These small companies are profitable and their shares are reasonably priced -- but glamorous they are not. By Steven Goldberg, Contributing Columnist December 28, 2009 Like to buy glamour stocks? Stocks that lead the financial news? Then skip this article. It’s about companies you’ve probably never heard of, though they boast attributes that in their own way are every bit as compelling as Google’s glitz and Apple’s appeal.These obscure companies carry little or no debt and regularly churn out solid revenue and earnings numbers. They earn a large percentage of earnings from overseas. Some may say they’re boring -- but what’s boring about making money? The five stocks are picks from my favorite small-cap research boutique, Great Lakes Review. Fewer and fewer firms conduct quality stock research these days, especially on small companies. Brokerage firms focus on the large companies that produce big investment-banking revenues. Among the research firms that really do their homework is Great Lakes, run by Elliott Schlang. Schlang, based in Cleveland, has been tracking small and midsize firms for 40 years. Great Lakes does no investment banking, so users of its research can rule that out as a potential conflict of interest. Schlang takes pride in finding undiscovered gems. “We don’t want to be the tenth research firm telling you about a new stock to buy,” he says. “We want to be the first.” Advertisement Schlang and his two colleagues stick to their knitting. They research only companies based in states near the Great Lakes. That means their focus is on businesses in the nation’s heartland -- specifically, firms that dominate an industry niche and boast consistent earnings growth, high profit margins, strong cash flow and strong balance sheets. Great Lakes avoids banks and insurance companies. Says Schlang: “I don’t understand their accounting -- and after 2008, I’m not sure anyone else does, either.” In their latest quarterly report, Schlang and his analysts highlight companies that garner a high proportion of their earnings overseas. Assuming that the dollar continues to decline, money earned abroad will translate into more dollars here. And developing nations in particular are growing much faster than the U.S., providing good opportunities for U.S. exporters. Take Ansys (symbol ANSS). This little-known firm, the worldwide leader in simulation software, collects 70% of its revenues overseas. Its software allows engineers to design and test new products without ever having to leave their computers. The software shows, for instance, how a product might bend or deform from impact, or how it might be affected by chemical interactions. Ansys benefits as companies create increasingly complex products. “If big global companies are going to be competitive, they have to come out with new products more quickly and more cheaply than their competitors,” Schlang says. “Simulation software allows them to do that.” Advertisement Ansys, which is based near Pittsburgh, is a typically sturdy Schlang pick. Earnings per share have risen 32% annualized over the past five years, and revenue has increased every year since 1991. Great Lakes forecasts that earnings will grow 16% annually over the next three to five years. At its December 23 closing price of $43.32, the stock trades at 23 times the $1.86 per share that Great Lakes estimates Ansys will earn in 2010. Dentsply International Inc. ( XRAY) is another firm with a lucrative niche. It’s the worldwide leader in “consumable” dental products -- things that need to be replaced regularly. Dentsply makes everything from fillings to tooth whiteners to highly sophisticated products used in cosmetic dentistry. “When you go to the dentist, much of the stuff he puts in your mouth comes from Dentsply,” Schlang says. Even if the very word dentist makes you queasy, there’s no reason you can’t profit from this stock. Demand for dental care, including cosmetic dentistry, is growing rapidly worldwide. Dentsply is 40% larger than its nearest rival. It holds more than 2,000 patents and spends nearly 3% of annual revenues on research. Foreign sales account for 60% of Dentsply’s revenues, and the company has little debt. At $35.55, the shares trade at 17 times Great Lakes’ 2010 earnings forecast of $2.06 per share. Mettler-Toledo International ( MTD) makes precision instruments used in scientific and medical laboratories, in industry, and in food retailing. Dually headquartered in Columbus, Ohio, and in Switzerland, it’s the worldwide leader in 80% of its product lines, many of which are used for weighing and measuring. More than two-thirds of revenues are generated from overseas. Emerging markets account for 25% of sales. Advertisement Revenues and earnings have risen every year since the company went public in 1997, while earnings have climbed an annualized 24% over the past five years. Based on Great Lakes’ 2010 earnings estimate of about $6.00 per share, the stock, at $105.69, sports a price-earnings ratio of 18. Teradata ( TDC), spun off by NCR in 2007, is the global leader in corporate data warehousing. It takes raw data supplied by its blue-chip clients -- such as Wal-Mart, eBay and Barclays Bank -- and designs reports that enable the companies to tell how well products and services are selling, as well as to relate sales to a variety of other measures, such as production costs, inventories and supply chains. No single customer accounts for more than 3% of Teradata’s revenue. It’s a great business. Earnings per share have risen an annualized 20% over the past five years. Great Lakes estimates that the company could earn $1.55 per share in 2010, giving the stock, at $31.26, a P/E of 20. Great Lakes predicts that earnings will rise 15% annually over the next few years. You want to talk really boring? Wabtec ( WAB) makes products for railroads and subways. It specializes in braking equipment. The company is benefiting from a surge in interest in mass transit as a fuel-efficient form of travel and from government-funded infrastructure projects designed to stimulate economies around the world. The company’s order backlog totals $1 billion -- equal to about eight months’ revenue. It has more than half the North American braking market, and nearly 40% of sales come from abroad. Wabtec’s earnings per share have risen an annualized 40% over the past five years. Earnings, however, are cyclical. Great Lakes estimates that the company will earn $2.70 per share in 2010. With the stock at $41.44, the P/E is 15. Steve Goldberg is an investment adviser.