Despite today’s gains, fears that Britain’s exit from the EU will kick-start a global recession are still running pretty rampant. As is the case with most extreme opinions about the stock market, however, it’s unlikely we’ll ever see the absolute worst-case scenario possible take shape here and now. And that’s good news for small-cap stocks.
Realistically, stocks will end up doing something relatively boring — as they usually do — and eventually shrug off these worries and continue the slow march to higher highs.
With that as the backdrop, now’s the time to go bargain shopping for stocks, and for small-cap stocks in particular. Several of them have been hit much harder than they deserved following the Brexit announcement, and are poised to pop in a big way once the veil of uncertainty is lifted.
Here’s a closer look at three of the best small-cap stocks from that select group.
Small-Cap Stocks to Buy: General Cable Corporation (BGC)
Contrary to popular belief, old, big blue-chips aren’t the only names that pay a decent dividend. Small-cap stocks pay them too. And few pay them as reliably and consistently as General Cable Corporation (NYSE:BGC). It has been paying them like clockwork for more than a couple decades now, and the current yield is a healthy 5.86%.
General Cable makes a variety of cables and wires, serving the telecom industry just as well as it serves the utility and construction industries. This diversity helps the company smooth out any rough edges of industry-specific cycles.
But could the Brexit-induced lull pose a threat to all of General Cable’s business lines? Maybe … but that possibility has already been priced into the value of BGC, and then some. The forward-looking price-to-earnings ratio is a plenty-plausible 9.
If for some reason the world as we know it doesn’t end in the aftermath of the Brexit, investors are apt to find a value and an income they like in BGC.
Small-Cap Stocks to Buy: Kaiser Aluminum Corp. (KALU)
When most investors think of aluminum stocks, they think of Alcoa Inc (NYSE:AA). And well they should. Not only is it the biggest aluminum company in America, it’s also an American icon.
Problem: Alcoa has also been contending with a huge swath of headaches, the biggest of which is a string of earnings shortfalls stemming from plummeting aluminum prices. Although the industrial metal has rallied with most commodities since early this year, the recent, post-Brexit surge in the greenback’s value has rekindled an all-too-familiar threat to the aluminum industry.
A closer look at Kaiser Aluminum Corp. (NASDAQ:KALU), however, suggests it can withstand more price volatility from aluminum than you might think.
Much of that resiliency lies in the fact that it’s smaller — with a market cap of only $1.5 billion — and, therefore, more nimble than bigger brother Alcoa. Another key reason its earnings haven’t been as volatile as Alcoa’s is the simple fact that Kaiser Aluminum has a strong focus on specialty products, and is therefore less subject to cyclical headwinds.
The market was finally starting to price that in through Thursday of last week as the aluminum rebound become quite real, but the Brexit news took hold and didn’t let go, and the U.S. dollar’s renewed relative strength was presumed to be a major pitfall for the price of aluminum.
With the dust settling and the U.S. dollar being contained already though, those fears about the environment KALU would be facing were overblown.
Small-Cap Stocks to Buy: Viad Corp (VVI)
Last but not least, it’s more than a little off the beaten path — even by small-cap stocks standards — but Viad Corp (NYSE:VVI) has more than earned a spot on the short list of small-cap stocks to buy once the knee-jerk bearishness withers away.
Viad is a two-pronged outfit. One arm hosts and promotes events, and the other manages tourist destination trips; entertainment is the name of the game.
One would think such diversions would be the first thing to go if a global economic slowdown were to take shape. That’s not been the case though.
Cyclical stock earnings have been rather resilient, even as most other sectors have hit a profit headwind. The S&P 600 Consumer Discretionary Index, for instance, posted a decent 8% improvement in earnings last year, and it is projected to grow the bottom line by 30% this year, offsetting last year’s lull.
But why Viad Corp among all the other choices in the group? Because — in simplest terms — consumers are increasingly interested in experiences and increasingly disinterested in buying things.
That mentality is right up Viad’s alley. The numbers prove it too. The pros say the company is going to beef up last year’s bottom line of $1.32 per share to $2.27 this year to $2.47 next year, on more of the same steady revenue growth. That translates into a very attractive forward-looking P/E of 12.18.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.