Our Small-Cap Stars represent those small-cap companies that feature fundamentals that we believe give them a distinct chance of success. Their businesses have a lot in common with the most successful small caps in each of their respective sectors. And the formula’s been a strong one in 2013, with the total performance of our Small-Cap Stars portfolio exceeding 30 percent.
But who are the most successful companies on the list? Year-to-date, who are the biggest stars of them all? Which of these companies have Jiminy Cricket belting out the hits, huh? Well, here they are, the three biggest stars of 2013 so far.
Lannett Company (LCI)
Market Cap: $821 million
YTD Performance: 311.79 percent
Founded in 1942, Philadelphia’s Lannett Company makes generic drugs that match the performance on brand-name drugs. Normally, the success or failure of a small-cap pharma company is fickle at best, hinging on the success or failure of one or two clinical trials. Investors are forced to wait on news about FDA approvals that will result in either dramatic spikes or steep fall-offs in value. Lannett, however, operates outside that boom-and-bust world by operating in the less-sexy but more-stable generics markets.
The company’s impressive returns in 2013 are made all the more so by the fact that the company announced plans to issue nearly 6 million new shares. The price for the underwritten public offering, which is about 20 percent of its current float, was announced on October 4 at $18, which was a 14 percent discount on the previous day’s closing price of almost $21. However, the markets clearly seem to like Lannett and what it could do with the $75 million it raised with the offering five days later.
And Lannett’s provided the recent earnings beats to give investors reason to believe. On September 11, it reported Q4 2013 earnings of $0.12 a share, well ahead of Zacks consensus estimates of $0.07 a share. More impressive, its full-year earnings of $0.43 cents a share ahead of the Zacks consensus estimate of $0.41 a share. And for those noting that a $0.02 a share beat for full-year earnings really isn’t all that impressive, it should be noted that the Zacks consensus estimate was for a $0.41 a share LOSS, making $0.43 a share in profits a pretty stellar year.
Gray Television, Inc. (GTN)
Market Cap: $490.04 million
YTD Performance: 269 percent
The focus in today’s media market is pretty clearly not broadcast. With new distribution models driving companies like Netflix (NFLX) and Google (GOOG) to big profits, it’s easy to start looking right past any television company you come across. However, as is often the case in investing, each individual company is its own unique snowflake, and for every macro trend you find, there’s probably a company out there that’s succeeding despite a crashing segment or industry.
And one such company could be Gray Television, which has more than tripled in value since the start of the year despite featuring offerings that are pretty clearly of the 20th century variety. Gray currently owns 41 television stations serving small- and mid-size markets, with Knoxville, TN ranking as its biggest market. However, Gray clearly has a model in place that’s making money. And it should continue to do so with the deal it signed with DISH Network (DISH) in mid-October to
“Dish and Gray worked together on behalf of customers to reach a deal,” said Dish Network’s director of programming Sruta Vootukuru, Dish director of programming. “Together, Dish and Gray serve viewers with local news and information, as well as network programming, and that will continue under this long—term agreement.”
“Gray Television and DISH reached a long—term, mutually beneficial agreement in a professional and respectful manner,” said Gray TV’s SVP of business development Kevin Latek. “The DISH team has moved quickly to facilitate this deal and those quiet efforts enhance local service for our mutual customers in some of the smallest markets in the country.”
Media General, Inc. (MEG)
Market Cap: $401.3 million
YTD Performance: 227.64 percent
As it would turn out, not a company founded by a particularly narcissistic Megan. No, Richmond, VA’s Media General can actually trace its history all the way back to 1940 when it was founded after Richmond’s two newspapers, the Times-Dispatch and News Leader merged to form Richmond Newspapers. But, don’t worry, Media General is not a newspaper company. I repeat, NOT a newspaper company. The company evolved over time, incorporating in 1969, and acquiring different properties across media. These days, Media General is a news and information company that owns, among other things, 18 network-affiliated television stations and 30 total stations, accounting for 14 percent of viewers nationwide.
And, just to soothe any concerns, one should note that Media General sold its newspaper division to Berkshire Hathaway ($BRK.A) in May of 2012. In fact, the company was in rough shape prior to bailing out of the newspaper game, with Chairman and former-CEO J. Stewart Bryan III saying that the company had to either sell its newspapers or face a potential bankruptcy.
Media General’s been making moves in 2013, the most notable of which came in June when the company merged with Young Broadcasting. It expands Media General’s reach and, while keeping the Media General name, it gives the majority of Media General’s shares to Young Broadcasting’s shareholders.