Under the Radar: Orchids Resists Recession

"Under the Radar" is a daily feature that uncovers little-known companies worthy of investors' consideration. Check in at 5 every morning to find out about stocks that tend to beat their bigger brethren.

Defensive stocks, which tend to resist market declines, are attractive again after the S&P 500 Index dropped 5.5% since mid-June.

It's easy to identify the blue-chip winners, like Wal-Mart(WMT Quote), McDonald's(MCD Quote) and Kraft(KFT Quote). Smaller players that stand to benefit are going unrecognized.

Pryor, Okla.-based Orchids Paper Products(TIS Quote) is a micro-cap household-products maker that could strengthen your portfolio. The company has been around only since 1998. But it has proven an immunity to recessions. Orchids Paper Products sells private-label, or "generic" brand, tissues, paper towels, toilet paper and napkins.

U.S. consumers are trying to cut costs and reduce consumption. So when it comes time to restock paper products, families are opting for discount brands. Orchids has benefited from this trade-down effect and has achieved year-over-year and sequential earnings per share growth for five quarters.

Fiscal first-quarter revenue ascended 17% to $24 million as net income surged 358% to $2.8 million and earnings per share climbed 366% to 42 cents.

The company's capital structure is sound with just $22 million of debt and $37 million in equity. The cash balance is larger than last year's first quarter, when it stood at zero. But $1.5 million of reserves is a dangerously low amount, even for a small company.

Some investors have recognized Orchids' strengths, boosting its stock price 127% so far in 2009. But the company will retain its upward momentum if consumers continue to retrench. The stock trades at a price-to-earnings ratio of 18, indicating a premium to the market.