It’s starting to look like the Trump rally has hit it’s last legs. With all the political storms in Washington, Wall Street is starting to realize all the reforms it was pricing into stocks were premature.
There has been a big move into 10-year U.S. Treasuries, which means money managers are moving out of stocks into the safety of bonds until there’s more visibility. This may be a short-term effort, but changing from “risk on” to “risk off” is here for now.
But the economy still looks like it has sturdy legs underneath it, so it’s not as much whether to go to cash or stay with the big stocks, it’s more about finding the stocks that do best in this kind of market. And that is growing small-cap stocks, anywhere from market caps of $250 million to $2 billion.
The seven little-known stocks with big upside potential I feature here are in the right sectors, with the right products and will either make a bigger name for themselves or get swallowed up at hefty premiums by larger firms in their respective industries.
Small-Cap Stocks to Buy: Camtek (CAMT)
Camtek LTD. (NASDAQ:CAMT) is an Israel-based company that specializes in the automated optical inspection (AOI) sector. In the tech world, you have the parts that go into a printed circuit board (PCB) — resistors, capacitors, semiconductors, etc. — and they determine how a computer or phone or even radio operates. They’re the superhighways of our technology.
But just as the roads need to be inspected and maintained, so do PCBs. If you sell tens of billions of mobile phones, you need to know that every one of those phones will operate as it’s supposed to when it ships.
CAMT sells the equipment and services to inspect the inner workings of all these products. And given the fact that more products are becoming “smart,” the demand is growing, not diminishing.
Earlier this month, CAMT released earnings for the first quarter and had the best quarter in its history. The stock is up 32% in the past month and there is plenty of headroom for more outsized growth.
Small-Cap Stocks to Buy: Willdan Group (WLDN)
Willdan Group, Inc. (NASDAQ:WLDN) is an old school consulting firm that has been around for more than half a century. Its core business is working with state agencies, utilities and organizations primarily in New York and California for sustainability, engineering and homeland security services.
The last one, homeland security is certainly in the news a great deal these days. And that is very good for WLDN’s business. But it’s not just about building walls.
In Q1, which WLDN recently reported, contract revenue was up 102% year-over-year, and net income was up 145% year over year. And most of that was from its Energy Efficiency Services group. Homeland Security Services was blip on the balance sheet — for now.
That means there is still enormous potential growth built into WLDN in coming years. And as the services it’s currently providing grow as the economy expands, WLDN is in a prime position to benefit and grow its business.
Small-Cap Stocks to Buy: Dorchester Minerals (DMLP)
Dorchester Minerals LP (NASDAQ:DMLP) is basically the landlord on a lot of shale properties that produce oil and natural gas. It’s not an exploration and production company (E&P) firm, but leases its lands to E&P firms and gets a royalty off their production.
It’s a unique beast in the U.S. energy patch. And its business rises and falls with energy demand and energy prices. That means, it has been lean times for DMLP for the past couple years. But times have changed, as its recent first-quarter earnings report reveals.
Revenue was up 107% year-over-year and net income nearly quadrupled.
And since DMLP is set up as a limited partnership, it treats shareholders as direct owners and distributes its profits as dividends. Right now, the stock is delivering a 6.4% dividend, which will make up for a fair amount of volatility in the sector.
Small-Cap Stocks to Buy: Hooker Furniture (HOFT)
Hooker Furniture Corporation (NASDAQ:HOFT) is one of the nation’s largest furniture makers and sells it products under the Hooker, Bradington-Young, Sam Moore and Homeware brands.
This sector has seen its up and down in recent years, given the slow economy, sluggish home sales and tight credit. And considering the fact that furniture is one of the most durable goods in your home, if styles change and you haven’t kept up as a brand, it becomes a very costly mistake.
And this entire sector is driven by the U.S. consumer. If the consumer is spending, then times are good. When spending dries up, so do sales.
HOFT seems to be on a hot streak now. After three quarters of negative revenue growth, its FYQ4 numbers were very encouraging — up 14%. And earnings per share were up 28% year-over-year. Gross margins were up as well.
Part of the boost came from a new line HOFT launched in Q4. If it’s as big a hit as it was in the last quarter, the new quarters should show similar improvement. Another encouraging sign is that ocean shipping rates are at historic lows, which means it’s cheaper to get raw wood to the factories and that means better margins.
Small-Cap Stocks to Buy: NutriSystem (NTRI)
NutriSystem Inc (NASDAQ:NTRI) is certainly on a roll. That may be a multi-grain or gluten free roll, but it’s a good roll all the same. The weight management and nutrition service is up 37% in the past three months. It started with a strong Q4, as the winter holiday crowd started to prepare for 2017’s bikini season. NTRI launched its South Beach Diet line as well and it was more popular than expected.
But the good news continued into Q1, which was reported in late April. Revenue was up 31% year over year. Earnings growth was up a stunning 193% and earnings per share came in at 25 cents a share (analysts expected 17 cents a share), up 178%.
Back-to-back quarters of solid growth isn’t likely to be a fluke. NTRI has hit on the right formula at the right time. And in this sector when you have a hot hand, you play.
Small-Cap Stocks to Buy: Alliance (ARLP)
Alliance Resource Partners, L.P. (NASDAQ:ARLP) is a U.S. coal miner with operations in the Illinois Basin and Appalachia, basically Illinois, Indiana, Kentucky and West Virginia. ARLP focuses on steam or thermal coal, which is used mainly for generating power for utilities and industrial energy plants. The other type of coal is coking coal, which is used for making iron and steel.
With steel production still at low levels, many big coal operations suffered greatly with the drop in demand for coking coal. But ARLP has weathered the storm better because it sells thermal coal.
Demand has slackened for thermal coal since much of the demand has been shifted to natural gas, which is a more efficient fuel. But coal still has its customers and the new administration in Washington is doing all it can to keep coal alive.
As a limited partnership, the payoff here is more the dividend than the stock appreciation. Right now, ARLP is kicking off a nearly 8% dividend yield.
Small-Cap Stocks to Buy: iRobot (IRBT)
iRobot Corporation (NASDAQ:IRBT) calls itself a consumer robot company. If you’ve heard of the Roomba, Scooba, Looj or Braava then you’ve heard of iRobot.
They are all specialized cleaning devices that are fully automated. And the one thing that has set IRBT apart the from the competition isn’t the design of the products, but the programming. It has some of the best programming in the business.
What’s more, IRBT is a significant supplier to the U.S. military and homeland security forces and has been for years. That is significant because it means its products are built to much higher specifications than most household computer cleaning machines. It also means that its consumer division isn’t the only revenue generator IRBT has to work with. And as you well know, robots are in growing demand in all manner of services, especially for the military.
The stock is up 67% in the past three months as it continues to post solid sales of its consumer line.
Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.