I have an insatiable curiosity about things.
This is particularly true when it comes to the stock market and investing. There is little I love more than discovering unique, off-the-beaten-track investments possessing dramatic upside potential. My curiosity thrives on ferreting out under-the-radar stocks ignored by the traditional Wall Street analysts and the mainstream financial media.
These companies often have little in common. They can be from diverse industries, have radically different market capitalization sizes and even be the underdog in a particular niche.
The first name on my list of obscure stocks is American Vanguard Corp. (AVD). (Despite the similar name, this company couldn't be more different from Vanguard Group, the behemoth financial company.) A maker of agricultural pesticides, American Vanguard recently delivered impressive fourth-quarter results and has an incredibly bullish chart pattern right now, creating a perfect investment scenario.
The earnings per share of 39 cents in the quarter beat the consensus estimate of 4 cents and represented an increase of 23 cents over the same quarter of 2011. Profit surged nearly 80% year-over-year, to more than $11 million, while revenue beat consensus estimates by climbing 28%, to just more than $104 million.
All the standard metrics revealed solid performance driven by the firm's "ace in the hole" product to combat rootworm, which has become a major enemy of corn farmers.
American Vanguard has a lock on the market for pesticides and specializes in eliminating rootworm from cornfields. It has also developed a unique delivery system known as a "smart box," which protects farmers from the hazards of using the pesticide. This demand has provided the company with an optimistic vision for the future.
Complementing the positive results, I find the technical picture provocative. The stock has fallen from around $33.50 in mid-March to support at $28.
This support is of the triple-bottom variety, which is signaling a near-term bounce in the works. Buying now with a 12-month target of $35 makes solid fundamental and technical sense.
The next name on my list couldn't be more different than American Vanguard -- but the stock price pattern is uncannily similar.
This company provides auction services for the U.S. government by operating websites like GovDeals.com and Government Liquidation. Think of the company as the government's version of eBay. Various government sectors, including the Department of Defense, use the auction system to dispose of assets and scrap that are no longer needed. In addition, Liquidity Services also auctions assets for dozens of international manufacturing companies.
Maverick Capital hedge-fund manager Lee Ainslie owns more than 2 million shares, and the company boasts a five-year price/earning-to-growth (PEG) ratio of 0.7. With a market cap close to $1 billion, this small-cap stock has been very volatile lately.
Shares are priced at around 23 times earnings, but an average of 22% earnings growth is projected during the next five years. The company boasts about $45 million in cash and a debt-free balance sheet.
However, shares have been decimated, dropping nearly 22% during the past year. Management cut guidance as the company's free cash flow is lagging compared with reported income. The auction company is currently generating about 70 cents in profit for every $1 reported as net income. I am betting this is only a short-term issue and will be rectified during the coming months.
The business remains steady and government spending isn't likely to end anytime soon, providing this company with plenty of inventory. Technically, shares have bounced off a triple bottom in the $29 range and have pushed higher to the $33 area. I like this stock right now with a 12-month target price of $43.
Risks to Consider: Both companies have market risk. Competitors, changes in the economy and internal issues could strike at any time. It is always critical to use stops and position size properly when investing.
Action to Take --> Consider American Vanguard for its technical picture and Liquidity Services based on the technical triple-bottom bounce combined with the expectations of improved free cash flow and solid overall business. Buying now with a 12-month target price of $35 for American Vanguard and $43 for Liquidity Service makes sense.