Goldman Sachs Says These 12 Small-Cap Stocks Are Worth Buying

Goldman Sachs analysts highlighted top picks in the small-cap space, ahead of its annual US Emerging & SMID Cap Growth conference in New York on Thursday.

Goldman analysts base their suggestions on several themes, according to a Wednesday note to clients:

• Despite a strong number of beats in [third quarter], out-year EPS estimates have continued to fall with upward revisions for just 20% of [Russell 2000 stocks] since Oct. 1 vs. over 40% of estimates moving lower. We see scarcity value for those with 'beat-and-raise potential' in 2016 such as RKUS, CIEN and AMC.
• Stock picking remains key for small-caps as earnings season was a reminder of how much alpha potential there can be in the asset class. One-month dispersion picked up to close to a 5-year high in late October/early November. We highlight idiosyncratic ideas where our analysts see significant upside potential: BLUE, COLM, RKUS, TWOU, UNVR.
• We highlight names we expect strong topline growth that also deliver on cash flows including SEDG, MSCC, INCR, and PENN.

Additionally, Goldman analyst Salveen Richter initiated coverage on small and mid-cap biotech stocks. She expects "innovation, product catalysts and M&A to be key drivers," the note said. Richter's top picks are bluebird bio and Kite Pharma.

Here are the small-cap stocks that Goldman favors, along with ratings by TheStreet Ratings, TheStreet's proprietary ratings tool, for another perspective. And when you're done be sure to check out the 12 high-growth tech stocks to buy for 2016.

Note: TheStreet Ratings does not cover all of the stocks on this list.

TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

 RKUS data by YCharts 

1. Ruckus Wireless Inc. (RKUS - Get Report)

Goldman Price Target: $16

Industry: Technology/Communications Equipment
Market Cap: $982 million
Year-to-date Return: -7.7%

Ruckus Wireless, Inc. provides carrier-class Wi-Fi solutions to service providers and enterprises worldwide. It provides gateways, controllers, and access points with related software and services.

12-Month Revenue Growth: 14.34%
12-Month Net Income Growth: -19.86%
12-Month EPS Growth: -28.58%

TheStreet Said: TheStreet Ratings team rates RUCKUS WIRELESS INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate RUCKUS WIRELESS INC (RKUS) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

• The revenue growth came in higher than the industry average of 9.1%. Since the same quarter one year prior, revenues rose by 16.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
• RKUS has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.23, which clearly demonstrates the ability to cover short-term cash needs.
• RUCKUS WIRELESS INC's earnings per share declined by 50.0% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, RUCKUS WIRELESS INC increased its bottom line by earning $0.09 versus $0.02 in the prior year. This year, the market expects an improvement in earnings ($0.43 versus $0.09).
• The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Communications Equipment industry. The net income has significantly decreased by 52.6% when compared to the same quarter one year ago, falling from $3.55 million to $1.68 million.
• The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Communications Equipment industry and the overall market on the basis of return on equity, RUCKUS WIRELESS INC underperformed against that of the industry average and is significantly less than that of the S&P 500.
• You can view the full analysis from the report here: RKUS

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2. Ciena Corp. (CIEN - Get Report)

Goldman Price Target: $29

Industry: Technology/Communications Equipment
Market Cap: $3.2 billion
Year-to-date Return: 23.5%

Ciena Corporation provides equipment, software, and services that support the transport, switching, aggregation, service delivery, and management of voice, video, and data traffic on communications networks worldwide.

12-Month Revenue Growth: 2.8%
12-Month Net Income Growth: -73.63%
12-Month EPS Growth: 47.37%

TheStreet Said: TheStreet Ratings team rates CIENA CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate CIENA CORP (CIEN) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth and compelling growth in net income. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

• Powered by its strong earnings growth of 26.66% and other important driving factors, this stock has surged by 56.36% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
• CIENA CORP has improved earnings per share by 26.7% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, CIENA CORP continued to lose money by earning -$0.39 versus -$0.84 in the prior year. This year, the market expects an improvement in earnings ($1.24 versus -$0.39).
• Compared to other companies in the Communications Equipment industry and the overall market on the basis of return on equity, CIENA CORP underperformed against that of the industry average and is significantly less than that of the S&P 500.
• Regardless of the drop in revenue, the company managed to outperform against the industry average of 9.1%. Since the same quarter one year prior, revenues slightly dropped by 0.1%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
• The debt-to-equity ratio is very high at 7.23 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Regardless of the company's weak debt-to-equity ratio, CIEN has managed to keep a strong quick ratio of 2.35, which demonstrates the ability to cover short-term cash needs.
• You can view the full analysis from the report here: CIEN

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3. AMC Entertainment Holdings Inc. (AMC - Get Report)

Goldman Price Target: $29

Industry: Consumer Goods & Services/Movies & Entertainment
Market Cap: $2.5 billion
Year-to-date Return: -1.1%

AMC Entertainment Holdings, Inc., through its subsidiaries, operates as a theatrical exhibition company in the United States and internationally. As of December 31, 2014, the company owned, operated, or held interests in 348 theatres with a total of 4,960 screens primarily in North America.

