"Despite a very tough environment, buying shares in good companies which are performing well should bear fruit over time," says Jim Oberweis, Jr.
In The Oberweis Report, he adds, "We’ve put together a list of our top ideas that have already reported earnings this quarter and whose earnings and outlook remain robust." Here's a look at his favorites in healthcare, defense, and technology.
"As the last three months have so clearly demonstrated, cheap markets can become cheaper, and in certain rare instances, much cheaper.
"However, in our experience, those who buy when 'fear' is the driver are likely to profit when a normal tolerance for risk returns to equity markets and P/E’s begin to expand.
"To be quantitative, those who buy when P/E’s are far below average, are, on average, afforded higher returns than the broader market over longer periods of time. Note that this strategy has failed miserably, at least so far, during this bear market. Cheap stocks have become cheaper.
"But fear, in the short run, does not cause a rational response. Math trumps fear over the long term. Normal risk premiums will eventually return. The opportunity today, when viewed three years hence, will prove to be among the best buying opportunities of our lifetime.
"Healthcare companies like Illumina (NASDAQ: ILMN) fit that bill well. The company is a developer of next-generation life science tools for the large scale analysis of genetic variation. In the third quarter,
"Illumina grew revenues by 54%. Before stock comp and amortization charges, net income grew 44% to $29 million, even with a research and development expense of $28 million for the quarter.
"Besides benefiting from the high market growth for DNA analysis tools, they are taking share from competitor Affymetrix. Illumina is now the dominant leader with high barriers to entry.
"Most of their customers are research organizations and academic institutions. Illumina will buck a tough economy, as government and private funding for DNA analysis remains strong.
"Similarly, technology-oriented defense companies are seeing little signs of weakness. Flir Systems (NASDAQ: FLIR) is a good choice. Flir designs and manufactures thermal imaging systems. About 80% of their business is comprised of sales to military, with the balance comprised of commercial applications.
"Revenues and operating income grew 45% and 48% in third quarter. Backlog was up 65% over last year to $650 million. The new administration appears to be technology-focused and we expect a continued favorable climate for Flir.
"While technology overall has been spotty this quarter, these three technology firms: Synaptics (NASDAQ: SYNA) and Click Software (NASDAQ: CKSW) have reported no sign of slowing down.
"Synaptics makes touch pads for PCs and smart phones. Their technology is used in the new G1 smart phone (aka the Google phone).
"Click Software is a pint-size developer of mobile workforce management software who recently announced a partnership with SAP. In the third quarter, revenues were up 56% and EPS were $0.09 versus $0.02.
"Orders can be big and lumpy for Click, though management put out very strong estimate guidance for the next quarter."
