Profiting Sideways, With the Dow at 14k: Ebix Inc (EBIX), Crocs, Inc. (CROX)

“Homework” question: Which way is revenue trending? Will this product or service continue to be in demand?

The Bronze: Insider ownership under 20%/Market Cap under $2.5B

There are many positive aspects of investing “small” and one is the possibility that your stock will be bought out at a premium, sending shares higher.

Believe it or not, if you want your company to be acquired it also helps to have limited insider ownership as potential acquirers don’t want the headache of unseating “entrenched” management.

All of these companies meet our criteria, but they have unique acquisition propositions. While Steven Madden, Ltd. (NASDAQ:SHOO) has the best brand name and “fan base,” CROX has the scantest insider ownership.

Ebix has relatively high insider ownership (15%), yet it exists in a tech space that is known for acquiring small, yet vital businesses.

Ultimately, it will depend on the priorities of the acquirer and since a buy-out may never happen, the possibility of one should never be a central investment thesis—it’s icing on the cake.

Example:  EPAM Systems Inc (NYSE:EPAM) would have made this list had it not been for the “bronze” metric. This consulting firm, which provides its clients (vendors/tech companies) with software product development services, beat our entire field in ROA (20%) and has a stellar 5yr revenue growth rate of 36.81%.

Insiders own an enormous amount of EPAM, 81%.

But that heavy insider ownership will provide a cushion to the stock price, should the market falter and if you aren’t concerned with “buy-out” speculation EPAM could still be a great opportunity.

Like Korn/Ferry International (NYSE:KFY), (which I recently recommended) it’s a highly specialized consulting firm. They’re both consulting firms, meaning they carry low overhead and this provides a ton of flexibility for down periods in the economy.

So who wins?

In writing this post, I felt that outlining the screening process mattered as much as the companies I found.

Simply put, you’re “nerves” will need to know “why” when the market falls. So the final “Homework” question is simple: what does your stomach say?

That’s who wins. Make sure you’ve hedged your portfolio and swing away—just start small.

Pun intended.

The article Profiting Sideways, With the Dow at 14k originally appeared on Fool.com and is written by Adem Tahiri.

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