12-Month Revenue Growth: 6.63%
12-Month Net Income Growth: -70.68%
12-Month EPS Growth: -72.08%

TheStreet Said: TheStreet Ratings team rates AMC ENTERTAINMENT HOLDINGS as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate AMC ENTERTAINMENT HOLDINGS (AMC) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, increase in net income and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including disappointing return on equity and poor profit margins.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

• AMC's revenue growth has slightly outpaced the industry average of 7.0%. Since the same quarter one year prior, revenues slightly increased by 8.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
• The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Media industry. The net income increased by 65.1% when compared to the same quarter one year prior, rising from $7.38 million to $12.18 million.
• AMC ENTERTAINMENT HOLDINGS reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, AMC ENTERTAINMENT HOLDINGS reported lower earnings of $0.65 versus $3.83 in the prior year. This year, the market expects an improvement in earnings ($1.07 versus $0.65).
• The gross profit margin for AMC ENTERTAINMENT HOLDINGS is rather low; currently it is at 16.40%. Regardless of AMC's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 1.76% trails the industry average.
• Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Media industry and the overall market on the basis of return on equity, AMC ENTERTAINMENT HOLDINGS has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
• You can view the full analysis from the report here: AMC

 BLUE data by YCharts 

4. bluebird bio Inc. (BLUE - Get Report)

Goldman Price Target: $165

Industry: Health Care/Biotech
Market Cap: $3 billion
Year-to-date Return: -9.2%

bluebird bio, Inc., a clinical-stage biotechnology company, focuses on developing transformative gene therapies for severe genetic and rare diseases.

12-Month Revenue Growth: -25.14%
12-Month Net Income Growth: -273.33%
12-Month EPS Growth: -188.27%

TheStreet Said: TheStreet Ratings team rates BLUEBIRD BIO INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

We rate BLUEBIRD BIO INC (BLUE) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income and disappointing return on equity.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

• BLUEBIRD BIO INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, BLUEBIRD BIO INC reported poor results of -$1.78 versus -$0.80 in the prior year. For the next year, the market is expecting a contraction of 163.2% in earnings (-$4.69 versus -$1.78).
• The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Biotechnology industry. The net income has significantly decreased by 152.1% when compared to the same quarter one year ago, falling from -$17.03 million to -$42.93 million.
• The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Biotechnology industry and the overall market, BLUEBIRD BIO INC's return on equity significantly trails that of both the industry average and the S&P 500.
• BLUE, with its very weak revenue results, has greatly underperformed against the industry average of 13.4%. Since the same quarter one year prior, revenues plummeted by 79.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
• Compared to its closing price of one year ago, BLUE's share price has jumped by 76.23%, exceeding the performance of the broader market during that same time frame. Regarding the future course of this stock, we feel that the risks involved in investing in BLUE do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
• You can view the full analysis from the report here: BLUE

 COLM data by YCharts 

5. Columbia Sportswear Co. (COLM - Get Report)

Goldman Price Target: $76

Industry: Consumer Goods & Services/Apparel, Accessories & Luxury Goods 
Market Cap: $3.4 billion
Year-to-date Return: 9%

Columbia Sportswear Company designs, sources, markets, and distributes outdoor and active lifestyle apparel, footwear, accessories, and equipment in the United States, Latin America, the Asia Pacific, Europe, the Middle East, Africa, and Canada.

12-Month Revenue Growth: 17.67%
12-Month Net Income Growth: 40.81%
12-Month EPS Growth: 39.88%

TheStreet Said: TheStreet Ratings team rates COLUMBIA SPORTSWEAR CO as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

We rate COLUMBIA SPORTSWEAR CO (COLM) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, impressive record of earnings per share growth, compelling growth in net income, revenue growth and largely solid financial position with reasonable debt levels by most measures. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

• Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
• COLUMBIA SPORTSWEAR CO has improved earnings per share by 37.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, COLUMBIA SPORTSWEAR CO increased its bottom line by earning $1.95 versus $1.35 in the prior year. This year, the market expects an improvement in earnings ($2.37 versus $1.95).
• The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Textiles, Apparel & Luxury Goods industry average. The net income increased by 38.7% when compared to the same quarter one year prior, rising from $65.64 million to $91.06 million.
• Despite its growing revenue, the company underperformed as compared with the industry average of 15.6%. Since the same quarter one year prior, revenues rose by 13.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
• COLM's debt-to-equity ratio is very low at 0.03 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, COLM has a quick ratio of 1.82, which demonstrates the ability of the company to cover short-term liquidity needs.
• You can view the full analysis from the report here: COLM

 TWOU data by YCharts 

6. 2U Inc. (TWOU)

Goldman Price Target: $36

Industry: Consumer Goods & Services/Education Services 
Market Cap: $950 million
Year-to-date Return: 10%

2U, Inc. provides cloud-based software-as-a-service (SaaS) solutions for nonprofit colleges and universities to deliver education to qualified students.

