By Richard Moroney, Upside

Operating income at Triumph (TGI), our top small cap pick for 2013, jumped 34% in the past year on 7% sales growth. Credit for the improved profitability primarily goes to the aerostructures unit.

The unit, which represents about three-fourths of the company sales, builds aircraft wings, fuselage sections, flight-control surfaces, and helicopter cabins.

The unit has improved commercial production rates and reaped cost synergies from a $407 million acquisition made in June 2010. Management sees opportunities to expand profit margins further.

Triumph seems well positioned in an improving commercial-plane market. In the military market, likely to be affected by U.S. budget constraints, Triumph believes it can gain share. At the end of September, the backlog stood at $4.04 billion, up 8% from a year earlier.

Triumph shares trade at 11 times trailing earnings, which is 16% below their three-year historical norm and 13% below the median for aerospace stocks in the S&P 1500.

Management says it will consider increasing the dividend, currently at $0.04 per share, or even pay a special distribution, if it fails to find attractive acquisitions. Triumph is rated a Best Buy.

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