Niche Mission Critical Products/Services?

[Nell-e]

I listened to episode 60 of the Focused Compounding podcast and the guest made a really interesting point.  He likes small companies that provide niche mission critical products/services to customers where the product is small % of customer's overall budget.  His example was Kadent (KAI) which makes supplies used in papermaking.

 

Off the top of my head I can think of tow bars and Horizon Global (HZN).  Unfortunately, Horizon can't execute.

 

What other stocks can people think of that fit this profile?

 

 

 

[Gilp]

Uranium. The industry is in downturn for quite a long time.

The miners say that there will not be enough uranium coming from the ground in some point in the future, as the mines depleted and the spot price is too low for development of new mines. Cameco has shut down 2 mines and buying on the spot market to fulfil orders.

New mine development (greenfield) takes around 10 years, according to the miners.

Nuclear is clean and actually much safer than public perception, especially modern reactors.

Cameco doesn't look so cheap though.

[Nell-e]

I looked at the uranium industry in July because of the whole Section 232 thing.  Ultimately, I decided that it doesn't look like a high probability bet.  Many of the companies in the industry will need to raise capital if uranium prices don't go up soon.  I was looking at the smaller players.

 

If I recall Cameco also has an ongoing tax lawsuit that is likely to end unfavorably.

 

 

[clutch]

There are many mission critical software applications that are extremely sticky. They are not small businesses, but some expert software vendors such as ADSK, ANSS, and ALTR come to my mind. However, they are all currently treated as growth companies and it's very hard to value them IMO.

[mwtorock]

WDFC, although probably not a small cap

[Broeb22]

AME, TDY, MLAB, HEI, are some that come to mind that own tons of small niche businesses, all with slightly different focuses.

 

Unfortunately, I would say this market has been pretty well picked over, although there are probably always new niche solutions coming about that solve new problems or old problems better than competition.

 

As far as sticky systems, Graco, Nordson, and Carlisle have businesses with similar characteristics.