The Deutsche Bank A.G. (NYSE: DB) small cap research team is using quantitative analysis to find the very best small cap stocks to buy now. Quantitative screening techniques are particularly fruitful in the small cap world. With so many stocks to choose from, and so little time to analyze them all, quant tools and programs can help point small cap investors toward the types of stocks that warrant further analysis.

Here are the top small cap stocks to buy from Deutsche Bank:

Lions Gate Entertainment Corp. (NYSE: LGF) is a familiar name to investors. The company has made some of the most popular motion pictures in recent years, and the stock is near a 52-week high. The Thomson/First Call estimate is $26.50.

Cash America International Inc. (NYSE: CSH) makes the list. With almost 1,000 locations around the country offering specialty consumer financial services to individuals through retail services locations and e-commerce activities, business has been strong. The consensus price target is $51.

Sanderson Farms Inc. (NASDAQ: SAFM) is a familiar name for anybody who has ever cooked a meal with chicken. With the company’s solid earnings and industry leading profit margins, the stock has been on a tear. The consensus target is $59, which is below current trading levels.

Armour Residential REIT Inc. (NYSE: ARR) may be a great name for aggressive income investors. Producing high income by managing leveraged mortgage debt portfolios, this real estate investment trust is considered a sector leader. The consensus price target is $7. The stock pays a 13.20% yield.

PDL BioPharna Inc (NASDAQ: PDLI) is a biotech name to buy at Deutsche Bank. Trading at 5.41 times earnings and paying a big dividend makes it an outstanding total return candidate. The consensus price target is $6.50. The company pay investors a 7.70% dividend.

Alliance One International Inc. (NYSE: AOI) provides cigarette manufacturers with the tobacco to make their products. The consensus price target is $6. This could be a top stock to buy as the price target would represent a 73% gain.

Fifth Street Finance Corp. (NASDAQ: FSC) may be another ideal name for aggressive income investors. This is one of the top business development companies. The consensus price objective is $11.50. Investors receive a 10.47% dividend.

Glimcher Realty Trust (NYSE: GRT) owns and operates a portfolio of retail properties, including regional and super-regional malls, as well as community shopping centers. The consensus target for the stock is $12.75. Investors receive a 3.10% dividend.

Hawaiian Telecom Holdco Inc. (NASDAQ: HCOM) may generate the aloha spirit with investors. It provides telecommunication services to residents of Hawaii, and the stock trades at a miniscule 2.44 times earnings. The consensus price target is $27.

With many of the blue chip stocks trading at all-time highs, investors may want to review their portfolios for potential names to take profit in. Investing some of those profits in small cap stocks might be an avenue for even greater profits down the road.

In a new report just out, the analysts at Deutsche Bank A.G. (NYSE: DB) have an outstanding list of small cap stocks to buy that you may want to consider. We screened their report for the top picks by sector, with the highest percentage upside to their price target.

Consumer: Pinnacle Entertainment Inc. (NYSE: PNK) tops the list in this sector. It has casinos and other resorts located throughout the United States, and the stock was up more than 7% on Friday. Deutsche Bank upgrades the stock from Hold to Buy, with a $23 price target. The Thomson/First Call estimate is $17.

Airlines: SkyWest Inc. (NASDAQ: SKYW) tops the small cap airline stocks to buy. Operating regional flights for most of the major carriers has led to strong earnings. The Deutsche Bank price target is $20, while the Wall St. consensus target is much lower at $14.50.

Health care: Neurocrine Biosciences Inc. (NASDAQ: NBIX) is the hands down top pick. Due to anticipated strong results from three new drugs in phase II studies, revenues are primed to grow dramatically over the next two years. The target price for the stock is $15. The Wall St. consensus price target is slightly lower at $14.50.

Energy: Pacific Drilling S.A. (NYSE: PACD) makes the Deutsche Bank list of top names to buy. Providing ultra-deepwater drilling services around the world on a contract basis, Pacific Drilling has been the benefactor of extremely high day rates. The price target for the stock is $13, and the consensus estimate is at $12.

