In this article, we will discuss the top 10 small-cap stocks in top investors’ stock portfolio. If you want to skip our analysis, you can take a look at the list of Top Investors’ Stock Portfolio: 5 Small Cap Stocks To Buy.
Small–cap stocks are considered to be more volatile and riskier than large–cap stocks, but they also offer the potential for greater growth. In terms of timing we believe this is a great time to buy certain small cap stocks as they are relatively more shielded from the effects of strong US dollar, and they trade at a bigger discount. Many small–cap stocks are young companies with innovative products or services that are just beginning to gain traction in the marketplace. While there are no guarantees in the stock market, investing in small–cap stocks can be a rewarding experience for investors who are willing to take on a little more risk.
“Small-Caps Are Really Well Positioned For This Environment”
On November 1 Nancy Prial, Co-CEO and senior portfolio manager at Essex Investment Management, appeared in an interview on CNBC where she discussed why “small-caps are really well positioned for this environment”. Nancy Prial noted that she sees a “hard landing” as opposed to a “deep recession” and that “the U.S. economy will look better and be stronger than most of the other economies, particularly those in western Europe” due to the Russian-Ukraine conflict. Here are some comments from Nancy Prial:
“We think small-caps are really well positioned for this environment because they are leveraging the domestic economy, and more importantly, they are leveraging the industrial economy which we believe will be leading in growth for not only the next year but for the next decade… Small-caps are still extraordinarily cheap, in fact, they are selling at valuations on both an absolute and relative basis that are similar to when they were selling back at the 1999-2000 point…”
Nancy Prial noted that small-caps are more attractively valued and “under-owned” as compared to their large-cap counterparts and that she sees the “valuation discount, better growth prospects, and lack of ownership” of small-cap companies “puts them in a great position to appreciate as earnings come through”. Nancy Prial sees small-caps driving outperformance in 2023, here is her bull case for small-caps:
“Small caps have been outperforming their larger brethren over the most recent period. They outperformed in October, they outperformed in September, and they outperformed in the second quarter. A lot of that is due to the valuation and the fact that the earnings are coming through. They are more domestically oriented, so the dollar has been less of a headwind for them…”
As of November 4, the Dow has tanked 11.43% year to date, the S&P 500 has lost 21.39% since the beginning of 2022, and the Nasdaq is down 33.84% for the year. Stocks are getting hammered, bond yields are going up, and the dollar is showing no signs of weakness. However, long-term investors can capitalize on the recent share price weakness by investing in quality businesses while they still trade at discount levels. This article will review some of the best small-cap stocks to invest in which include The ODP Corporation (NYSE:ODP), Herbalife Nutrition Ltd. (NYSE:HLF), and Algoma Steel Group Inc. (NASDAQ:ASTL).
Source:Pixabay
Our Methodology
To determine the best small-cap stocks to buy now, we screened for small-cap companies that were profitable, cash-rich, and held leading positions in their respective industries. We picked the 10 best small-cap stocks based on business fundamentals, growth catalysts, and overall market sentiment. Along with each stock, we have mentioned the hedge fund sentiment and analyst ratings. These stocks are ranked according to their popularity among elite hedge funds.
Top Investors’ Stock Portfolio: 10 Small-Cap Stocks To Buy
10. Heidrick & Struggles International, Inc. (NASDAQ:HSII)
Market Cap as of November 4: $544.18 Million
Number of Hedge Fund Holders: 13
Heidrick & Struggles International, Inc. (NASDAQ:HSII) is a leading staffing and employment services company that provides executive search, consulting, and on-demand talent services to businesses and business leaders worldwide. On October 24, Heidrick & Struggles International, Inc. (NASDAQ:HSII) declared a quarterly cash dividend of $0.15 per share. The dividend is payable on November 18 to stockholders of record on November 4. As of November 4, the stock is trading at a PE multiple of 7x and is offering a forward dividend yield of 2.19%. Heidrick & Struggles International, Inc. (NASDAQ:HSII) is included among the top investors’ stock portfolio.
On October 26, Barrington analyst Kevin Steinke revised his price target on Heidrick & Struggles International, Inc. (NASDAQ:HSII) to $38 from $45 and maintained an Outperform rating on the shares.
At the end of Q2 2022, 13 hedge funds were eager on Heidrick & Struggles International, Inc. (NASDAQ:HSII) and disclosed stakes of $98.3 million in the company. Of those, Renaissance Technologies was the leading shareholder in the company and held a position worth $42.2 million.
Smart money investors are pouring into some promising small-caps which include The ODP Corporation (NYSE:ODP), Herbalife Nutrition Ltd. (NYSE:HLF), and Algoma Steel Group Inc. (NASDAQ:ASTL).
9. Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH)
Market Cap as of November 4: $640.67 Million
Number of Hedge Fund Holders: 13
Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) develops, operates, and franchises fine dining restaurants in the United States. On November 4, Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) released earnings for the fiscal third quarter of 2022. The company reported earnings per share of $0.16 and generated a revenue of $112.74 million, ahead of Wall Street estimates by $1.71 million. Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) is one of the small-cap stocks that make up the top investors’ stock portfolio.
Shortly after the company’s earnings release, Stephens analyst Joshua Long revised his price target on Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) to $20 from $22 and maintained an Overweight rating on the shares.
Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) has a strong cash position and knows how to direct its resources efficiently. The company has free cash flows of $24.15 million and on August 5, the company announced that its board of directors has approved a new share buyback program for the repurchase of up to $60 million worth of the company’s common shares.
At the close of Q2 2022, Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) was a part of 13 investors’ portfolios that held positions worth in total of $91 million. As of June 30, Hill Path Capital is the top shareholder in Ruth’s Hospitality Group, Inc. (NASDAQ:RUTH) and has stakes worth $48.3 million in the company.
8. Embecta Corp. (NASDAQ:EMBC)
Market Cap as of November 4: $1.69 Billion
Number of Hedge Fund Holders: 13
Embecta Corp. (NASDAQ:EMBC) is a leading global medical device company that offers a range of solutions for diabetic individuals. The company was recently spun off Becton, Dickinson, and Company (NYSE:BDX) and has now become a pure-play diabetes company. The company’s products include pen needles, syringes, and safety devices, among other products that can aid diabetic patients. Shares of Embecta Corp. (NASDAQ:EMBC) have pulled back in 2022 and are presenting an optimal buying opportunity. The stock is trading at a PE multiple of 5x, as of November 4, and is offering a forward dividend yield of 2.06% to shareholders. The company has a strong cash position and has free cash flows of $410.9 million. The stock is ranked among the top investors’ stock portfolio.
On August 1, Morgan Stanley analyst Cecilia Furlong took coverage of Embecta Corp. (NASDAQ:EMBC) with an Equal Weight rating and a $33 price target. On September 8, BTIG analyst Marie Thibault took coverage of Embecta Corp. (NASDAQ:EMBC) with a Neutral rating.
At the close of Q2 2022, 13 hedge funds were long Embecta Corp. (NASDAQ:EMBC) and held stakes worth $197.3 million in the company. This is compared to 1 position in the preceding quarter with stakes worth $712,000. As of June 30, Sessa Capital is the largest investor in Embecta Corp. (NASDAQ:EMBC) and has a position worth $91.8 million in the company.
Here is what Madison Funds had to say about Embecta Corp. (NASDAQ:EMBC) in its second-quarter 2022 investor letter:
“During the quarter, we exited Embecta Corp. (NASDAQ:EMBC) and initiated a position in Nike. We received shares in Embecta as a result of Becton Dickinson spinning-off its Diabetes Care segment. In our assessment, Embecta was fairly valued, so we decided to exit the holding.”
7. Beazer Homes USA, Inc. (NYSE:BZH)
Market Cap as of November 4: $343.71 Million
Number of Hedge Fund Holders: 15
Beazer Homes USA, Inc. (NYSE:BZH) is among the largest homebuilders in the United States and is ranked among the top investors’ stock portfolio. The company is profitable and efficient at making profits for shareholders. Beazer Homes USA, Inc. (NYSE:BZH) has a trailing twelve-month operating margin of 10.13% and an ROE of 23.83%. The stock is currently trading at an attractive valuation and is presenting an optimal entry point for investors. As of November 4, Beazer Homes USA, Inc. (NYSE:BZH) has a trailing twelve-month PE ratio of 1.86.
On October 18, B. Riley analyst Alex Rygiel revised his price target on Beazer Homes USA, Inc. (NYSE:BZH) to $15 from $19 and maintained a Buy rating on the shares.
At the end of Q2 2022, Beazer Homes USA, Inc. (NYSE:BZH) was spotted on 15 investors’ portfolios. These funds held collective stakes of $32.5 million in the company, up from $28.2 million in the previous quarter with 14 positions. The hedge fund sentiment for the stock is positive.
As of June 30, Millennium Management is the top shareholder in Beazer Homes USA, Inc. (NYSE:BZH) and has a position worth $6.2 million.
6. Materion Corporation (NYSE:MTRN)
Market Cap as of November 4: $1.48 Billion
Number of Hedge Fund Holders: 16
Materion Corporation (NYSE:MTRN) is a global provider of advanced engineered materials and serves a wide range of growth industries including semiconductors, aerospace, defense, consumer electronics, and energy among others. On October 28, Materion Corporation (NYSE:MTRN) declared a quarterly cash dividend of $0.125 per common share, payable on December 8 to investors of record on November 16. As of November 4, the stock is offering a forward dividend yield of 0.69% and is ranked among the top investors’ stock portfolio.
On October 18, KeyBanc analyst Philip Gibbs updated his price target on Materion Corporation (NYSE:MTRN) to $94 from $100 and reiterated an Overweight rating on the shares.
At the end of Q2 2022, 16 hedge funds held stakes in Materion Corporation (NYSE:MTRN). The total value of these stakes amounted to $140.6 million. This is compared to 16 hedge funds in the previous quarter with stakes worth $119.2 million.
As of June 30, ACK Asset Management is the largest shareholder in Materion Corporation (NYSE:MTRN) and has disclosed stakes of $30.9 million in the company.
In addition to Materion Corporation (NYSE:MTRN), other top small-cap stocks that are on investors’ radars include The ODP Corporation (NYSE:ODP), Herbalife Nutrition Ltd. (NYSE:HLF), and Algoma Steel Group Inc. (NASDAQ:ASTL).
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Disclosure: None. Top Investors’ Stock Portfolio: 10 Small Cap Stocks To Buy is originally published on Insider Monkey.