances, as in the case of many homebuilders, the shrinkage in size may be more than a temporary thing. It's doubtful that business volume will be anywhere close to the 2006-2007 levels, for homebuilders, anytime soon. On the other hand, a name like consumer goods company Helen of Troy (Nasdaq:HELE) has the opportunity to grow bigger. Shares currently trade for $26, or a market cap of $837 million. Sales have grown over the past three years from $622.7 million to over $777 million, a respectable accomplishment in this environment. Analysts expect sales to exceed $1 billion over the next couple of years. Shares currently trade at less than 9 times earnings. (For more reading, see Investment Valuation Ratios: Price/Earnings Ratio.)

Climbing Higher
Auto parts supplier Dorman Products (Nasdaq:DORM) makes and sells over 120,000 automotive replacement parts to retailers and other distribution outlets. Sales have grown from $342.3 million in 2008 to $455.7 million in 2010, and will likely eclipse $500 million in 2011. Profit growth rate has been even faster. Shares trade for $39, or a market cap of $695 million. The company is also free from short-term debt. A couple of weeks ago, AutoZone (NYSE:AZO), the nation's largest retailer, reported another strong year with net sales growing by over 9% to over $8 billion. Such strength in the parts industry bodes well for Dorman.

Building Up
Infrastructure construction company Sterling Construction (Nasdaq:STRL) looks like a sterling company from a variety of angles. The business sports a market cap of $203 million, generates nearly $500 million in sales and has over $70 million in cash on the balance sheet. Infrastructure demand continues to be a bright spot in the construction world, and it looks like Sterling knows how to make money doing it. Shares trade for 12 times earnings, but less than 7 times earnings when you strip out the cash. (For more on investing in infrastructure, see Build Your Portfolio With Infrastructure Investments.)

The Bottom Line
In investing, bigger isn't always better. Small caps often have little or no analyst coverage. Many institutional funds can't make any significant investment in smaller size companies. As a result, greater inefficiencies reside in small caps increasing the likelihood of finding significant mispricing.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  2. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  3. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  4. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  7. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  8. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  9. Home & Auto

    4 Areas to Consider Roofing Material Types

    Roofing your home is very important, that’s why you should choose a roof specifically designed to handle your area’s climate.
  10. Mutual Funds & ETFs

    ETF Analysis: Vanguard Mid-Cap Value

    Take an in-depth look at the Vanguard Mid-Cap Value ETF, one of the largest and most popular mid-cap funds in the U.S. equity space.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  5. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  6. BHD (Berhad)

    The suffix Bhd. is an abbreviation of a Malay word "berhad," ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!