4 Small-Cap Turnarounds

By David Sterman

The economic slowdown of 2008 and 2009 was especially unkind to stocks of smaller companies. Their shares were the first to be sold off when investors panicked, and many remain out of favor while economic concerns persist.

Indeed many small caps may be well off of their 52-week lows, but remain far from highs seen just a few years ago.

Here's a look at four companies that are moving in the right direction. If the economy can start to improve in 2011, these stocks may see their shares move back to the peaks of a few years ago.

1. Intermec(IN) ($756 million market cap)

This maker of barcode systems had a steady-as-she-goes business until the economic storm hit. Annual sales routinely came in around $800 million to $900 million, and from 2005 to 2008, its shares traded in the $20-to-$30 range. The economic slowdown led to a 26% plunge in sales in 2009, and shares now trade for around $12.

But signs are emerging that sales may finally start to rebound in coming quarters. We got the first sign last week, when barcode distributor ScanSource(SCSC) noted that September quarter sales had surged (Read my article, "3 Stocks for the Small Business Rebound" ). That was a sure sign that small- and medium-sized businesses were finally starting to invest in new equipment. Equally important, Intermec is set to embark on a new product cycle, with plans to report a raft of new profits in the fourth quarter of 2010 and the first quarter of 2011.

You'll know that Intermec's sales are on the mend when retailers start to step up spending again on warehouse automation. Many retailers have been conserving cash in the face of anemic sales. Yet lower expenses are once again leading to rising retail profits, and many of them are long past due in terms of investments in the warehouse inventory monitoring tools that are Intermec's specialty.

If you exclude the company's $3.60 a share in net cash, shares of Intermec trade for just 0.75 times projected 2010 sales, well less than the multiple of two that shares used to garner.

As a final kicker, Intermec holds dozens of patents in the area of radio frequency ID (RFID), which some believe may eventually supplant bar code readers. That hasn't happened yet, but if it does, Intermec would reap ample royalties.