Bryant Riley's favorite small-cap stocks

Bryant R. Riley is founder and managing member of Riley Investment Management, an investment advisor which provides investment management services. He also is founder and Chairman of B. Riley & Co., a Southern California-based brokerage firm providing research and trading ideas primarily to institutional investors.

Riley serves on the board of directors of Aldila, Inc., Alliance Semiconductor Corp., DDi Corp. and Silicon Storage Technology Inc. He has served as advisor on a variety of M&A engagements, including the sale of Mossimo Inc. to Iconix Brand Group. In February 2007, Riley and a group of investors acquired Oregon-based Country Coach, Inc. from Perris-based National RV Holdings.

Prior to 1997, Riley held a variety of positions in the brokerage industry, primarily as an institutional salesman and trader, including co-head of equity at Los Angeles-based brokerage firm Dabney-Resnick and was a co-founder of Huberman-Riley, a Texas-based brokerage firm. Mr. Riley graduated from Lehigh University in 1989 with a B.S. in finance.

Riley is our tech expert on our small cap round table. He launched his third version of the Cash Rich Tech Stock Index (CRTS) in January. Year-to-date the index is down 2.44%, while the tech laden Nasdaq is down 12.89% and the Russell 2000 is down 7.27%. The first index was launched after the implosion of the tech bubble in 2002 and returned a jaw dropping 326% in just 19 months. It was closed down after that as stocks within the index reached fair value. The second was launched in May 2005 and returned 18.6% in a little under a year. Naturally, to gain some insight into investing in the tech and for some of his favorite names we turned to the mastermind himself, Bryant Riley.

What qualities do you look for specifically in a small-cap stock?  What criterion do you employ?

“We look for strong balance sheets, a product differential, recurring revenue stream or solidly installed base.”

Broadly speaking, what’s your formula for picking winners for these tech stock indices?

“We focus on things that everybody else hates and that people are selling because that’s how you get your best values. You take that and the segment, and find companies that have the best fundamentals. You’ve got to think contrarian . . .

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