While Goldman is once again leading the headlines today, earnings have taken center stage. Just Monday, Caterpillar (CAT) earnings boasted analyst-beating results moved the market significantly higher. While small cap stock can’t move the market the same way, they are no less powerful. That’s why I’m watching Trina Solar (TSL), HMS Systems (HMSY) and SXC Health Solutions (SXCI) before earnings.
Now, while CAT’s earnings surprise and 3% one-day gains are great, I have a handful of companies to tell you about today that have a history of trouncing those numbers and those gains.
That’s why today I’m going to give you the names of three small cap stocks that have a history of knocking it out of the park and are set to do so again in the coming days.
The Power of Small Cap Earnings
As I’m sure you’ve heard me say, there is nothing more powerful than a strong earnings report that beats expectations. When a company can do this consistently, its share price will be rewarded. Now, no company can do this every quarter and every year for its entire lifetime. That’s why you have to get in when earnings are hot, grab your profits and get out with your gains. Here’s what I mean:
Last year I saw an earnings opportunity in a small-cap security company. ArcSight Inc. (ARST) had just moved into profitability reporting $4.3 million or 13 cents per share in earnings compared with a loss of $1.1 million or 4 cents per share in the same quarter a year ago.
With a pickup in business and earnings, the company went on to report two more quarters of solid number — averaging a 14% earnings surprise — and the stock moved up steadily. When the company failed to meet expectations in its fourth-quarter report, we promptly reevaluated our position and sold for a 40% gain in three quarters.
Right now there are a number of small-cap stocks with similar potential. Here are three that are set to surge this earnings season:
Buy SXC Health SXCI for Earnings
SXC Health Solutions Corp. (SXCI) is what I like to call a bunny stock. This stock loves to “hop” on earnings. Here’s a perfect example. Last quarter, the company reported that net income came in at $15.2 million, or 49 cents per share, compared with $5 million, or 20 cents per share a year ago.
This was a 204% increase and sent the stock soaring. The stock jumped $11 a share or 22% in the following trading day. This is exactly the kind of stock you want to own during earnings season and why I’m rating this stock a buy right now. You have another week or so before the scheduled earnings release on May 6, but don’t sit on this information. You could very well miss the next 22% jump.
Buy Trina Solar TSL for Earnings
Trina Solar (TSL) has had a rough couple of years, and is a stock that can be risky but pay off big-time when the numbers go your way. TSL was a $10 IPO back in late 2006, and the stock promptly flew to more than $30 a share. But as speculation over the viability of solar power mounted, oil prices softened and the global markets weakened, TSL nearly became a bear market statistic. But the company has fought back from less than $3 a share to its current $25 price.
The company still has a lot to prove, and if the company can post some solid numbers in its next report, it should win over new buyers in a significant way. About 90% of the company’s sales are in Europe, primarily from customers in Spain, Germany, Italy and Belgium, and with more incentives and government support for alternative energy there, I think TSL can do it. So do yourself a favor and pick up a few shares in anticipation of TSL’s earnings report on May 24.
Buy HMS Systems HMSY for Earnings
My third and final small-cap pick has been on my Emerging Growth Buy List for about nine months. HMS Systems (HMSY) is one of my absolute favorite companies right now — not just because of its powerful fundamentals, but because of how it makes its money. HMSY’s mission is to protect our tax dollars by making sure government health providers are not wasting our money by overpaying for benefits or overlooking costly errors in billing. Last quarter the company reported sales growth of 24% and earnings growth of 36% over last year. The company will report again at the end of this week on Friday, April 30, and with current revenue estimates to jump another 29% this quarter, I expect we’ll see good numbers for the timely products of HMSY.
As of this writing, Louis Navellier recommended shares of SXCI, TSL and HMSY in his small-cap stock newsletter, Emerging Growth.
