A Handful of Buried Treasures from Nancy Zambell

by Travis Johnson, Stock Gumshoe | July 8, 2010 11:45 am

Sometimes the teases that catch the eye of your friendly neighborhood Stock Gumshoe are long, detail-filled, and exhausting … and sometimes, they’re like little frustrating snacks, just enough of a hint that the Thinkolator might track it down, but often requiring a bit of a sleuthing slog.

Today we’re looking at a small smorgasbord of the latter — Nancy Zambell[1], who is at least as self-congratulatory as any other newsletter editors I’ve seen (save perhaps Tobin Smith[2], who I don’t see much about anymore), would like you to subscribe to her Buried Treasure Under $10[3] newsletter … and as inducement she doesn’t lay out a strong argument for any particular stock, but she throws out brief hints about a few of her favorites that she’s still (or newly) recommending.

And I call it a “handful” above, but that all depends — this is more of a Dr. Seuss handful, or a nice handful for someone who had a terrible chainsaw accident, but I’ll share at least three of the ideas with you below and try to get to more in the future.

Here’s the first bit:

“Here are just a few opportunities that we’re recommending right now that you’ll read about in tonight’s Buried Treasures Under $10.

“Opportunities that will continue to rise in this economic environment thanks to rising sales and earnings.

“Opportunities you probably wouldn’t find even on the back pages of The Wall Street Journal, Forbes[4], or Investors Business Daily!

“For example: The $7.24 startup that’s about to turn every movie theater into a 3-D movie moneymaker thanks to 32% revenue growth in 2009.

“Up 234% in 12 months, this stock is headed for another breakout when its earnings come out in early August….

This one we’ve covered before, Zambell touted this cinema equipment and installation company, Ballantyne of Omaha (BTN) back in May as her “next small cap blockbuster[5].” Growth has actually picked up a bit for them in the most recent quarter, but it was really 32% last year, my notes on them from May are here if you’re interested.[6]

Shall we continue? I’m cherry picking a few of the hinted-at stocks that sound somewhat interesting, here’s another:

“The $7.53 printed circuit board producer that we’ve already banked a 46% gain on and are holding on to for another double. With 64% sales growth year-over-year, it could come in the blink of an eye.”

This one is DDI Global (DDIC), and they are indeed a printed circuit board marker, they did post 64% sales growth … and they look cheap based on earnings, with a forward PE of 6.7. Be careful with that PE ratio, though, comparing it to their competitors, from giant Jabil Circuit (JBL) to TTM Tech (TTMI) or many of the smaller ones, will tell you that a PE ratio in the range of 6-8 is pretty common for the industry.

I’d have to guess that’s probably because of margin pressures, huge capacity, and tight competition, but I confess that I know almost nothing about printed circuit boards. The stock that actually stands out to me as interesting in this business, though I’ve not yet dug very deeply into it, is BTU International (BTUI), which sells equipment to the printed circuit board and semiconductor manufacturers (it’s not as cheap on earnings, but does trade for 1X sales and 1.5X book value). Just a thought for you, if you’re looking into the sector.

And another …

“This $5.06 company is one of the top 10 providers of power conversion and power management solutions in the world. It reported a 56% increase in sales for its first quarter, and has already handed my readers and 80% gain this year.”

OK, so that one must be Power-One[7] (PWER), which like most of the stocks I’m mentioning is up nicely today. They are no longer anywhere near $5, trading right around $8.50, but they were around $5 back in April as this latest run began … and they did report 56% higher sales in the first quarter, and they do claim to be one of the top ten providers of power conversion and management solutions — they particularly focus on inverters and converters for the green and higher-efficiency market, at least when they market themselves. The shares are not particularly cheap anymore (though they have been not that long ago — the 52-week low was a dollar), and probably because of that and the big runup since April there is a pretty large and growing corps of folks betting against the stock — the short interest is about 12%. That can work in your favor, of course, if there’s a short squeeze and those folks have to cover their bets, but it also means someone’s pretty sure that there’s something weak in PWER’s future.

That’s not the whole list of Zambell’s faves, but I’ll keep looking and dig out some more if there’s interest — in the meantime, let us know if you think there are any winners from this list of small-caps with a comment below.

And if you’ve been a Zambell subscriber, please click here to review Buried Treasure Under $10 for us[8] and let your fellow investors know what you thought. (We’ve had only a few reviews on this one so far,[9] but it’s quite highly ranked at this point) Thanks!

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