I have recently been studying small cap stocks, and I found two stocks in particular to review. Keep in mind, these are not the largest, or the most profitable stocks, but smaller companies with fewer employees who are publicly traded that are not covered by Wall Street analysts. Most people do not know that these are public companies you can invest in – or anything else about them, for that matter. Both can be found in the consumer goods sector, generally, and the textile, apparel, footwear and accessories subsector, specifically.
Weyco Group (WEYS) Market Cap: $315M
Today's Trading Price: $29.08
About the Company: Weyco Group ($WEYS) designs and markets footwear for men, women, and children under the Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters, and Umi brand names. It offers mid-priced leather dress shoes and casual footwear of man-made materials or leather; and outdoor boots, shoes, and sandals. The company wholesales its products to footwear, department, and specialty stores primarily in the United States and Canada. As of December 31, 2014, it had 16 company-owned retail stores in the United States, as well as an Internet business.
Analysis: This stock is truly undiscovered, and it is also very thinly traded – but the average investor doesn’t need to be concerned with skinny traders. It works the same for everyone who enters and exits, and the market impact or toll to buy or sell is the same for everyone. Don’t shy away because of a lack of liquidity, do your research and have a plan going in. If you want liquidity, you can trade the beer wagon stocks that move slowly and don’t have the growth that’s needed for investors.
Positive: Shares in WEYS have been testing new highs in 2015,and it would be simple for them to trade above the $30 level and stay there. Also, so few investors know how solid the brands are under Weyco that the company has largely flown under the radar in the world of investing. Over the years, I have found that these companies usually get discovered…and good things happen.
Negative: The issue with a lack of liquidity is the volatility that comes with it, and when anyone exits the stock, it pushes the valuation out of the normal band it trades in. At 12,000 shares traded per day, you need an appointment to get in or out, which scares many investors and investing models away from owning this company.
Rocky Brands (RCKY) Market Cap: $152M
Today's Trading Price: $20.15
About the Company: Rocky Brands, Inc. ($RCKY) designs, manufactures, and markets footwear and apparel under the Rocky, Georgia Boot, Durango, Lehigh, Creative Recreation, and Michelin brand names in the United States, Canada, and internationally. It operates through three segments: Wholesale, Retail, and Military.
The Wholesale segment offers products in approximately 10,000 retail locations. The Retail segment sells its products directly to consumers through its consumer and business websites; Lehigh Outfitters mobile and retail stores; and outlet store. The Military segment focuses on building footwear contracts with the US military. The company offers footwear, apparel, and accessory items for hunting, fishing, camping, or hiking enthusiasts; industrial and construction workers; workers in the hospitality industry, such as restaurants or hotels; and law enforcement, security personnel, and postal employees, as well as to military personnel, farmers, ranchers, and fashion minded urban consumers. Rocky Brands, Inc. was founded in 1932 and is based in Nelsonville, Ohio.
Analysis: RCKY is having a great 2015 – up more than 50%, and making new highs after years of sideways dead money investor frustration. When breaking down where the profits come from, you can see great diversity in earnings and recognized brands within the company. Shares are liquid enough for institutional investors to enter and exit, which keeps larger investors interested as margins get better. A new high always grabs the attention of trading algorithms.
Positive: I like that the company sells to the government – it can be a port in the storm when the economy has jitters, and stock markets have been on an elongated bull run since 2009. Further, having stocks with diversity in sales – from government to pockets of retail demographic – is always a positive sign.
Negative: Insiders and directors have a history of selling shares when the stock gets near these stock levels. That, in itself, doesn’t really put pressure on the shares, though. RCKY can absorb this selling, it is the signal this normal transaction can send to the marketplace.
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