The Microcap Speculator

From my family to yours… wishing you a Merry Christmas, Happy Holidays, and Peaceful and Prosperous New Year.

At a holiday party, I was asked what five stocks I would buy if I had to hold them for a year (no trading in and out). Most would fill that charge with a portfolio full of low volatility, low risk, low reward stocks. I would go the opposite direction — take a combination of fairly volatile but potentially very rewarding stocks. Sure, the portfolio would be weighed down by a few losers, but hopefully the home runs would more than make up the difference.

With that aim, and limiting myself to only microcaps, here is my holiday portfolio:

1. Advocat, Inc. [[AVCA]]: With a market cap. of approximately $65M, this nursing home provider trades at roughly a quarter of its trailing revenues. Earnings have fluctuated, but last quarter it earned $.32 per share. At this run rate, Advocat should see modest upside. Operational improvements could drive much stronger advances, and with M&A activity rampant in the sector, a buyout is certainly possible over the next twelve months.
2. Air Industries Group (AIRI.OB): As I have written previously, Air Industries has laid the groundwork for a strong push into the new year. The company plans on rolling up small, fragmented aerospace equipment manufacturers. Its a bit early to tell, but it looks like the company is executing well. At these prices, I like my odds.
3. Arrythmia Technology[[HRT]]: In the past four years, Arrythmia Technology has made three moves from sub-$10 to over $30. Is another in store for 2008? I have no idea, but with the stock trading less than 11 times its annualized last quarter earnings, and about $1 per share in cash, HRT is very cheap for a medical device company.
4. Paragon Technologies [[PTG]]: With a share price of $6.90, over half of which is covered by cash on the balance sheet, earnings of $.24 last quarter, and a strong backlog, PTG offers a very high risk/reward setup. If I had to pick just one, this would probably be it.
5. Synalloy [[SYNL]]: One glance at the chart leaves no doubt that Synalloy is a volatile stock. Shares took a hit recently as Synalloy, a producer of specialty chemicals and fabricated metal products, lost the benefit of nickel pricing surcharges. But Synalloy remains solidly profitable, and should benefit from secular growth in energy and water infrastructure projects.

I have entered this portfolio into Stockpickr, so you can track its performance throughout the year.
DISCLOSURE: I am long all of the stocks mentioned here.