6 Small-Cap Stocks with Big Prospects
Zacks Investment Research | Dec 11, 2020 04:17AM ET
We generally think of the Apples and Googles of the world when we imagine good investments. But that doesn’t have to be true all the time. In fact, every one of these big companies were one day just a small startup, struggling to make ends meet. People had strong doubts about whether Facebook (NASDAQ:FB) would even survive long after it IPO-ed.
Some of these large-cap stocks are still generating very strong growth rates, but today, you have to pull out much more cash to own them. So they aren’t an option for many. If you’re one of those that are looking for outsized returns on a relatively small budget, it could pay to start small.
Many of these small companies have some technology or product or expertise that will help them grow for years to come. However, there often are just one or two analysts following them, so there isn’t a whole lot of insight that can be gleaned from estimates. The pandemic is making things even more difficult. So estimates are not even making the ball park. In the cases highlighted below, you’ll find positive earnings surprises going as high as 700%!
However, the long-term growth rate is likely to have the coronavirus lows and recovery highs normalized. So it is likely to be more accurate. I’ve added the long-term growth estimate here for added color although the other points mentioned paint a fairly clear picture. Judge for yourselves-
Bassett Furniture Industries (NASDAQ:BSET), Inc. BSET
Bassett Furniture makes high quality, mid-priced home furnishings that are distributed through its 130+ licensed and company-owned Bassett Furniture Direct stores, as well as through other retailers.
The brand is focused on personalized retailing of trendy yet affordable custom offerings, on which it guarantees 30-day delivery. It features 1,000+ upholstery fabrics, free in-home design visits and coordinated decorating accessories.
The main driver of the business is therefore the home construction and repair-remodeling segment. This is one market that should see multiple years of growth, driven by the need for larger accommodations to feed the work-from-home trend as well as millennials setting up their homes.
The one analyst covering the stock continues to err on the side of caution. As a result, the company topped the estimate by 414.29% in the last quarter. The company is currently expected to grow earnings by 413.6% in the current fiscal year. Its expected long-term growth rate of 16.00%, which is probably a realistic rate of growth, is attractive.
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The company belongs to the Furniture industry, which is in the top 8% of 250+ Zacks-classified industries. This is good news for the stock because it generally means that there’s an outsized chance of its appreciation (stocks belonging to happening industries tend to move up based on the positive sentiment about the industry).
The shares carry a Zacks Rank #1 (Strong Buy), Value Score A, Growth Score A and Momentum Score B.
Hibbett Sports (NASDAQ:HIBB), Inc. HIBB
Hibbett Sports, as the name indicates, is an athletic-inspired retailer, selling competitively-priced and branded (Nike (NYSE:NKE), Under Armour (NYSE:UA) and Adidas (OTC:ADDYY)) footwear, apparel, accessories and athletic equipment to small and mid-sized counties/markets in the South, Southwest, Mid-Atlantic and Midwest regions of the United States. It also has a distribution center in Birmingham.
Hibbett primarily sells through its conveniently-located stores but also uses its own ecommerce website that it launched in fiscal 2018. Its store formats include Hibbet Sports (5,700 square-foot spaces attached to strip centers, Walmart (NYSE:WMT) or malls), City Gear (5,000 square-foot spaces in strip centers or malls) and Sports Additions (2,500 square-foot stores selling athletic footwear in malls). As of Oct 31, 2020, Hibbett operated 1,074 stores across 35 states.
Hibbett is definitely seeing some uptick in demand because the larger number of people working from home means that more people are now using casual rather than formal wear. Additionally, the need for physical fitness is now even more of a concern given that you are cooped up at home. As a result, demand for fitness gear is going through the roof with no signs of letting up any time on the horizon.
The setting up of its ecommerce store has also turned out to be a big positive for the company. In the last quarter for example, in-store sales grew 17%+ while online sales grew 50%+.
Hibbett topped the Zacks Consensus Estimate by 253.66% in the last quarter. It is expected to grow earnings by 148.5% this fiscal year. Its long-term growth rate of 17.04% is attractive.
