Editor's note: As part of our partnership with PBS's Nightly Business Report, TheStreet's Bryan Ashenberg joined NBR on Tuesday (watch video and read transcript here) to highlight small- and mid-cap stock picks for a volatile market.
NEW YORK (TheStreet) -- With market volatility on the rise and the health of the global macroeconomic outlook in question, many investors are looking for a safe haven. Small- and mid-caps are typically among the more speculative types of equities, but even within this universe of stocks, we can find names whose qualities provide some defensive characteristics. Here are three companies worth checking out.
First up is
Healthcare Services Group
. The company is a leading provider of housekeeping, laundry, linen and food services to the long-term care industry and is a high-quality growth play with impressive defensive characteristics.
The company boasts 90%-plus customer renewal rates, a robust balance sheet and a healthy 4.3% dividend. In fact, Healthcare Services Group has raised its dividend for an impressive 32 consecutive quarters.
The company's new foray into food services is providing an extra boost to revenue growth and offers opportunities for continued operating margin expansion. We are bullish on the company because its mix of intriguing growth drivers and defensive industry and stock components make it an attractive and stable investment.
owns and operates wireless communications towers in the U.S., Canada, Puerto Rico and the U.S. Virgin Islands. SBA generates the bulk of its revenue from leasing antenna space on its towers to wireless-service providers and the remainder from providing site-consulting and end-to-end construction services for its wireless-carrier customers.
The basic investment thesis is that the tremendous growth in the demand for mobile broadband is driving the need for greater tower usage. SBA has excellent visibility into its revenue stream, as most leases are executed on a multi-year basis. The wireless tower companies have 3% to 4% annual rent escalators built into most contracts.
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The company's business model has considerable leverage, stemming from the fact that new antenna leases on an existing tower require very little in the way of incremental expenses. Tower companies have high barriers to entry as local zoning laws and land availability help reduce competition. We believe that the company's steady cash flow, U.S.-focused revenue generation and fixed-rent increases continue to offer investors a safe haven in this volatile market.
offers a way to play the next generation of the mobile megatrend because sometimes the best defense is a good offense. We have long recommended stocks that have profited from the sale of mobile phones, but this stock is poised to benefit from both the flood of these phones into the market as well as the data users of these devices will consume.
The company offers a mix of hardware and software solutions that utilize deep packet inspection (DPI) technology to add intelligence to the routing and prioritization of data traffic that could become a profit center for carriers. DPI allows carriers to monitor their quality of service, and we believe they will start to charge for a user's bandwidth, as users
by streaming voice, music, gaming and videos and other "data hogging" applications to their phones. Soon, we believe, you will have to pay to play.
On Monday, Allot Communications reported better-than-expected second-quarter results. Our key impression from the call is that unlike some of its peers, the company is not being affected by a slowdown as it continues to see strong growth ahead. Operating margin totaled 15.2% in the quarter, up from 5.6% last year and 12.6% last quarter, as the company continues to demonstrate positive leverage. The company generated $3 million in cash from operations, and its balance sheet remained strong, with $63.5 million in cash ($2.42 per share) and no debt.
Trading around $15, the stock is expensive, but we are willing to pay the steep valuation for a true growth company that has much potential in a market where pure growth opportunities are becoming increasingly scarce.
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In keeping with TSC's editorial policy, Bryan Ashenberg doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;
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