Financials: Ellington Financial LLC (NYSE: EFC) makes the cut. Specializing in mortgage-backed bonds, Ellington Financial recently committed $140 million in capital to buy rental homes. The Deutsche Bank price target for the stock is $27. The consensus estimate is very close at $26.97. Investors receive a large 12% yield.

Technology: Ixia (NASDAQ: XXIA) is the top stock to buy here. Ixia provides converged Internet protocol (IP) network validation and network visibility solutions in the United States and internationally. The price target for the stock is $24. The consensus is the same at $24.

Typically, small cap stocks are pretty far off the financial media radar. It is no stretch that some readers are not familiar with the Deutsche Bank top stocks to buy, as this is where solid research comes in handy. Investors that add an allocation of small caps to their portfolios in front of an improving economy may just be in for some solid gains.

Sector leadership is one area we have pointed to. Another area is the emerging prominence of small cap stocks during a bull market. Typically a bull market is fed by a strong U.S. economy. Small caps thrive on a strong domestic economy. In a recent report, Deutsche Bank A.G. (NYSE: DB) highlighted some of their top small cap picks for 2013.

February’s jobs report and the ISM manufacturing numbers have set the path of least resistance for the S&P 500 upward. The Dow Jones Industrial Average has exceeded its late 2007 high, and now the S&P 500′s late 2007 high of 1565 is flashing like a homing beacon, today’s potential sell-off notwithstanding. The team at Deutsche Bank expect the S&P to exceed 1565 in the next several weeks. If price momentum does not push the index above that level in March, then April’s first-quarter earnings season should do it. This breakout may set the stage for an extended small cap rally.

Here are the small cap stocks to buy according to Deutsche Bank.

SHFL Entertainment Inc. (NASDAQ: SHFL) lives and dies with the gaming industry. They manufacture and distributes gaming devices and operate inter-casino linked systems and slot machine routes. The Deutsche Bank price target is raised from $17 to $20. The Thomson/First Call consensus price target is $18.

Serving the banking needs of customers in southern New England and Westchester county in New York, Webster Financial Corp (NYSE: WBS) makes the grade. The analysts raise their price target from $24 to $25. The Wall St. price target is right in line at $25.

Business staffing is a top small cap sector idea at Deutsche Bank. Temporary staffing companies are closely correlated to rising gross domestic product. The following are the top three names to buy on their small cap list.

Robert Half International Inc. (NYSE: RHI) provides staffing and risk consulting services in North America, South America, Europe, Asia and Australia. The Deutsche Bank price target is $45. The consensus target is $30.

TrueBlue Inc. (NYSE: TBI) was once a big target of the short selling community. Short interest in the name has dropped more than 40% since a January 31 data release. Specializing in temporary staffing for blue-collar jobs, the price target for this specialty name is $21.50. The consensus price target is $20.

Manpower Inc. (NYSE: MAN) also makes the top small cap list. It offers permanent, temporary and contract recruitment services, and the price target for this Deutsche Bank top pick is $60. The consensus target is in line at $59.50.

Since 1945, the average duration and magnitude of further gains when cyclical bulls transition into secular bulls (i.e., the market exceeds previous highs) before the next bear market was 30 months and 59%, or 18% annualized. Of the 12 secular bull markets since 1945, there were only three secular bull markets that lasted less than a year: 1972, 1980 and 2007. Compared to 2007, today’s S&P 500 PE is lower, and its EPS is more sustainable and interest rates are lower. The stage is set for a continued bull market rally, even if a short-term correction is imminent. Small caps may prove to be a solid area in which to be invested in the next move higher.

Investors looking to add a broad list of small cap stocks to their portfolio may want to consider the iShares Russell 2000 ETF (NYSEMKT: IWM). This provides a basket of small cap names to fill out and compliment large cap and international equity holdings in a portfolio.

