Norrep Funds CEO Alex Sasso was interviewed by SmallCapPower (Watch the interview here) on August 26, 2014, and he described why he believes small-cap stocks are “the beautiful asset class.” His Top 2 stock selections that day have gained about 20% each since the time of his interview.
His first top pick was IntertapePolymer Group Inc. (TSX: ITP). The company manufactures industrial products such as tape and plastic wrap for packaging. It’s a simple, old economy-type business yet IntertapePolymer does it well – occupying either the #1 or #2 market leadership position for the products it produces.
At time, Mr. Sasso said he liked the company due to the fact it was consolidating a bunch of its smaller plants into a “super-size plant” in South Carolina. That alone, he believed, will add a significant amount of earnings to its bottom line in 2015. The stock, at the time of the interview, was trading at 13 times trailing earnings for a 31% Return on Equity, which is a measure of a profitability of a company or how much a company is adding to its book value each and every year.
On March 10, 2015, IntertapePolymer Group announced financial results for fiscal 2014, in which its revenue rose 4.0% to $812.7 million, its free cash flow surged 31.0% to $46.3 million, its net debt was reduced by $12.4 million, and it increased its dividend payout by 67%.
Mr. Sasso’s second top pick was Linamar Corporation (TSX: LNR), an auto parts manufacturer. Oddly enough, Linamar benefitted greatly from the 2008 financial crisis as many of its competitors went bankrupt or became financially handicapped, whereas Linamar had a strong balance sheet, was growing its top line, was growing its bottom line, and was asked by many of its customers to go to different geographies to set up plants where its customers were setting up plants. At the time of his interview, Mr. Sasso believed Linamar had a record backlog, record margins, and traded at 16 times trailing earnings with a 19% Return on Equity.
On March 4, 2015, Linamar reported a 16% increase in its 2014 sales to $4.2 billion. Adjusted net earnings for the year, meanwhile, jumped 48% to a record $320.6 million.
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