SmallCapReview's last focus stock, Cyberonics (NASDAQ: CYBX, Stock Forum), is up 48% since our introduction. In fact, our four current focus stocks are up between 26% and 65% since their introduction; not too bad considering the current environment.

Below find two small-cap stocks that we feel will outperform the market.

With zinc currently trading in the 80 cents/lb to 90 cents/lb range, we believe Horsehead Holding Corp. (NASDAQ: ZINC, Stock Forum) will be a good play on any rebound in the commodity. KVH Industries (NASDAD: KVHI, Stock Forum) is a profitable company with little debt that develops, manufactures, and markets mobile communications products.

Horsehead Holding Corp.

Horsehead Holding Corp. is the largest zinc producer in the United States and the leading manufacturer of value-added zinc products, including zinc oxide and zinc powder. Leading the industry as an integrated producer as well as the world's largest producer of zinc from recycled sources, Horsehead's electrothermic smelting facility, the only one of its type in the Western Hemisphere, provides unique capabilities, allowing it to utilize the most diverse range of zinc-bearing feed materials.

ZINC has operations strategically located throughout the country, with facilities in Bartlesville, OK, Beaumont, TX, Calumet, IL, Monaca, PA, Palmerton, PA, and Rockwood, TN.

Horsehead Holding and its subsidiaries' products include: (a) PW zinc metal, which is used to provide a protective coating to various fabricated products, including pipe and guard rails, heat exchangers, and telecommunications towers; and for the production of brass, and (b) SSHG zinc metal, which is used as feed for the manufacture of high-purity zinc powder and zinc alloys.

The company also offers zinc oxide for the production of tire and rubber products, chemicals, ceramics, plastics, paints, lubricating oils, and pharmaceuticals. In addition, the company recycles EAF dust, a hazardous waste generated by steel mini-mills operators. Further, it offers special zinc powders, which are used in general chemical and metallurgical applications, and in friction applications, such as, brake linings for automobiles; battery-grade zinc powders that are used in alkaline, mercuric oxide, silver oxide, and zinc-air batteries; and copper-based powders, including brass, bronze, and nickel-silver powders, which are used in various applications comprising brazing, infiltrating, and powdered metallurgical hardware, such as lock bodies, valves, and gears.

With zinc currently trading around 90 cents/lb, we believe Horsehead would be a good play on any rebound in the commodity and a play on the low price of zinc.

ZINC investor highlights

·        Reported consolidated net income of $9.9 million for the first quarter of 2008, or 28 cents per diluted share, on sales of $114.4 million.

·        Announced that in the first quarter, production of zinc increased 18%.

·        Recently announced the startup of a new kiln installation in Rockwood, TN, increasing capacity for processing.

·        Announced plans to build a new EAF-dust-processing facility in South Carolina, which is expected to add 160,000 tons of capacity.

·        Market demand for zinc products was strong for the quarter as shipments increased 6% over the prior year quarter and 9% over the fourth quarter of 2007.

·        Cost reduction and growth initiatives are expected to impact results in the second half of the year.

KVH Industries

KVH Industries and its wholly owned subsidiary, KVH Europe A/S are leading providers of in-motion satellite TV and communication systems, having designed, manufactured, and sold more than 150,000 mobile satellite antennas for applications on vessels, vehicles, and aircraft. KVH's mission is to connect mobile customers around the globe with the same digital television entertainment, communications, and Internet services that they enjoy in their home and offices.

The company's products are based on its proprietary mobile satellite antenna and fiber-optic technologies. Its mobile communications products, including TracVision and TracPhone systems, enable customers to receive live digital television, telephone, and Internet services in their vehicles, vessels, and airplanes while in motion via satellite services.

The company's guidance and stabilization products include tactical navigation systems for a range of military vehicles, and precision fiber-optic, gyro-based systems that help platforms, such as gun turrets, remote weapon stations turrets, and radar units, as well as provide guidance for munitions.

Its fiber-optic products are used in commercial applications, such as train track geometry measurement systems, industrial robotics, optical stabilization, autonomous vehicles, and undersea remotely operated submersibles. The company sells its mobile communications products through an international network of distributors and retailers worldwide; guidance and stabilization products directly to the United States; and allied governments and government contractors, as well as through an international network of authorized independent sales representatives.

KVHI investor highlights

·        Revenue for the first quarter of 2008 was $23.1 million, up 13% from the first quarter ended March 31, 2007.

·        Net income for the quarter was $1.6 million, or 11 cents on a per-diluted share basis.

·        Announced in July 2008 that it has received a new $2 million order for its precision DSP-3100 fiber-optic gyros (FOGs) from Kongsberg Defence & Aerospace for use in the Protector family of remote weapon stations. The contract is in addition to a $6 million order received in April 2008 from Kongsberg, and will extend DSP-3100 FOG shipments into the early part of 2009.

·        Announced in July 2008 a new agreement with ViaSat to begin the global rollout of the popular mini-VSAT Broadband satellite communications service.

·        Currently trades at a forward P/E of 15.8, a price to sales of 1.29, and a price to book of 1.35.

·        KVHI has a current cash position of over $50 million with a negligible amount of debt $2 million.

·        Low float, only 12.7 million shares. 

Disclosure: SmallCapReview has not been compensated by any of the above-mentioned companies nor do we hold any positions in the companies. SCR may decide to purchase or sell shares on a voluntary basis in the open market before, during, or after the profiling period of this report.