The list screens for inexpensive stocks that are outside of consensus favor and stock ideas that use the Merrill Lynch fundamental equity analyst earnings estimate models, but it excludes real estate investment trusts and master limited partnerships. This screening effort also looks for stocks that have low valuations with above-street consensus earnings estimates. The long and short of it is that Bank of America is looking for a small-cap value investing stock screen of sorts.

We have selected the five highest rated picks in the Merrill Lynch universe, based on the best Alpha Surprise Score, all of which have Buy ratings by the firm. They are as follows.

Questcor Pharmaceuticals Inc. (NASDAQ: QCOR) is at $32.32, with a 1.50 Alpha Surprise Score in health care and pharmaceuticals by Steven Byrne. The price target is $40.00, but the Thomson Reuters target is $45.38. Questcor’s ‘s 52-week range is $17.25 to $58.91.

Alaska Air Group Inc. (NYSE: ALK) is at $57.03, with an Alpha Surprise Score of 1.50 in industrials (are airlines industrials?) by Glenn Engel. His price target is $60.00, but the Thomson Reuters consensus target is $57.50. Alaska Air’s 52-week range is $31.29 to $57.56.

Arkansas Best Corp. (NASDAQ: ABFS) is at $11.70, with an Alpha Surprise Score of 1.50 in industrials via road and rail by Ken Hoexter. His target is $14.00, but the Thomson Reuters target is all the way down at $11.25. Arkansas Best’s 52-week range is $6.43 to $19.50.

Vanguard Health Systems Inc. (NYSE: VHS) is at $15.77, with a 1.75 Alpha Surprise Score in health care providers by Kevin Fischbeck. His price target is $17.00, but the Thomson Reuters target is $16.27. Vanguard’s 52-week range is $6.92 to $15.85.

Leap Wireless International Inc. (NASDAQ: LEAP) is at $5.55, with an Alpha Surprise Score of 1.75 in telecom services and wireless by David Barden. His target price is $8.00 on the shares, but the Thomson Reuters consensus target is all the way down at $5.17. Leap Wireless’s 52-week range is $4.28 to $10.23.

Unfortunately, supporting data was not released on each in today’s screen. We selected data from the most recent call on each and compared these to Wall St. consensus target prices via Thomson Reuters.

The full list can be seen below:

The category of stocks under $1 billion in market capitalization is called by Credit Suisse as the Ultimate Small Caps, and Credit Suisse’s Favorite Ideas are in the following. If applicable, we added in the implied upside, the market capitalization rates, and other color.

Pinnacle Entertainment (NYSE: PNK), in hotels, restaurants & leisure with a $600 million market cap, has an outperform rating, and its $15.00 price target versus a $9.66 target today implies 55% upside.  What is interesting is that the Thomson Reuters consensus is actually even higher at $16.06.

Codexis, Inc. (NASDAQ: CDXS), with a $202 million market cap in biotechnology, has a price target of $25.00 on its Outperform rating.  Keep in mind that the stock was at $10.41 when it was added to the list in June versus $5.63 today.  It is hard to trust exponential gains expectations.  To prove the point, the consensus price target is $12.17 today.

VIVUS Inc. (NASDAQ: VVUS), with an $804 million market cap in pharmaceuticals, was commented on this morning even though it was already on the list after being added only on June 14, 2011.  At $9.00 after a drop of over 13% this morning makes for a questionable target.  The prior $15.00 would imply about 66% upside if it can remain in place. Before the effects of any analyst changes this morning, the Thomson Reuters consensus price target is only $11.33 and the 52-week high is $11.48.

Sycamore Networks, Inc. (NASDAQ: SCMR), worth about $520 million in communications equipment, has a price target objective of $37.00 from Credit Suisse.  That is up double from the $18.00 price today and still up 75% from when it was added to the favorite ideas list in June.

JON C. OGG

Each ETF is said to mirror the way equity managers tend to invest in the small cap asset class outside of mere sectors and styles.  They are based upon the newly created Russell U.S. Small Cap Investment Discipline Indexes. 

