(By Jeremy Glaser) We saw a rare change in the
market-cap leaderboard this week as Apple's (
AAPL) post-earnings slide allowed ExxonMobil (
XOM) to reclaim the top spot. Unsurprisingly, the news of Apple's decline dominated the financial headlines all week. People love to talk about megacap companies. They are widely held, often represent large consumer brands, and can whipsaw major market-cap-weighted indexes.
But of course that doesn't mean that mega- and large- cap stocks are the only ones investors should be considering. There are values in smaller, lesser-known names that shouldn't go overlooked. Regardless of whether you think the small-cap premium investors have earned historically will persist in the future, you can still get good returns by buying cheap small caps that are selling at a discount to their fair value estimates and waiting for the market to realize their intrinsic worth.
We used the Premium Stock Screener to find these undervalued small-cap stocks. We also added a wide- or narrow-moat screen to filter out firms without long-term competitive advantages. By focusing on companies we think can fend off challenges to their businesses and can earn an economic profit over time, we will be sure to be buying the highest-quality small-cap names. You can run the screen for yourself by . Below are three stocks that passed:
Nordion (NDZ)
5 Star| Moat: Narrow | Fair Value Uncertainty: High
From the Premium Analyst Report:
We believe concerns regarding Nordion's medical isotope business are overblown and have overshadowed the firm's dominance in gamma sterilization and the growth potential of TheraSphere. Although we take a pessimistic view on the medical isotope segment's future, it accounts for just a minor portion of our fair value, and other attractive segments of the business more than make up for this segment's declining future.
WMS Industries (WMS)
5 Star| Moat: Narrow | Fair Value Uncertainty: Medium
From the Premium Analyst Report:
From 2002 through 2007, WMS produced a 23% five-year revenue compound annual growth rate of 23%, a figure that slowed to 5% during the next five years. This gives a clear picture of WMS' moderating demand environment as stagnant consumer discretionary spending growth, operational missteps, and fiscally restrained customers provided fierce headwinds for the slot machine maker. While these obstacles likely will continue to pressure WMS in the near term, we believe customer demand will begin to accelerate slowly as the inventory of North American machines ages to a point where gaming operators are forced to retool their existing inventory. Additionally, the firm reorganized its operations with significant staff reductions, facility consolidation, and a streamlined production process. These two variables should provide solid long-term tailwinds for the gaming manufacturer.
Navigant Consulting (NCI)
4 Star| Moat: Narrow | Fair Value Uncertainty: Medium
From the Premium Analyst Report:
Navigant Consulting is one of the few established specialty consulting firms in the U.S. that provides dispute, investigative, business, and economic consulting services to clients around the world. A national footprint, a large consultant base, and long-standing customer relationships secure the firm's narrow economic moat, in our view.
All data as of Jan. 25, 2013.