The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (InvestorPlace) -- Small-cap companies can be some of the most innovative and profitable on the market and can bag you big gains. But if you pick the wrong ones and end up with an earnings dud, you can do some serious damage to your portfolio.
Today, I have 10 small-cap stocks for you that you should sell ahead of the companies' earnings announcements this week. These companies are finding it hard to make a profit and are only marginally growing sales or seeing business go to other competitors. This is not the type of movement I like to see in my stocks and whenever a company with these fundamentals pops up on my screen, I immediately send it to the trash.
OM Group Inc. (OMG)OM Group Inc. (OMG) is a producer of cobalt and metals-based powders and specialty chemicals that is seeing very erratic earnings and revenues. While earnings for its industry are forecast to grow 35% this year, earnings for the company are likely to drop by 6%. There are some signs that operations are recovering, but this is the part of the stock market cycle where stocks with stellar earnings tend to outshine those with mediocre ones. Shares have been lifted by the hope that the company has a division supplying chemicals for lithium-ion batteries used in cellphones and electric cars. But that division accounted only for a tiny part of overall sales and it could be years before it becomes an earnings driver. It looks like more bark than bite with OM Group.
California Pizza Kitchen (CPKI)California Pizza Kitchen (CPKI) is neither here nor there when it comes to the restaurant business as it operates or franchises a chain of casual dining restaurants principally in the United States that focus on pizzas, pastas, salads, and other Italian specialties. The pizza business is a crowded field and high gas prices and weak employment are deterring consumers from eating out. This is why earnings for the company are forecast to rise only 6% this year while earnings for the industry will grow 21%. With such mediocre earnings growth the shares are likely to underperform for the rest of 2011.
Caribou Coffee Company (CBOU)Caribou Coffee Company (CBOU) is trying to compete with Starbucks (SBUX), but it does not have either the marketing muscle or the financial backing in order to succeed in overcrowded field. Starbucks itself had to close underperforming stores and is seeing huge competition in NYC from privately-held Pret-a-Manger. Caribou does not do much to differentiate itself from the competition, which is why earnings are forecast to drop 20% in 2011 while the industry is slated to grow by 28%.
RealNetworks (RNWK)RealNetworks (RNWK) is fighting for relevance in the fast-changing technology sector. It used to be a pioneer in the digital audio business with network-delivered digital media products and services worldwide. Its goal is to enable the creation, distribution, and consumption of digital media, but it has been squeezed by leaders in the field like Adobe and Apple. It seems too small to survive on its own and is currently losing money. The company is forecast to make no money in 2011 or 2012. It might be a takeover target, but this is a very long shot not worth taking.
Kite Realty Group Trust (KRG)Kite Realty Group Trust (KRG) is a small-cap real estate investment trust (REIT) with uncertain payout in the struggling retail space. There is an oversupply of retail space in the U.S. due to consumer retrenchment and the popularization of online purchases. The company has been reporting flat funds from operations results -- the better way to gauge REIT's profitability than earnings -- in a recovering economy. The question investors have to ask themselves is if you can't make money when the economy is improving, what would happen if the economy deteriorates? You should definitely stay away from this stock.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV