Happy re-entry day! The Thanksgiving holiday break didn’t give investors a lot of reasons to give thanks this year, but your friendly neighborhood Gumshoe is back in the saddle and ready to sniff out some more teaser picks for you.

And since most of the newsletters jumped on the “Black Friday” and “Cyber Monday” themes in their marketing, with special “sale” prices on their products, we’ve got plenty to choose from — but my eyes alit upon a Motley Fool “Cyber Monday” sale pitch this morning, so we’ll start with that.

The Foolies see an opportunity in microcap stocks, which are the truly small companies that big newsletters really can’t recommend — it seems like their cutoff is a $1 billion market cap for this new portfolio they’re selling, and probably a lot of the picks will be well below $500 million. And they think that part of the market is looking appealing… here’s a little taste of the ad:

“… we might be looking at the greatest microcaps buying opportunity of the past 20 years.

“A recent Bank of America analysis of stock valuations showed that smaller stocks are ‘historically cheap.’

“As cheap as they’ve been in 20 years!

“In other words, the data shows we may be facing a generational opportunity to pay historically low prices for some of the highest quality small stocks.”

And this is a teaser pitch about a new product, not one of their existing services that buys smaller stocks. They’re selling access to Everlasting Portfolio: Firecrackers, which is one of their “portfolio” services that are sold as upgrades to the core investment newsletters like Stock Advisor and Rule Breakers… and as with all the other high-end upgrade services from the Fool (and most such services from other publichsers), it’s costly and nonrefundable ($1,398 for the first year, renews at probably $1,999 or whatever the price is at that point).

The “portfolio” services at the Motley Fool are a little different from traditional investment newsletters — they don’t come out with a monthly issue that recommends one or two stocks and presents the research, they give you access to a portfolio of stocks up front, sometimes released in tranches over time, with some basic background on the investments and follow-up coverage if they recommend buying or selling or there are major updates about these companies.

The Fool says they’ll be making 49 recommendations in this portfolio, and it sounds as though a big chunk of them will be in the portfolio on launch day, tomorrow, when the Fool actually buys into these companies with their own money. That’s a lot of stocks. I have a ridiculous portfolio and own more than 50 stocks myself, but I bought them over the course of 15 or 20 years, I can’t imagine buying 49 of them all at once… or even buying 10 or 25 in a month.

Still, that is very much the Fool way — count on the power laws and the Pareto Principle to work out if the sample size is big enough and you’ve done a good enough job of building a list of high-potential stocks — most of the return they make will be, if past is prologue, from four or five stocks that do very well and make up for the fact that probably half of the stocks in the portfolio do very poorly. And regardless of what might be implied in the teaser pitches, they don’t know which of the 49 has the best potential to be a huge winner — if they did, of course, they wouldn’t have to buy 49 stocks.

But they do tease a couple stocks, so let’s see if we can identify them for you. After all, not everyone can or should pony up $2,000 a year for advice about a portfolio of 49 small cap stocks, but everyone might be interested in adding a few such companies to their “maybe” list.

The criteria that they use in selecting stocks are similar to long-held Fool priorities, and are perfectly reasonable reasons to find a company interesting:

• Founder-led with significant inside ownership.
• Growing revenues at a rapid clip.
• Profitable or on a clear pathway to profitability.
• Trading at a mouth-wateringly attractive valuation.

So… what is the first stock they really hint at for this portfolio? Here are the clues from an email I received:

“… just a few days ago, a microcap stock came across my desk that had been identified by our Everlasting: Firecrackers team.

“And, well, it’s everything John Deere and Caterpillar are not.

“Unlike these “obvious” infrastructure stocks, it’s basically unknown.

“I mean, it’s headquartered a couple counties from where I live, and I’d never heard of it.

“What’s more, this stock is tiny.

“Like, $171 million market cap tiny.”

OK, so it’s some kind of infrastructure-related company, and it’s headquartered somewhere in or near the DMV (that’s the District of Columbia, Maryland and Virginia). And it’s surely small, with a market cap near $200 million… and that “roads and bridges” infrastructure bill did pass, which should see a meaningful uptick in construction and maintenance spending over the next five years, with the fast growing areas from Florida to Maryland probably getting a good chunk of that money, so the backdrop seems pretty reasonable. What other clues do we get?

