- (0:25) – Increased Volatility Creating Value
- (3:00) – Small Cap Value Stock Screener
- (4:30) – Tracey’s Top Stock Picks
- 13:45) – What Else To Know About Small Cap Stocks
- (16:00) – Episode Roundup: CAL, JILL, KEM, HVT, MHO
Welcome to Episode #80 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
The stock market has finally had a correction and volatility has picked up.
Could 2018 be the year that value stocks finally come back into favor?
So far, small cap value stocks continue to under-perform. Two of the popular small cap value ETFs, the Vanguard Small Cap Value ETF (VBR) and the iShares S&P Small-Cap 600 Value ETF (IJS) are down nearly 4% year-to-date.
But corrections are also a time to look for buying opportunity. Many of the small cap stocks have weakened.
Screening for Small Cap Value Stocks
There are a lot of small cap companies, where do you start if you want to invest?
To separate the wheat from the chaff, Tracey used the following criteria.
She screened for stocks with market caps under $1.5 billion, a price-to-sales ratio under 1.0, which usually means a company is undervalued, and looked for Zacks Ranks of #1 (Strong Buy) and #2 (Buy).
The high Zacks Rank should hopefully mean rising earnings estimates.
This screen returned 48 stocks, which was more than enough to find 5 top names.
5 Small Cap Value Stocks That are on Sale
1. Caleres Inc (NYSE:CAL) owns many well-known footwear brands including Via Spiga, Naturalizer, Dr. Scholl’s and Bzees. It operates 1200 retail stores, sells on its websites and also sells through major department stores. It’s cheap, with a P/S ratio of just 0.4. Shares are down over 14% year-to-date.
2. J. Jill Inc (NYSE:JILL) sells women’s casual apparel and accessories. It has a market cap of just $350 million. Shares are off their 2017 lows, but are still cheap. J. Jill is a classic value play with a forward P/E of 9.4, a P/S of 0.5, and a PEG of 0.6.
3. Kemet Corporation (NYSE:KEM) supplies electronic components around the world. It has a market cap of $983 million. Shares are actually up double digits on the year but are still cheap, with a P/S ratio of only 0.9 and a forward P/E of 11.4.
4. Haverty Furniture Companies, Inc. (NYSE:HVT) had a rough 2017. This furnishing retailer has over 100 show rooms in 16 states. Founded in 1885, it has seen it all. Earnings fell in 2017 but are expected to rebound 26.3% in 2018. It has a price-to-sales ratio of only 0.5.
5. M/I Homes Inc (NYSE:MHO) builds homes in the Midwest and South. It recently reported record fourth quarter and full year 2017 results. But 2018 is expected to be even better, with earnings expected to jump 45.5%. Shares are down over 10%, however, as investors are fearful of rising mortgage rates.
Investors should keep in mind that small caps are usually more volatile.
Additionally, there’s simply less financial information available on smaller companies. There are also fewer analysts covering them, so investors need to do their homework.
What else do you need to know about small cap stocks and this stock market correction?
Tune into this week’s podcast to find out.
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it’s predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce “the world’s first trillionaires,” but that should still leave plenty of money for regular investors who make the right trades early.