SmallCap Software Companies: Some are Surging Up

Posted On December 23, 2009 | by AllenCaron

The Nasdaq Composite closed yesterday at 2252 the highest it has been since just after Labor Day 2008.  The Dow Jones Industrial Average closed at 10,465, within 100 points of its 52-week high.  Whether these have been fueled by a Santa Claus rally, or by the perception of a genuine recovery will be a subject for the history books one day, but for now, we know that there are some particularly bright areas in the market — and one of them is business software. 

Please note that we do not recommend stocks; we just write about companies that interest us, and perhaps bring ideas to the attention of our readers.  Do your own diligence. 

Leaving aside the Nasdaq giants, there are more than a handful of small-cap software companies that have been strong performers in the most recent legs of this move upward.   One might start by looking at Chelmsford MA-based Datawatch Corp (Nasdaq: DWCH; http://www.datawatch.com/), which serves more than 35,000 customers globally with products including its Monarch data mining and report-generating software — which helps businesses make sense of piles of data that is meaningless without the organization that software can bring to it.  DWCH closed at $2.49 on Tuesday, with a 52-week range of $0.77 to $2.79.  DWCH is a super-light trader, so it might take some intrepid trading skills to put together a position.

On the other side of the US, there’s Novato CA-based Sonic Solutions (Nasdaq: SNIC; http://www.sonic.com/), which helps businesses create and manage digital media (think video and other non-character-based files) across a variety of platforms.  Well-known brands include Roxio, CinePlayer, PhotoSuite and Popcorn, among many others.  SNIC also sells entertainment content to users.  SNIC closed at $12.23, vs a year-high of $12.82 (and a year-low of $0.57 for a not-quite-Matterhorn-shaped chart, but close enough for most investors), on hefty average volume of more than 400,000 shares.

Dublin-based Trintech Group* (Nasdaq: TTPA; http://www.trintech.com/) develops and markets enterprise software products that help companies stay in compliance with regulations such as Sarbanes-Oxley, and that make it possible for businesses with complex collections to reconcile invoicing and receipts even when discounts intervene to change totals.  Brands include ReconNET and AssureNET, as well as its Unity suite of products.  Primarily providing SaaS and licensing, TTPA is headquartered in Ireland, sells globally, and has almost all its operations in the USA.  TTPA closed yesterday at $3.48 with a 52-week spread of $0.90 to $3.61.  Looks like a 4-bagger to me. 

Sykesville MD-based GSE Systems (NYSE Amex: GVP; http://www.gses.com/) designs and provides simulation software and monitoring systems for electric utilities, both nuclear and oil- or coal-burning.  The products help utilities monitor water temperature in reactors, and a variety of safety factors to help utilities operate smoothly and without creating hazards for the public.  A little esoteric-sounding, but if you are reading this on a computer, you are using electricity, and if you are using electricity, ummmm, well — you get the picture.  GVP closed Tuesday at $4.98, nearer its year-low of $3.58 than its year-high of $8.35 on average volume of over 100,000 shares per day.

Or if you care to cast your eyes to the east, have a look at Herzlia, Israel-based BluePhoenix Solutions Inc (Nasdaq: BPHX; http://www.bphx.com/), which offers IT solutions that help  companies modernize their computer networks.  Their systems will mine for business rules in your legacy software and help you migrate to Linux, Unix, Windows, or .Net.  BPHX closed yesterday at $2.54 vs a year high of $3.97 on volume of about 165,000 shares on average.  BPHX reported flat to slightly down sales for their last quarter, but the bottom line was improved, at least on a non-GAAP basis. 

And if a larger market cap doesn’t scare you away, have a look at Sunnyvale CA-based Blue Coat Systems (Nasdaq:BCSI; http://www.bluecoat.com/).  BCSI provides WAN (wide area network) products that help IT administrators sweep for viruses, worms, spyware, and Trojans, as well as secure connections and sign-ons.  BCSI closed yesterday at $29.07, vs a year-high of $29.39, and average volume of nearly 700,000 shares. 

None of these companies is a household name; all of them have strong cadres of business clients who use their products and trust them.  Doubtless some will grow, some will get stale, and others will get acquired.  For all, there is a distinct market niche and a proven product.  Happy 2010!

*client of Allen & Caron Inc, publisher of this blog.

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