“… not only does it specialize in several areas that the infrastructure bill is targeting – including construction and highways…

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“But it’s so small that, were it to secure just 2% of the road and bridge funding that was just signed into law…

“Just 2%!…

“It would grow business revenue by a startling 43 times!”

That’s just a copywriter trick, using a small-sounding percentage to make a bizarrely wild forecast sound conservative — there is almost no way, of course, that a small company in the heavy infrastructure business will suddenly get a 43X boost in revenues. We’re not talking about a website quickly seeing traffic grow by 43X, we’re talking about heavy stuff and factories and trucks and moving stone and hiring people and controlled explosions and rebar and God knows what else, you can’t just 43X that in the course of a few years. I’d guess that most factories can’t easily even double output in a year.

So yes, we know 43X is a ridiculous pipe-dream tease… but that doesn’t mean it’s a bad investment, just that we have to set our expectations on something more rational before we go off willy-nilly and put $1,398 on our credit card and take out a home-equity loan to buy shares of this stock.

And what is that secret stock? Well, that’s a little bit light on the specifics… but with those clues, the Thinkolator has a very high degree of certainty that they’re pitching Smith-Midland (SMID), a concrete company in Northern Virginia. It did have a market cap of $172 million on November 22, when the Fool apparently pulled this data (it’s a little lower now, after the market pressures last week), it is very much levered to the highway construction business with their precast concrete products, and the stock is pretty reasonably valued… though saying that they’ve been on any kind of lusty growth trajectory is a bit of a stretch.

I can’t say I came into this morning knowing much about the precast concrete business, but Smith-Midland is a pretty interesting company… and for a microcap stock, they do a good job of explaining their business to investors, which can either be a good sign of investor-focused management, or a bad sign of an overly promotional business. Given that the company has been managed by the same family for three generations, and the current CEO, Ashley Smith, did some insider buying a couple months ago, I’d lean toward the positive on that front.

From skimming through their materials, including their recent Investor Presentation, it looks like the company is trying to break out of their long-held role as a significant regional provider of precast concrete products, whether that’s modular buildings or walls for skyscrapers or highway barriers, and expand both by getting into product rentals (particularly for their highway barriers, which I still think of as “Jersey Barriers”), and by licensing some of their product designs and technologies to other concrete companies. That’s interesting because growth is otherwise somewhat expensive and difficult to come by — there’s a limit to how far you can profitably ship heavy concrete products, which is why it’s a regional business, but if they have capacity to grow revenue and improve margins both through building their own rental fleet of highway barriers (theirs are called JJ-Hook barriers, though I don’t really know if any one design is more valuable than others), and by licensing out their cladding systems (SlenderWall) and their modular buildings (Easi-Set) to producers in other regions, maybe they can ramp up the growth a bit.

Since that potential is there at the same time that we’re about to see a substantial increase in highway projects, and when multi-family housing development remains strong, maybe they really can bust out to a higher level of revenue. It’s encouraging that they’ve increased the size of their North Carolina plant recently, and have meaningfully boosted the inventory of JJ-Hook barriers with an eye on big highway projects coming, and it’s even good news that they bought a few more acres of land around their Midland, VA headquarters, since it indicates they need the space (maybe even just to store JJ-Hook barriers).

I’d keep your expectations a little bit in check, however. This company has been fairly steady but has only grown the top line by about 25% over the past five years (from about $40 million to $50 million). They have certainly improved profitability, and have already broken out to a strong new high in earnings per share, getting to $1.58 now over the past four quarters, for a trailing PE of about 20, and they’ve never come close to that level of earnings in 25 years, so things are looking up… but that doesn’t mean they’re going to suddenly grow to the moon. I like the founding family leadership (and ownership), I like the growing licensing business (even though it’s not yet a big part of revenues, that’s where they can scale up growth if it works out), and I like the immediate potential of the rental strategy for their highway barriers. I don’t own shares, but I can see Smith-Midland having a pretty strong future.

And with that, dear friends, I’ll pass it back to you for your perusal… think a precast concrete microcap is ripe for your portfolio? See other red flags we should be aware of, or prefer other little infrastructure stocks? Let us know with a comment below. Thanks for reading!