James Dennin, Kapitall: Today's screen of stocks under 10 dollars looks for plays with dividend yields and extremely high ROE.
In the world of small cap investing, it's important to be even more careful than usual. Small cap companies can make for great investments, because they yield the greatest potential for return. But they are also the riskiest: a smaller company is in fewer markets and has fewer customers, so it's more likely that a single market catalyst will impact their business.
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There are, however, lots of reasons that investors shouldn't rule out this class of stocks. For one, diversification is key, and in boom markets riskier stocks tend to perform disproportionately well compared to more cautious ones.
Besides, there are other reasons to suggest that small caps will perform very well this year. Small caps
perform better in a high-inflation environment. And right now, corporate America has a lot of cash on hand which it's getting ready to start deploying. This suggests that in 2014, corporate acquisitions are more likely.
We built a list of small cap stocks under 10 dollars that also had a few other desirable characteristics in common. For one, all the companies have at least some sort of dividend, which is particularly impressive in stocks of this size. It means they're already generating enough profits to be able to share some with their investors.
We also looked for companies that have generated at least a 20% return on equity last year. This means that the companies were very efficient at generating profits. Since borrowing money can inflate your ROE, we also made sure none of the companies were holding too much debt. With the exception of
Air Industries Group (AIRI)
, all of the companies in the screen hold no long term debt.
Click on the interactive chart below to view returns over time.
Do you see investing opportunities in profitable small cap stocks? Use the list below to begin your own analysis.