Small-cap play of the day: Adding value to the books
Today's Financial News - Posted June 3, 2009
The vast majority of the market may be in the red today, but the companies focusing on their core strategies and shoring up their books are fighting off the bears. If you are a fan of small caps, Technitrol is worth a look.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): The vast majority of the equities market is in the red today (by a four-to-one margin), yet a handful of companies are trudging through the headwinds and putting strong profits in investors’ pockets.
One of the big gainers is a small-cap known as Technitrol (NYSE:TNL), a $236 million electronics producer based in the Philadelphia suburbs. Even as the markets slumped, shares of the company surged by over 50% during the past two sessions.
The reason for the sudden pop in share price is one investors need to pay attention to.
Over the past several weeks, the Street has had few fundamental headlines to work with. Sure the market climbed through several key levels, but the gains were mostly thanks to a fresh economic outlook and hints that consumers were thinking of spending once again.
There were very few direct changes to corporate books.
When Wall Street finally gets some good news, all it can do is bid share price up and up. That is the case for Technitrol.
Back to basics
The company announced yesterday it has made major strides to increase its liquidity and lower its debt. By divesting the company’s stake in Medtech and pocketing the $200 million in cash proceeds, Technitrol significantly reduces its debt ratios and makes its lenders much happier.
In a market with tight credit markets the move helps ensure the company’s short-term success. Wall Street is rewarding the company’s work by sending its share price significantly higher.
Investors are also rewarding the company’s renewed effort to focus on its core business. During a rough, recessionary economic environment, smart companies work to shrink their risk exposure and do what they do best.
A recession is no time to experiment with growth.
For Technitrol, that means sticking with its core electronic components products and working to ensure future infrastructure spending will find its way onto the company’s books. As the nation works towards a high-tech, smarter electrical system, the company should see strong revenue growth.
If we expect more gains from the equities market, we will need to see more news of fundamental advances. Sentiment will only get us so far, and we have likely exceeded the market’s equilibrium point.
Right now, investors must focus on businesses that are adding value to their balance sheet. Merely hoping unemployment levels, real estate prices and consumer spending have hit their bottoms will not make you any money.
We are back in the business of fundamental analysis.
Next Article: Take advantage from the refining industry fallout
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