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Four Niche Stocks for Defensive Investors

When investors go look for safety plays – something we’ll see more often unless the economic news improves -- they often seek out big name companies for comfort and steady returns.

But for growth in difficult times, sometimes players with smaller market caps have more to offer. Some niche companies that made it through the worst of the recession now find pent-up demand for products pushing revenues and profits higher. For investors, these companies represent the potential for gains even if full-recovery is delayed.

We looked through the YCharts stock screener for smaller companies with focused markets and growing revenues. For added safety, we weeded out the companies that lacked solid cash positions or were loaded with debt. Here’s a look at four companies, each pegged as undervalued by YCharts Pro, that fit the criteria.

Alamo Group (ALG) makes serious mowers, like the long-armed kind the state uses to mow highway medians, or the kind pulled behind tractors into fields. It also makes street sweepers, backhoes, and all that snow-clearing equipment the Northeast needed more of last winter. The company designs, manufactures, sells and services all of this around the world.

Sales at Alamo’s took a dive like everyone else’s in 2008. But budget cuts or not, the streets have to be cleared, and replacing worn-out equipment can only be put off for so long. Alamo’s overall orders picked up this year, helped mightily by high crop prices that are keeping its agricultural customers busy. The rest of the year is looking particularly good for that division. The best thing about Alamo’s recent revenue growth has been the company’s ability to turn it into even bigger earnings gains.

Alamo Group Earnings per Share (TTM) Stock Chart

Alamo Group Earnings per Share (TTM) Stock Chart by YCharts

YCharts Pro gives Alamo perfect scores for both fundamentals and relative value.

While competitor OnStar was getting sucked into General Motors’ (GM) bankruptcy problems, Ituran Location and Control (ITRN) was carving a niche in thwarting car thieves. Ituran makes and services wireless systems that track and disable stolen vehicles. Much of Ituran’s growth comes from sales to overseas insurers, particularly in Israel, Brazil and Argentina. Revenues have grown about 62% over the past five years. The company has virtually no debt, a big cash pile and impressive profit margins.

Ituran Location and Control Gross Profit Margin Stock Chart

Ituran Location and Control Gross Profit Margin Stock Chart by YCharts

With only $147.8 million in annual revenues, and established footing around the globe, the company has a long way to grow before saturating its markets.

Communications company Black Box Corp. (BBOX) is coming off a good year few seemed to have noticed. Profit margins improved, and sales and earnings moved higher.

Black Box Corporation Revenues (TTM) Stock Chart

Black Box Corporation Revenues (TTM) Stock Chart by YCharts

The company is forecasting about 7% revenue growth in the coming year paired with triple that amount in earnings growth. Black Box sells and installs communications equipment for businesses. It also picks up contract work from the large providers like Verizon (VZ) and Accenture (ACN), so it helps that their sales have been good too. Black Box's PE ratio is at about 11.84 times past earnings, making them about as cheap as they’ve ever been.

Ampco Pittsburgh (AP) is a rarity in the steel industry because it makes the mill rolls used by major steel manufacturers as well as air conditioning and heating equipment used by commercial buildings. It’s also a rarity in the small caps because it steadily pays a good dividend. Right now, its dividend yield is about 3.1%. The company’s sales lately have benefited from both the steel industry recovery and pent-up demand for HVAC improvements. New production in China is expected to speed up growth in the coming year.

Ampco-Pittsburgh Corporation Revenues Stock Chart

Ampco-Pittsburgh Corporation Revenues Stock Chart by YCharts

Ampco Pittsburgh shares are lightly followed and prone to swings. YCharts Pro gives the company top marks for fundamentals, and puts the share price now as slightly undervalued.

Dee Gill is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings, stock screener and portfolio strategies.

Read more articles about: Investing Ideas  

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