The majority of the market is deep in the red today as investors rethink their recent buying spree. It is painful to watch, but if you know where to look there are signs the always-interesting small-cap market is still doing what it does best, making smart investors rich.

We have been researching and writing about the Chinese market a lot over the past couple of months. That is why it is no surprise to see a company like Hong Kong Highpower Technology (AMEX:HPJ) near the top of the day’s leader board.

Shares of the Chinese rechargeable battery maker are surging by 15% today as it makes up for ground lost last week.

The action can teach us an important lesson about small-cap investing. The world’s up-and-coming companies are often shielded from the overall market action. With a beta of nearly zero, Highpower has shown it wants nothing to do with the rest of the business world.

Last week, a drop in the equities market put pressure on the $20 million company. But this week the market is fixing its mistake as investors hop in on the undervalued play. This is a common theme in illiquid stocks that can force prices to move drastically in both directions and is used by smart investors to maximize their profit potential.

If you want to take advantage of the small-cap market’s pendulum-like swings, take a look at Quigley Corp. (NASDAQ:QGLY). The homeopathic drug maker was up by as much as 110% today, without the help of any newsworthy events.

That is an attention getter

Prices have spiked and are already on the decline as orders are filled and equilibrium is met. Chances are we will see further declines over the next several days.

But that is not the most exciting aspect of the company’s trading action today.

As a self-proclaimed trading volume expert, today’s spike in buying action proves the stock’s future potential. Many, many times during my career, I have gone back through a stock’s volume tables, circled a date and said, “That’s when it happened.”

Today’s action from Quigley is likely to be one of those events. Keep an eye on this one. Something good is on the way.

Finally, Nanometrics (NASDAQ:NANO) is bucking the market trend, surging ahead by as much as 20%. It comes thanks to an upgrade by Openheimer. The mutual fund manager boosted its rating from “perform” to “outperform.”

While these sudden pops are eagerly welcomed by shareholders, they do little to help on potential investors. The spikes are rarely sustained and the analysis is almost immediately shrugged off by the market.

In my experience, most big-firm analysts are typically several months too late to the game (or at least in divulging their participation). Today’s action from Nanometrics solidifies my belief. After all, shares of the semiconductor specialist have surged by over 325% since last November.

A tad bit late with the upgrade? You betcha.

The small-cap market has done it once again, solidly producing winners when the big boys are dropping like Obama’s popularity. With market manipulation on the rise, increased regulations and a government working overtime to create a new economy, today’s theme is going to become increasingly popular.

Small caps should not be your entire portfolio, but they deserve a larger share now than ever.

Source: Three Penny-Stock Winners in a Losing Market

OK, I am not a micro-investor; Nano sounds closer. Where is Cheniere likely to go? I look at this position like a pile of chips on the poker table. As long as they keep sending the dividends I am no worse. Long term I need that dividend income for my retirement hedge against inflation. I did see the comment from “Barrons.” I would like to know your opinion of Cheniere and its industry segment?

I love your blog. It is top-of-the-list of a group of blogs I read daily and is the one I like the most.

Wayne.

Dear Wayne,

I love MLPs because they typically pay out great dividends. In this case, Cheniere (CQP) is paying a 16% dividend. That’s not nearly enough for me to love them.

First of all, they aren’t making any money yet. Their future revenues will come from a 100% interest in the Sabine Pass gas terminal, which is 99% complete.

I call this risky because if construction is delayed or they get a hiccup during operation, their earnings will be affected immediately and you’ll see the stock take a hit. If earnings take a big hit and it affects their cash flow, then it’ll be hard for them to scrounge up enough money to continue paying that 16% dividend.

If they stop paying the dividend, the stock will fall faster than Fat Albert skydiving without a parachute.

To make matters worse, they barely have any cash (what they do have is restricted to pay off bonds), they have over two billion in debt, and their dividend history stretches only five quarters. Typically, we look for eight quarters of steady or increasing dividend payments.

Listen, if you’re looking at this as a gamble, then that’s exactly what you’ve gotten yourself into. This certainly wasn’t the safest income investment to get into.

As a gamble, this company should begin performing well once they have their gas terminal up and running. But for growth to continue, they will need to start acquiring or building more terminals and pipelines.

As an income investment, this company isn’t conservative enough. This is certainly no ride. But as a gamble, why not ride it? If they don’t begin appreciating after their gas terminal starts operation, then let it slide.

P.S. Want to see me cover a stock? Send an e-mail to feedback@investorsdailyedge.com

Source: Ride or Slide: Cheniere Energy Partners (CQP)