The basic materials sector is currently a reasonable place to look if one is interested in small-cap investing.
A great deal of this can be attributed to geology. In the oil and gas industries, upstream and midstream companies in particular have been quick to the draw in securing themselves a foothold in the US's many and growing shale prospects. While the surge in shale oil and gas production has been a fairly constant theme in 2013, however, it would probably be a good idea to keep in mind that the "shale boom" that investors are continuously being told is currently underway is just that, a boom, and one that has already been characterized as a bubble by many skeptics.
Be that as it may, the rush to tap shale-based reserves accross the country does is a trend that looks as though it will continue to play out for at least the short-to-near term. In this climate during which so many small companies have been able to boast of outstanding performance, investors looking for small-cap plays in basic materials will need to use metrics other than performance in order to pick the best equity investments.
Volatility is a metric used to measure the ammount of uncertainty or risk of a particular stock, industry, sector, or index by factoring in the size of changes in value. High volatility is typically a sign of higher risk, as it means a greater likelihood of shares moving dramatically in either direction on short notice. Stocks with lower volatility have more stable and predictable prices that change more gradually and over longer periods of time.
One of the best ways of measuring volatility is the beta ratio, a figure that describes the volatility of a given stock relative to the returns of the index or exchange on which it is traded. Thus, a stock with a beta ratio of 1.1 is gaining 110 percent for every 100 percent move of the overall index. Converseley, a beta ratio of 0.9 indicates that a stock is gaining 90 percent for every 100 percent gain in the overall index.
The following six stocks have been selected from the basic materials sector based on size (small-cap), year-to-date performance (up at least 20 percen), and a beta ratio smaller than 1:
Balchem Corp. (BCPC) – The New Hampton, New York-based chemicals major develops and produces specialty ingredients for a variety of industries ranging from pharmaceutical, to medicine, to nutritional supplements and livestock feed.
Market Cap: $1.63 billion
YTD Gain: 52 percent
Legacy Reserves Lp (LGCY) – The Midland, Texas-based Legacy Reserves is an oil and gas drilling and exploration company that acquires and develops natural gas properties mostly in the Permian Basin, but also in Montana, North Dakota, Wyoming, Texas, Montana, and Oklahoma, and has proven reserves of some $83 million barrels of crude oil equivalent.
Market Cap: $1.58 billion
YTD Gain: 23.60 percent
Exterran Partners L.P. (EXLP) – The Houston, Texas-based company contracts out a full range of services to the up and mid-stream portions of the natural gas industry.
Market Cap: $1.4 billion
YTD Gain: 48.30 percent
Martin Midstream Partners LP (MMLP) – The Kilgore, Texas-based company provides storage and maritime transportation services to oil and natural gas companies as well as certain chemical manufacturers. It also has a sulfur services segment that takes the sulfur left behind in the processing of crude oil and turns it into fertilizer and other industrial products.
Market Cap: $1.23 billion
YTD Gain: 57.70 percent
WD-40 Company (WDFC) – The San Diego, California-based company is a household name with its specialty household problem-solving and cleaning products, but also counts farming, construction, jewelry, and industrial production among the many industries it services.
Market Cap: $1 billion
YTD Gain: 40 percent
Isramco Inc. (ISRL) – The Houston, Texas-based independent oil and gas producer locates and develops offshore prospects in Israel, and operates onshore in the United States, mostly in Texas and New Mexico. Isramco was b , and is estimates its total proven reserves at some 36,000 barrels of oil equivalent, the majority of which consists of natural gas and liquid natural gas.
Market Cap: $344.45 million
YTD Gain: 21.90 percent