By Numer de Guia It's easy to see why investors have warmed to the small-cap sector this year. While the S&P SmallCap 600 index has gained 1.54% year-to-date through June 4, its large-cap counterpart, the S&P 500 index, has tumbled 9.4%.
But for small-cap investors, the inevitable question is: Can the outperformance continue? Are quality small-cap stocks still out there with good prospects to move even higher?
That's the thrust of this week's screen. We sifted through the stocks in the S&P SmallCap 600 index for those with S&P's top investment rankings of 4 STARS (accumulate) and 5 STARS (buy). Those rankings mean S&P analysts expect these stocks to outperform the overall market over the next 6 months to 12 months.
And now for the "quality" part. Of the 70-plus stocks that fit our first criterion, we looked for the 20 with the highest operating margins (as measured by their earnings before interest and taxes, or EBIT, as a percentage of sales). A strong operating margin -- how much of each dollar (in percentage terms) of sales is realized as operating profit -- can indicate fundamental strength in a business. It can also be a signal that a company maintains a superior competitive position vs. its rivals.
Here are the 20 stocks that made the cut:
Argosy Gaming (AGY)
Black Box (BBOX)
Chicos FAS (CHS)
ESS Technology (ESST)
Evergreen Resources (EVG)
Orthodontic Centers (OCA)
Patina Oil & Gas (POG)
Pharmaceutical Product Development (PPDI)
Renal Care (RCI)
Waste Connections (WCNX)
XTO Energy (XTO) De Guia is a portfolio services analyst for Standard & Poor's