Small Caps and Penny Stocks Worth a Look - UIS, SIRI, LUV, SLAB, KIRK

The one thing I love more than a stock success story is a stock success story that nobody saw coming. These frequently come from the small cap segment of the market, and almost as frequently, these stocks start out their journey as penny stocks. I've got five such stocks to consider today... two are true penny stocks (four, if you go back to February's prices), and four are 'small' by most everyone's definition. Yet, I think all five could pack a large punch for portfolios.

In no particular order, I've got 'that feeling' about Unisys Corporation (UIS), Sirius XM Radio Inc. (SIRI), Southwest Airlines Co. (LUV), Silicon Laboratories, (SLAB), and Kirkland's, Inc. (KIRK). Let's take a quick look at each one.

Unisys Corporation (UIS)

Monday's headlines tell you a big chunk of all you need to know about this IT company... "Unisys sees swing to pre-tax profit".

The company is looking for income of somewhere between $30 million and $55 million for its Q2 - which is much better than the $5 million loss taken for Q2 of the prior year. Not bad, but that's not the compelling part either.

Unisys' cash on hand? $427 million. Unisys' market cap? $588 million. At the very least this penny stock is an interesting cash value play.

Analysts have expected the company to do pretty poorly recently (last four quarters), and Unisys didn't disappoint - by falling short of even well-tempered estimates. Turning a profit in Q2 may be a bigger sign that they've finally figured things out in terms of expense control; revenues have been off, but the company didn't cut expenses all that well most of that time. Things seem a little different now though.

Sirius XM Radio Inc. (SIRI)

From an investor's point of view there continues to be plenty of things not to like about Sirius. The financing is relatively toxic, sales are still dwindling, and expenses are still high. After last quarter though, I have to wonder if there's finally a light at the end of the tunnel.

Even taking the Motley Fool's almost-creepy love affair with Sirius out of the equation, the market really wants to like this stock. That's why it's up to the high 30-cent level from February's roll in the hay with 12 cents. Though in a bearish swing now, the selling has been light.

And results? Last quarter (Q1), the company turned an operating profit... the first I can recall. (Correct me if I missed another one). Net losses are still in store for a while - I never said the light at the end of the tunnel was close. I think investors are starting to get on board for the long haul though... finally.

Southwest Airlines Co. (LUV)

Mea culpa.... I wasn't a fan of the airlines a few weeks ago, but I'm starting to come around. Did it have a lot to do with rising oil prices? Yeah, but it also had a lot to do with sheer bearish momentum. Both of those challenges have been knocked out of the way since then (at least for the time being).

Some of the facts aren't quite as encouraging. Take total airline traffic for instance; it was down (again) in June. That includes Southwest's service, though Southwest's numbers fell the least.

And speaking if numbers, it's not like LUV has been getting any love when it comes to financial statements. The P/E for the last twelve months is a hefty 94.3. Ouch.

So what's to like then? LUV is a dual-play..... one's a bet on a recovery, and the other's a bet on one of the better-run airlines. I'm not the only one thinking that way though. The forward-looking P/E for Southwest is 19.4.

Above all else though, as I look at the chart over the last few days, I see something I haven't seen in a while - buying interest. Could LUV be turning the corner?

I'm still not totally convinced airlines are back in business (literally and metaphorically), and I'm not entirely sure Southwest is the best of breed. If had to guess and invest money though, LUV would be one of the ways I'd go.

Silicon Laboratories Inc. (SLAB)

It's no secret I've been a big fan of semiconductor stocks for a while; I devoted an entire article to them back on July 6th. That was a take on semi manufacturers though, and specifically excluded semiconductor equipment and materials stocks. Today's the 'material and equipment' salvo, with Silicon Laboratories leading the charge.
And sure, it's another recovery play.

The recent past isn't necessarily a whole lot to look at.... it's an expensive stock, and there aren't really any 'non-recurring' charges to blame. The future looks a heck of a lot brighter than the past, however.

Not that analysts are always right, but if Silicon Labs does indeed earn $1.44 per share this year and $1.88 next year, the forward-looking P/E rolls in at less than 20.0. And just for the record, the company has topped analyst expectations for the last four quarters. They're probably low-balling, but it seems to work.

The stock took a big hit last week, and then simply resumed the uptrend that's been driving it higher for weeks.

Kirkland's, Inc. (KIRK)

The best part about Kirkland's is that the stock has gained 284% since February. The worst part about Kirkland's is that the stock has gained 284% since February.

I love momentum, but that kind of runup would intimidate even the best or most naive of investors. This freakin' thing was a penny stock just a few months ago, fer cryin' out loud.

Just for the record, this is as much an industry-wide (home furnishings) play as it is a Kirkland's play. It's just that KIRK happens to also be one of the best-looking bananas in the bunch. The trailing P/E as well as the forward-looking P/E both come in at just a little over 14.0.

But won't an economic recovery (and the likely real estate recovery to accompany it) put the kibosh on redecorating, as euphoric consumers just buy new homes and do major remodels instead? Maybe a little, but I don't expect to see that kind of recovery for a while; Kirkland's is still sitting pretty.

My only hesitation here is the chart... it looks very overbought now. This is one I'd wait to enter on a dip.

So there ya' go.... some small caps and penny stocks to consider that you probably wouldn't have heard about through most of the mainstream sources. If you thought these ideas were useful, then you should sign up for our free newsletter where we really get specific with stock picks. The instructions are above.