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Best Small Cap Stocks Of 2008

Posted: Jan 06, 2009 13:57 PM by Eric Fox

Tickers in this Article: TWP, FINL, AFAM, IDIX, TSYS

Although the S&P 500 turned in its worst performance since 1937, declining 38.5% in 2008, many issues managed to finish the year with large gains. The top five performing small cap stocks in 2008 had little in common and contained a few surprises, including a retailer and a building supplier. (Find out why small caps have more potential for growth; read Small Caps Boast Big Advantages and Why Warren Buffett Envies You.)

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The Top Five

TeleCommunication Systems (Nasdaq:TSYS)
This company, which sells software to enable carriers to provide text messaging and other services to customers, was up 141% in 2008. It also has a business that provides information technology software and services to the federal government using satellites. Its last quarter ended September 30. Year 2008 was a strong one with the company reporting revenue of $56.5 million, up 29% over the previous year. The company has beat analyst estimates the last four quarters. It seems to have benefited from exposure to text messaging - one of the highest growth and ubiquitous functions on a cell phone - along with the stability of government revenues.

Idenix Pharmaceuticals (Nasdaq:IDIX)
This biopharmaceutical company develops drugs for treating viruses and other infectious diseases. The company is currently unprofitable with an operating loss in each of the last four quarters. One bright spot on the horizon is a line of drugs for treating hepatitis C and HIV. Idenix was up 114% in 2008.

Almost Family (Nasdaq:AFAM)
This company provides home health care, including nursing and other services, to individuals in their homes. Earnings momentum powered this stock up 132% in 2008. The company has beat earnings estimates four straight quarters and is expected to have earnings per share (EPS) of $2.50 in 2009, up from $2.09 in 2008, according to Thomson Financial Networks.

Finish Line (Nasdaq:FINL)
It’s hard to believe this retailer was up 131% in 2008 considering everything the retail sector endured in 2008. However, this stock started 2008 at a price in the low single digits, so a $4 move up might not be as great an achievement as the others on this list. At one point in September the stock was up 600%. The company should be complemented for increasing same-store sales by 4.7% in the second fiscal quarter. (Read more on how to evaluate these types of investments in Analyzing Retail Stocks.)

Trex Co. (NYSE:TWP)
Investors might think this company is even less likely than a retailer to be on the list of top-performing stocks, considering that it supplies building materials for use in decks, railing and fences. However, it was up 93% in 2008. A closer look shows that the company supplies “wood alternative” materials made of recycled plastic and waste wood. Trex has beat earnings estimates the last three quarters, and 2009 EPS is expected to be $1.04, up from 97 cents in 2008. It would seem that consumers' urge to go “green” may have overcome the negative demand trends that an investor would expect at a company partially exposed to the housing market.

Bottom Line
The list of best-performing stocks in 2008 had a few surprises, proving that investors should not exclude an entire sector for their investing universe. Outperformance can be found in some unlikely places.

By Eric Fox

Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.

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