The company belongs to the Retail - Miscellaneous industry, which is in the top 14% of Zacks-classified industries.
It carries a Zacks Rank #1, Value Score A, Growth Score A and Momentum Score C.
Tecnoglass (NASDAQ:TGLS) Inc. TGLS
Barranquilla, Colombia-based Tecnoglass is engaged in manufacturing and selling architectural glass, windows and aluminum products for the residential and commercial construction industries in North, Central and South America.
The residential construction and repair/renovation boom described above in case of Bassett is relevant in this case as well. Tecnoglass is seeing very strong demand, strong uptake of nits new products and market share gains in the U.S., according to management. This is also reflected in its backlog. This should lead to continued strength in its business over the next few years.
In the last quarter, Tecnoglass topped the Zacks Consensus Estimate by 64.7%. It is expected to grow earnings 13.0% this year. Its long-term growth rate of 20.0% is very attractive.
The company operates in the Building Products – Retail industry, which is in the top 15% of Zacks-classified industries. And as we already know, stocks belonging in attractive industries are more likely than not to see continuing appreciation, especially if the companies continue to top expectations and see significant upward revisions in estimates.
The shares carry a Zacks Rank #2 (Buy), Value Score A, Growth Score A and Momentum Score A.
Strattec Security Corp. STRT
Strattec Security Corporation designs, develops, manufactures and markets mechanical locks, electro-mechanical locks and related products for car and truck manufacturers with operations in the U.S., Canada and Mexico. The company also produces precision zinc die castings for the transportation, security and small engine industries.
Strattec is poised to gain from the recovery in the auto market, as well as the revolutions in electric vehicles (EVs) and automated vehicles (AVs).
In the last quarter, Strattec beat the Zacks Consensus Estimate by 777.3%. The company is expected to grow earnings 667.0% this year. Its long-term growth estimate of 15.00% looks attractive.
The company belongs in the Automotive - Original Equipment industry, which is in the top 19% of Zacks-classified industries.
It carries a Zacks Rank #1, Value Score A, Growth Score A and Momentum Score A.
LSI Industries Inc. LYTS
LSI Industries makes high quality lighting solutions primarily targeted at petroleum convenience stores, multisite retail and the commercial industrial lighting markets.
It has three operating segments: Lighting, which caters to outdoor, architectural outdoor, indoor, architectural indoor and accent/downlight markets; Graphics, which covers signage, menu board systems, active digital signage, decorative fixturing, design support, engineering & project management for retailers; and Technology, which develops and designs high performance light engines, digital signage and other products using LED lighting technology, including large format LED video screens for the entertainment & sports markets.
Given the fact that it is dependent on commercial operations, it isn’t surprising that demand has been soft this year. Still, there haven’t been any order cancellations, according to management. LSI has successfully offset near-term challenges with short-lead time smaller projects. Its decision to stay away from low-margin business has also helped.
That’s why the company was able to beat estimates by 60.0% in the last quarter and we are still looking at 150.0% EPS growth this year. Its long-term growth rate of 25.0% is also very attractive.
The company belongs in the Building Products – Lighting industry (top 30% of Zacks-classified industries).
The shares carry a Zacks Rank #2, Value Score B, Growth Score A and Momentum Score D.
Computer Task Group, Inc. (NASDAQ:CTG)
Based in Buffalo, New York, Computer Task Group is a provider of information technology (IT) staffing, IT solutions and application management outsourcing services primarily for technology service, financial service, healthcare and life sciences organizations in North America and Europe.
The company's staffing services consist of recruitment, retention and management of IT talent for its clients. Its IT solutions include helping clients assess their business needs and identifying suitable IT solutions; the delivery of services, including the selection and implementation of packaged software; and the design, construction, testing and integration of new systems.
The company topped estimates by 260.0% in the last quarter and is expected to grow earnings 27.5% this year. Its long-term growth rate of 16.0% is also attractive.
It belongs in the Computers - IT Services industry, which is in the top 48% of Zacks-classified industries.
The shares carry a Zacks Rank #2, Value Score A, Growth Score A and Momentum Score C.
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