The new small cap ETFs are as follows: Russell Small Cap Aggressive Growth ETF (NASDAQ: SGGG); Russell Small Cap Consistent Growth ETF (NASDAQ: SCOG); Russell Small Cap Low P/E ETF (NASDAQ: SCLP); and the Russell Small Cap Contrarian ETF (NASDAQ: SCTR).  The companies which appear in more than one of the new funds in the top ten holdings are as follows: Liquidity Services, Inc. (NASDAQ: LQDT); Ulta Salon Cosmetics & Fragrance, Inc. (NASDAQ: ULTA); Ameron International Corporation (NYSE: AMN); and Southern Union Co. (NYSE: SUG).  The breakout of the top holdings (as of 9/30) is below.

We wanted to take a look at Level 3 Communications, Inc. (NASDAQ: LVLT), RF Micro Devices Inc. (NASDAQ: RFMD), Alcatel-Lucent (NYSE: ALU), Flextronics International Ltd. (NASDAQ: FLEX), Sprint Nextel Corp. (NYSE: S), Netlist, Inc. (NASDAQ: NLST), and Conolog Corp. (NASDAQ: CNLG).  Some of these seven cult stocks are big companies with a broad customer or broad investor base, while some are mere cult stocks that have seen the sort of trading activity that raises the eyebrow of the skeptics.

Level 3 Communications, Inc.

Level 3 Communications, Inc. (NASDAQ: LVLT) reported a $182 million net loss, with earnings at -$0.11 EPS, as revenue fell 12$ to roughly $924 million. The wild card for the quarters ahead is the launch of Level 3 Tower Access, a ploy to gain off the overly stretched wireless networks due to all the smartphone data usage.

The company claimed improvement in its customer buying behavior and also saw positive free cash flow.  It is adding more sales staff but the company keeps rolling its debt.  Ultimately this debt level has to come down even if the company is getting better debt terms.

Level 3 shares fell from $1.38 to $1.27 with earnings this week and it effectively doubled its daily volume to over 20 million shares before Thursday’s recovery to $1.30.  The 52-week trading range is $0.60 to $1.77 and shares were as high as $1.66 on January 5… shares are 21% off the highs a month ago.

RF Micro Devices Inc.

RF Micro Devices Inc. (NASDAQ: RFMD) actually beat earnings on January 27 but was short against revenue estimates… Revenue was down 2% sequentially but up 24% year over year at $250.3 million; Net income was $24.9 million.

The company said sales from cellular products group will be better than normal seasonality, with multi-market product sales flat to up sequentially.  The opportunity for the company is the growth of smart phones, netbooks, data cards and internet connectivity devices.  Merriman Curhan Ford started this with a Buy rating after earnings with an upside seen to the $7 to $8 range.  This has been one of the duds of Cramer’s Mobile Internet Tech Tsunami stock picks.

With shares at $4.05, its 52-week trading range is $0.73 to $5.85 and the high in 2010 was $4.98 on January 4.  This only lost about 2.5% after earnings and has actually held its own since the earnings report but shares are down almost 20% from the highs in January.

Alcatel-Lucent

Alcatel-Lucent (NYSE: ALU) proved that what Cisco Systems (NASDAQ: CSCO) was seeing was not universal.  The troubled telecom and communications equipment and service provider gave earnings that showed now real return to normalcy yet and there was very little good news in the earnings report.  The profit was 46 million euros, or $63 million U.S., versus a 3.9 billion Euro loss a year ago, partly on one-time gains.  It saw a 19.9% drop in revenue to 3.97 billion euros to the lower-end of its own estimates and below revenue estimates of 4.3 to 4.4 billion euros.  Operating margins for this year are now seen at 1% to 5% versus 5% previously targeted.  If you go through the notes, this summary is actually being kind as problems exist on many fronts here.

Alcatel-Lucent closed down over 12% on Thursday at $2.79 in its ADRs.  The 52-week trading range is $1.09 to $4.95, and this hit a January high of $3.82 on January 14 for its ADRs.  This puts the stock down about 27% from highs of just a month ago.

Flextronics International Ltd.

