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3 Beaten-Down Small-Caps That May Soar

Partner Communications, Gleacher & Co. and Information Services Group are expected by analysts to post big gains.
Author:

BOSTON (TheStreet) -- The Russell 2000, a small-cap barometer, has fallen 2.6% during the past three months. But the sell-off in individual stocks has been more pronounced. Here are three that have dropped at least 20%. Analysts predict a big rebound in these shares.

3.

Partner Communications

(PTNR) - Get Report

provides mobile-telecom services in Israel. During the past three years, it has boosted net income 23% a year, on average. The stock has a dividend yield of nearly 14% and a three year dividend growth rate of 57%.

Quarter

: First-quarter profit increased 29% to $91 million, or 58 cents, as revenue grew 27%. The operating margin narrowed from 31% to 27%. Partner has $1.1 million of cash and $869 million of debt, converting to a debt-to-equity ratio of 5.2.

Stock

: Partner has advanced 6.5% in the past year, trailing indices. It trades at a forward price-to-earnings ratio of 2.1, an 84% discount to its peer average. Its PEG ratio, a measure of value relative to growth, of 0.1 signals a 90% discount to fair value.

Consensus

: Of analysts covering Partner, one advises purchasing its shares and two recommend holding them.

RBC

(RY) - Get Report

and

Nomura Holdings

(NMR) - Get Report

offer a target of $22, leaving a potential return of 29%. Partner's quarterly return on equity hit 192%.

2.

Gleacher & Co.

(GLCH)

is an investment bank. The company recently changed its name from Broadpoint Gleacher. Since 2007, it has grown revenue 70% annually, on average. Its shares have tumbled 24% during the past three months.

Quarter

: Gleacher swung to a first-quarter loss of $210,000, or break even per share, from a profit of $5 million, or 6 cents, a year earlier. Revenue climbed 11%. Gleacher has $33 million of cash and $122 million of debt, equaling a debt-to-equity ratio of 0.3.

Stock

: Gleacher has fallen 12% in the past week, trailing U.S. stock benchmarks. It sells for a trailing price-to-earnings ratio of 6.5 and a forward price-to-earnings ratio of 7.8, reflecting 70% and 38% discounts to capital markets peer averages.

Consensus

: Of researchers following Gleacher & Co., all four rate its stock "buy."

KBW

(KBW)

TST Recommends

and

Sandler O'Neill

offer a price target of $7, leaving 134% of potential upside.

EVA Dimensions

and

William Blair

also rank Gleacher & Co. a "buy."

1.

Information Services Group

(III) - Get Report

researches and negotiates with outsourcers on behalf of companies. Its principle subsidiary, TCP, has increased fee revenue 15-fold since 1996. Value-oriented hedge fund

Pine River Capital

recently built a stake in the company.

Quarter

: First-quarter net income decreased 15% to $460,000, and earnings per share tumbled 50% to 1 cent. Revenue inched up 1.6%. The operating margin declined from 6% to 4.8%. The balance sheet stores $38 million of cash and $70 million of debt.

Stock

: ISG has dropped 33% during the past 12 months, underperforming U.S. indices. It trades at a forward price-to-earnings ratio of 6.3, a price-to-book ratio of 0.6 and a price-to-sales ratio of 0.6, 62%, 91% and 82% discounts to industry averages.

Consensus

: Of firms evaluating Information Services Group, all three advocate purchasing its shares.

Deutsche Bank

(DB) - Get Report

predicts that the stock will more than double to $5.

Lazard Capital Markets

forecasts that the shares will rise 62% to $4.

-- Reported by Jake Lynch in Boston.

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