A Small-Cap Stock With Very Big Potential

DELAFIELD, Wis. (Stockpickr) -- My favorite way to trade small-cap stocks is to look for beaten-down names with potential catalysts that also have bullish charts or technical setups.

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Many traders and investors avoid small-cap stocks because they think they're just too risky to play. But some of the largest gains can come from small-cap stocks, and they can happen in very short timeframes. These are the type of gains that can build great wealth, but like anything else in the markets, they must be attacked with a disciplined trading approach.

To illustrate how great trading small-caps can be, take a look at the returns investors have racked up in small-cap alternative energy player Plug Power (PLUG) over the last six months. This small-cap stock was trading at 45 cents per share last November and have since exploded higher, tagging a new 52-week high at $11.72 a share. Shares of PLUG have racked up an incredible gain of 1,017% over the last six months. You're not going to capture gains like that in shares of Microsoft (MSFT) or Apple (AAPL).

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One small-cap stock that could have monster potential from current levels is American Apparel (APP), which designs, manufactures, distributes, retails and sells branded fashion basic apparel products, and clothing and accessories for women, men, children, and babies. This stock is a small-cap equity all around since its current market cap is just $92 million and it enterprise value is $346 million. Shares of American Apparel have been hit hard by the bears so far in 2014, with the stock down sharply by 56%.

Shares of American Apparel have been slammed lower by the bears for good reason. The CEO, Dov Charney, is very controversial, and the company has failed to execute on its business plan. The firm has been in such dire straits that the risk of defaulting on its debt was a serious concern. However, American Apparel recently won the confidence of FiveT Capital AG, a Switzerland-based asset management firm that has accumulated a 12.69% stake in the struggling retailer. FiveT took its stake in American Apparel by purchasing 26 million shares from the company's recent stock offering of 61 million shares at 50 cents per share. That offering has helped the company raise over $28 million in cash to help pay down its high-interest debt. FiveT's large stake could be a vote of confidence that the company is on the right track to a successful turnaround story.

American Apparel recently had more good news. Last week, the New York Stock Exchange said that American Apparel was in compliance with the continued listing standards of NYSE MKT. American Apparel had been warned in February that it could be delisted if it didn't get its financial situation in order, but it now looks like the offering has taken care of that concern.

American Apparel also recently announced its preliminary sales for the month ended on March 31. The firm said comparable sales dropped 5%, but its net sales from its online business were up 16%. Wholesale net sales increased 11% for the month, and total sales were $49.6 million, which was unchanged vs. the same period in 2013. American Apparel is clearly driving online sales by using popular social media sites like Instagram, where it has 921,000 followers and Twitter, where it has 481,000 followers.

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