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Small-Cap Standout: Frontline Ltd (FRO)

The low expectations surrounding outperforming FRO could translate into near-term gains

by 2/6/2014 2:06:16 PM
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Small-cap stocks can have outperformed their mid- and larger-cap peers on a year-over-year basis, yet opportunities within the sector can often go overlooked by investors for bigger-name plays. Three equities that fall under the small-cap umbrella, and look poised to benefit from a contrarian boon are shipping concern Frontline Ltd (NYSE:FRO), agricultural issue The Andersons, Inc. (NASDAQ:ANDE), and aircraft stock AeroVironment, Inc. (NASDAQ:AVAV). As of last night's close, the market capitalizations for these three companies stood at $311.41 million, $1.45 billion, and $612.76 million, respectively.

The Andersons, Inc. (NASDAQ:ANDE) has jumped 84% during the past 52 weeks -- including today's 11% pop. However, just one out of seven covering analysts maintains a "buy" rating on the equity. Plus, the consensus 12-month price target of $79.00 sits below ANDE's present perch at $86.04. A round of well-deserved upgrades and/or price-target hikes could help propel the equity even further up the charts. Meanwhile, the company will report fourth-quarter earnings next Tuesday.

Also trading higher today is AeroVironment, Inc. (NASDAQ:AVAV), which was up 1.3% at last check to linger near $27.87. The stock is now sporting a 12-month advance of roughly 30%. In spite of this, the equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.71 ranks in the 87th percentile of its annual range. Simply stated, puts have been bought to open over calls at an accelerated clip in recent weeks. Going forward, an unwinding of these bearish bets could create some contrarian tailwinds for AVAV.

Shares of Frontline Ltd (NYSE:FRO) have more than doubled in value since hitting a decade-plus low of $1.71 last May. In fact, the stock tagged a new annual high of $5.18 in early January. The equity entered a brief period of consolidation after notching this notable mark, but the pullback was contained by its 50-day moving average -- a trendline that served as support last September. The security has resumed its uptrend in today's session, and was last seen 1.7% higher to trade at $4.02.

Not everyone on the Street has bought into FRO's momentum, though, which could translate into a contrarian boost down the road. For starters, not one of the five covering analysts deem the stock worthy of a "buy" or better rating. Plus, the average 12-month price target of $1.78 stands at a steep discount to the equity's current perch. The stock could see some fuel added to its fire, should any of these skeptics follow in the footsteps of Jefferies, which raised its price target for FRO last Friday.

Elsewhere, despite short interest falling 4.1% in the last two reporting periods, it still accounts for one-fifth of the security's available float. If FRO maintains its upward trajectory, a continued capitulation by short sellers could create some additional buying power for the stock. On the fundamental front, Frontline Ltd (NYSE:FRO) is slated to unveil its fourth-quarter earnings report on Friday, Feb. 28. Following its last turn in the earnings confessional in November, the equity tacked on nearly 10% in the subsequent session.


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