Flextronics International Ltd. (NASDAQ: FLEX) was actually one  of the real laggards of the electronics manufacturing services companies this earnings season because it did not have an absolute blowout of the estimates as most peers did.  It was effectively the worst EMS reaction when you consider the double-digit gains from peers.  The earnings Were $0.17 EPS and $6.6 billion in revenues versus Thomson Reuters estimates of $0.15 EPS and $6.3 billion; guidance was the issue at $0.13 to $0.16 EPS on $5.8 to $6.2 billion in revenues versus Thomson Reuters estimates at the time of $0.13 EPS and $5.8 billion.  Flextronics was a victim of ‘sometimes good just isn’t good enough.’

At $6.87 now, the 2010 high was $7.49 on January 4.  The 52-week trading range is $1.81 to $7.97.  A Needham upgrade to BUY kept this reaction from being worse.  Being off only 8% from January highs in this market might not sound bad, but the EMS stocks have mostly seen significant gains during earnings season.

Sprint Nextel Corp.

Sprint Nextel Corp. (NYSE: S) looked more like it should be called “Sprint, Next Sell!” when we saw its earnings reaction this week.  The company has closed on its Virgin Mobile and its iPCS deals and has been building out the Clearwire pact for the 3G and 4G wireless networks.

Sprint reported a loss, lower revenues, and lower subscribers this week.  The hurdles are many.  It is still amalgamated of many brands, has too many networks, and frankly is viewed as having the least attractive smartphone lineup of the 3 US major wireless carriers.  Everyone keeps hoping that Sprint Nextel will be acquired, but that is a rumor and a story that has become as frequent and as credible as the ghost ships and sea monsters of yesteryear.

Shares fell from $3.65 to $3.36 on Wednesday (on over 250 million shares to boot) and then to $3.26 on Thursday.  The high for 2010 has so far been $4.23 on January 26.  So the 10.6% drop from pre-earnings this week paled in comparison to the sell-off of 23% from the January highs.

Netlist, Inc.

Netlist, Inc. (NASDAQ: NLST) has not even reported earnings yet but it has set a date of Thursday, February 18… If there was ever a true tech cult stock in late 2009 into 2010, Netlist is that.  Because of its cloud computing initiatives and because of day trader hype and the never-ending quest of the investment community’s willingness to chase low-priced stocks, this one ran and ran.

One of the issues it has run into is that it is in patent suits as the plaintiff, but more important is that it filed to sell $30 million in stock.  After an exponential run-up from November the market cap here is only $67.5 million now.  The average volume is now over 4 million shares, and it has become frequent to see one-fourth or one-third of its entire share base trade in a single trading day…. a true cult stock.

In November it was hardly a $1.00 stock.  By the end of November the stock was north of $7.00.  The 2010 intraday high was $6.10, although it highest close for 2010 so far has been $5.53.  A close of $3.40 on Thursday puts this stock down 44% from intraday highs of 2010 and down 38% from its highest 2010 closing price.

Conolog Corp.

Conolog Corp. (NASDAQ: CNLG) is about as much of a cult stock as you will ever see.  It spent most of 2009 in the $1 range, at least after a 1-for-5 reverse share split. Forget earnings season here because this is just a classic example of a trader’s tout around news.  The two big issues around this stock that has caught the mind of the penny-stock traders have been that it announced the start of production of its “GlowWorm” fiber optic detector in late-January and the news that it announced advance orders for 280 systems and other equipment valued at over $1.9 million on Feb. 1.

Anything is possible in the world of penny stocks and cult stocks.  But Conolog is a company that has a history as questionable as it gets.  ‘GlowWorm’ is the big attraction for traders here, but this almost sounds more like a product for crazy fishermen or for parasite removal in a colonic than it does a ‘fiber optic detector that may be used in any fiber optic line or network without the need to cut the cable.’ When you see 3 reverse stock splits in four years, what does that tell you?

Conolog closed at $1.41 on January 4 and hit an intraday high of $4.72 on February 1.  The high close was also $4.01 on February 1, a day which saw a whopping 21+ million shares trade hands… that is almost 7-times its whole float of almost 3.2 million shares.  Shares are now back to $2.23 and the market cap here is a mere $7.1 million.

