Small Cap Value

I have been looking for some small cap stocks to purchase. I love small caps because they are largely neglected by Wall Street and thus have the ability to outperform the market. Some of the greatest gains can be made in small cap stocks.

As stated previously I have been buying shares of American Ecology (ECOL) between $16.50 and $17.00. Today I bought shares of Neutral Tandem (TNDM). Neutral Tandem is a small company with a market cap of 700 million dollars. According to its website, Neutral Tandem “has built a nationwide TDM and IP tandem network capable of exchanging voice and data traffic between its wireless, wireline, and broadband customers.” Neutral Tandem has over 90 major customers in the cable, broadband and telecommunications industries. Sprint, AT&T and Comcast are some of the larger customers that the company boasts. Basically the company acts as a neutral party between competing companies and uses its independent tandem network to ensure that data signals are properly exchanged and directed to their proper destinations.

Neutral Tandem generated over 120 million in sales in 2008 and is on pace to generate 170 million in sales this year. Revenue for 2010 is projected to come in above 200 million. Earnings per share has grown over 20% over the past year and the company is expecting to grow EPS 24% over the next 5 years. The industry’s projected growth rate over the next 5 years is 14.75%. The company’s shares appear cheap at the 20 dollar level. Neutral Tandem’s P/E ratio is 18 and the forward PE is 14 which is lower then the industry average of 22. The Price to Earnings Growth(PEG) is .6 and the net profit margin is over 20%. The company has over 175 million in cash and less then 698,000 in debt. That equates to over $5 per share in cash alone on the balance sheet.

I think that the growth prospects and financial strength of the company helps to make Neutral Tandem a compelling investment opportunity.