12-Month Revenue Growth: 73.24%
12-Month Net Income Growth: -9.47%
12-Month EPS Growth: -4.76%

TheStreet Said: TheStreet Ratings team rates 2U INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

We rate 2U INC (TWOU) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

• Net operating cash flow has decreased to -$28.66 million or 31.67% when compared to the same quarter last year. Despite a decrease in cash flow of 31.67%, 2U INC is still significantly exceeding the industry average of -452.50%.
• The change in net income from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Diversified Consumer Services industry average. The net income has decreased by 12.2% when compared to the same quarter one year ago, dropping from -$7.34 million to -$8.24 million.
• 2U INC's earnings per share declined by 11.1% in the most recent quarter compared to the same quarter a year ago. This year, the market expects an improvement in earnings (-$0.36 versus -$0.73).
• Compared to other companies in the Diversified Consumer Services industry and the overall market, 2U INC's return on equity significantly trails that of both the industry average and the S&P 500.
• The gross profit margin for 2U INC is currently very high, coming in at 80.74%. It has increased from the same quarter the previous year.
• You can view the full analysis from the report here: TWOU

 UNVR data by YCharts 

7. Univar Inc. (UNVR)

Goldman Price Target: $28

Industry: Chemicals
Market Cap: $2.6 billion
Year-to-date Return: -25.4%

Univar Inc. distributes commodity and specialty chemical products, and related services worldwide.

TheStreet Said: no rating available

 SEDG data by YCharts 

8. SolarEdge Technologies Inc. (SEDG)

Goldman Price Target: $32

Industry: Technology
Market Cap: $646 million
Year-to-date Return: -21.6%

SolarEdge is a provider of power optimizer, solar inverter and monitoring solutions for photovoltaic arrays. These products aim to increase energy output through module-level MPPT.

TheStreet Said: no rating available

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9. INC Research Holdings (INCR)

Goldman Price Target: $54

Industry: Health Care/Biotech
Market Cap: $2.6 billion
Year-to-date Return: 81%

INC Research Holdings, Inc., a contract research organization, provides various clinical development services for the biopharmaceutical and medical device industries.

TheStreet Said: no rating available

 MSCC data by YCharts 

10. Microsemi Corp. (MSCC)

Goldman Price Target: $45

Industry: Technology/Semiconductors
Market Cap: $3.6 billion
Year-to-date Return: 30.7%

Microsemi Corporation designs, manufactures, and markets analog and mixed-signal semiconductor solutions in the United States, Europe, and Asia.

12-Month Revenue Growth: 9.43%
12-Month Net Income Growth: 265.59%
12-Month EPS Growth: 282.60%

TheStreet Said: TheStreet Ratings team rates MICROSEMI CORP as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

We rate MICROSEMI CORP (MSCC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, expanding profit margins and notable return on equity. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

• The revenue growth came in higher than the industry average of 10.8%. Since the same quarter one year prior, revenues slightly increased by 8.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
• MSCC's debt-to-equity ratio of 0.82 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that MSCC's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.20 is high and demonstrates strong liquidity.
• Compared to its closing price of one year ago, MSCC's share price has jumped by 31.40%, exceeding the performance of the broader market during that same time frame. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.
• MICROSEMI CORP's earnings per share declined by 23.5% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, MICROSEMI CORP increased its bottom line by earning $0.88 versus $0.23 in the prior year. This year, the market expects an improvement in earnings ($3.20 versus $0.88).
• 45.44% is the gross profit margin for MICROSEMI CORP which we consider to be strong. Despite the high profit margin, it has decreased significantly from the same period last year. Despite the mixed results of the gross profit margin, MSCC's net profit margin of 7.69% is significantly lower than the industry average.
• You can view the full analysis from the report here: MSCC

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11. Penn National Gaming Inc. (PENN)

Goldman Price Target: $22

Industry: Consumer Goods & Services/Casinos & Gaming
Market Cap: $1.3 billion
Year-to-date Return: 16.1%

Penn National Gaming, Inc. owns and operates gaming and pari-mutuel properties. It operates through East/Midwest, West, and Southern Plains segments. The company is involved in gaming and racing operations.

12-Month Revenue Growth: 0.37%
12-Month Net Income Growth: 74.49%
12-Month EPS Growth: 74.59%

TheStreet Said: no rating available

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12. Kite Pharma Inc. (KITE)

Goldman Price Target: $22

Industry: Health Care/Biotech
Market Cap: $3.7 billion
Year-to-date Return: 48%

Kite Pharma, Inc., a clinical-stage biopharmaceutical company, focuses on the development and commercialization of novel cancer immunotherapy products.

By Laurie Kulikowski

Source:http://www.thestreet.com/story/13371110/1/goldman-sachs-says-these-12-small-cap-stocks-are-worth-buying.html?kval=dontmiss