You are invited to join our free daily email distribution list to hear about unusual stock activity, top analyst upgrades and downgrades, IPOs and secondary offerings, ongoing day trader and options trader alerts, stock and market rumors, Buffett and guru investor news, M&A and more.

JON C. OGG
FEBRUARY 12, 2010

The trading volume is there on these today so far.  SCHC as of NOON has traded 46,000 shares and and SCHE has traded 77,000 shares.  Not bad for a first day effort.

Some, including myself, wondered how these would do for trading volumes after they were launched.  Our own bogey for measuring success of an ETF for liquidity is 100,000 shares per day.  That may be a higher bar than others have, and may be lower than others.

The average volume listed for the other recently launched Schwab ETF products is as follows:

• SCHB 192,000 shares per day; 53,000 shares just after NOON today
• SCHX 133,000 shares per day; 41,000 shares just after NOON today
• SCHA 123,000 shares per day; 34,000 shares just after NOON today
• SCHF 150,000 shares per day; 57,000 shares just after NOON today
• SCHV 28,900 shares per day; 26,000 shares just after NOON today
• SCHG n/a on average; 48,000 shares just after NOON today

These might not be liquid as the FAS/FAZ intraday leveraged ETF or the SPY/QQQQ ETF products, but it would be difficult to call these a disappointment so far.  There are still short of 1,000 ETFs in the US, but that may change rather quickly.  Many new ETFs are planned, and many of the large brokerage firms want a piece of the ETF pie.  After all, recent reports put the ETF assets now over $1 trillion……

JON C. OGG

There is also the NYSE Alternext today, what the NYSE calls a tailor-made market for small and mid-sized companies seeking simplified access to the stock market with streamlined listing requirements and trading rules.

BATS has done a great job of capturing share from almost out of nowhere. But the question really remains, does the world in a more highly regulated financial system really need yet one more alternative for companies to raise cash?

In the past there were the old blank check companies where companies would go public with the goal of acquiring any business in any sector.  Then came special purpose acquisition companies, or SPACs, which would generally set at least a few parameters in a sector or of a certain classification of business with size parameters.  These SPACs are still around and are still filed, but they are not coming one per day as it seemed they were in part of 2007 and 2008 when the world of private equity was still booming.

Sometimes there can be too many alternatives to going public.  No offense to BATS, but today’s world of financial markets versus the world of financial markets in 2007 and before are two entirely different worlds.  Companies holding themselves out open to the general public for investments into those companies need to have standards.

To be continued….

JON C. OGG

On Oct. 15, TM Entertainment & Media (NYSE: TMI) will have its deal vote to buy China MediaExpress, an advertising company. The SPAC’s shareholder base is primarily occupied by yield-to-trust investors, which may hobble its efforts to take its target public. Already, one of TM Entertainment’s shareholders, Bulldog Investors, sought to have the company liquidate early instead of pursue a merger.
 
Capitol Acquisition Co. (AMEX: CLA), the SPAC that aims to bring public Two Harbors Investment Corp., will have its deal vote Oct. 26. Ideation Acquisition Co. (AMEX: IDI) delayed its deal vote one day, to Oct. 27.
 
No SPACs have deal votes set for this week.
 
Bulldog Investors reported in a federal filing that it sold part of its stake in InterAmerican Acquisition Group (OTC:IAQGU), the SPAC that brought public development company China New Cities. The investor previously held about nine percent.
 
Wesley Capital Management revealed it has a stake of nearly nine percent in NRDC Acquisition Co. (AMEX: NAQ).
 
Millennium Management sold out of its stake in Hicks Acquisition Co. (AMEX: TOH) before the blank check got its deal approved. On Friday, Hicks’ deal to buy Resolute Natural Resources was approved by shareholders, marking a surprising turnaround for the blank check that just a couple of months ago had a stalled deal to buy Graham Packaging.

 For more on these SPACs and other blank checks, visit www.SPACupdate.com.