Small-Cap Spotlight: Dawson Looks Awesome

Frank mentioned the company's strong EBITDA gains, but I'd also note that EBITDA margins have been on a steady uptrend for years now, reaching 24% in 2007 from 16% in 2004, and just 2.4% in 2002, according to Capital IQ.

Obviously, the steady rise in oil prices has played a part in Dawson's success, and anyone who doesn't believe oil prices will stay high for years to come may want to pass on this name. But I admit to being fully on the side of the bulls when it comes to long-term crude prices. As such, Dawson is in the "sweet spot" when it comes to providing a service that will continue to be in high demand as drillers look to find every last source of oil in North America over the next decade.

In my view, Dawson offers investors much bigger upside potential over the next year than large-cap names like Halliburton(HAL) and major integrated oil companies like Exxon Mobil(XOM).

I also like this pick in light of what is shaping up to be an ugly and uncertain stock market in 2008.

Investors looking for new picks right now need to be especially careful to stay away from certain sectors. Stocks connected to housing and consumer spending are virtually untouchable, and even the financial sector has very few names that are safe from the deteriorating economic outlook. From cyclicals to tech names, it's difficult to find stocks that can post gains in the current environment.

In addition to Dawson, and as a New Year bonus for our readers, I would also suggest that investors look at the larger and more geographically diverse CGGVeritas(CGV), the product of last year's merger between Compagnie Generale de Geophysique and Veritas DGC. This mid-cap stock trades at just 17.5 times 2008 consensus estimates despite expected earnings growth of 23%.

Unlike Dawson, CGGVeritas is not a pure services company, as about 40% of last year's sales came from its products segment (I'm not quite as bullish on equipment manufacturers). However, I am a big fan of the company's global reach, with operations on six continents.

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