Selectivity, lower growth expectations key in small-cap stock picking, says Roth's Martin

SmallCapInvestor.com reporter Jennifer Schonberger is reporting from the 20th Roth Capital Partners Annual OC Growth Stock Conference this week in Dana Point, Calif. The conference features presentations from more than 300 small-cap companies.

Selectivity amid lower growth expectations is key in profiting from small-cap stocks in today’s environment, said Jeff Martin, assistant director of research at Roth Capital.

“A small cap to me is about finding growth opportunities,” said Martin, in an interview at the 20th annual Roth OC Growth Stock Conference this week in Dana Point, Calif.  Martin said he considers a growth company as one that has 20% or greater revenue increases. In the current tempered economic environment, however, Martin said he has downwardly revised his expectations for revenue growth to 10% to 15%

“There will be pockets of value within the small-cap universe that fair well,” Martin said. “You’ve got to be selective based on your opinion of the economy and the direction of the economy.”

“You have to ask yourself: does [the company’s] strategy in the intermediate to long term offer a three- to five-year growth rate within that 12% or greater range?” he said. “You start by picking the right sectors: health care, energy, defense … and then you pick the best companies within those sectors.”

Outside of the domestic market, Martin’s favorite growth countries are China and India. Martin says investing in India is only going to become easier as Indian regulatory bodies are looking to enable foreign investment moreso than they were five years ago.

Vietnam is also a spot that some investors are dipping into, according to Martin. He said Vietnam is currently an investment destination for investors looking to play on outsourcing.

“India was a big (outsourcing) trend 10 years ago,” said Martin. “China will be more and more a trend in outsourcing — and not just outsourcing of manufacturing, but outsourcing of services.”

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