Charge Up Your Portfolio with Small Caps


What are some of the more solid companies you’re excited about these days?
One of them is EnerSys (ENS). In terms of market capitalization, they are a $1.2 billion company. They manufacture industrial batteries. About 51% of their business is in motive power batteries [which power railway, mining, and factory equipment such as forklifts], and 49% of sales are in reserve power batteries, used in utilities and telecom industries, providing backup power for cellular telephone towers and wireless networks. This business has really benefited from the continued build out of the wireless network. That’s one of the drivers of growth.

The business that hasn’t been doing well is the motive power battery business, batteries for vehicles that you’d typically find hauling and moving things inside factories and distribution centers. We’re expecting to see a turn in that business. They have 40% global market share in that space. And as general economic activity picks up, companies will order more of these forklifts and commercial vehicles, buy more new batteries, and replace old ones. EnerSys has a strong balance sheet, and they’re a well-managed company. They’ve done some acquisitions that we believe will help them grow beyond some of the current market estimates. Going forward, we think the company will be able to push through some price increases, helping to expand margins. Our year-end price target for the stock is $34.

So, this would be an investment in the idea that global industrial activity is powering up again. Are other companies taking advantage of this trend?

Buckeye Technologies (BKI), a producer of specialty products based on cellulose, a basic industrial material used to make everything from TV and computer screens to toothpastes, shampoos, and paints. The company has a market capitalization of $552 million. There’s been a tight global inventory situation as a result of capacity to produce being shuttered in the midst of a global recession. Now that industrial activity has begun to improve, inventory in the market is still tight and prices are going up for the materials Buckeye produces. Also, the Chilean earthquake [in late February] shut down 8% of global production. So, right now, there’s an imbalance between the available supply and the demand for cellulose-based products.


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