This is the kind of market that rewards small-cap stocks.
With the economy in full-speed-ahead recovery mode, tax cuts boosting earnings and regulation rolling back, this is a great time to be a publicly traded company. And there is no sector that is better able to reap this bountiful harvest better than smaller companies.
The reason for this is simple. Leverage.
Most small companies produce very specific products or operate in niche industries. That means they usually get punished in bad times and chug along in mediocre times.
But when their services are in demand, their growth is much bigger, relatively speaking, than that for larger, more diversified companies.
Also, as the markets continue to rise, investors are looking for bargains where fewer and fewer exist. When they see some of these small caps making moves, it sets off bells for the program traders, momentum traders and algos.
Following are nine A-rated cheap stocks to consider adding to your portfolio to get the most out of this bull run.
A-Rated Cheap Stocks: Pedevco (PED)
Pedevco (NYSEAMERICAN:PED) is an exploration and production company (aka an upstream oil company, or E&P) that has been in trouble since OPEC raised production a few years back and dropped oil prices from nearly $100 a barrel to the $20’s.
It has been struggling ever since.
But late last month, it restructured its debt and the stock took off — up a whopping 760% in the past month.
This run isn’t a boon to current shareholders however, since the structuring meant more stock was issued, diluting shareholders who were in before the deal was struck.
But given the rising demand in oil and natural gas both in the domestic and international markets, PED has some breathing room now. And it certainly has something worth saving or the banks would have auctioned its debt off rather than reorganize it.
A-Rated Cheap Stocks: United Bancorp (UBCP)
United Bancorp (NASDAQ:UBCP) is a regional bank that operates in Ohio for both retail and commercial clients.
The stock is slightly above water year to date and it sports a respectable near-4% dividend.
The reason UBCP made this list is the fact that it’s a well-run bank in a state with a reviving economy. Where’s the growth?
Well, Congress has just made an extensive effort to get rid of onerous portions of the Dodd-Frank legislation that was enacted after the financial crisis in 2008. The intent of the legislation was to make sure that “too big to fail” banks and financial services companies couldn’t operate the way they had. But it also hurt regional banks that didn’t have the money to deal with all the new compliance requirements.
Now that’s lifted and a solid bank in a recovering state has a lot of growth ahead.
A-Rated Cheap Stocks: Bancorp of New Jersey (BKJ)
Bancorp of New Jersey (NYSEAMERICAN:BKJ) is another regional bank holding company, with its retail bank known as the Bank of New Jersey.
It’s a small bank with a $125 million market cap headquartered right across the river from Manhattan. It is conservatively run, with an asset-to-debt ratio that is much higher than the industry average.
And right now is a great opportunity to start lending more, as interest rates rise and financial regulations are loosened on this banking sector.
The stock is about breakeven year to date but it is well positioned to take advantage of emerging opportunities in this expanding economy.
A-Rated Cheap Stocks: Rosetta Stone (RST)
Rosetta Stone (NYSE:RST) is up almost 40% year to date, which continues a solid bullish run for the past year.
The company offers technology-based language learning solutions. The thing is, you have to see this market as focused on the educational sector rather than the professional development or adult education markets.
Given the multi-cultural reality of the U.S. population and the interest many children have in adding one or two languages to their native one, RST is an ideal way for schools to offer the languages their students (and parents) demand.
This offers flexibility to the schools and doesn’t tax their limited budgets like hiring teachers would.
A-Rated Cheap Stocks: Noodles & Co (NDLS)
Noodles & Co (NASDAQ: NDLS) has been on a tear in 2018. It’s up about 125% so far this year and almost 170% in the past 12 months.
If you haven’t seen one, NDLS are restaurants that specialize in made-to-order noodles from various global cuisines. They also offer soups, salads, sandwiches and appetizers.
Given the global popularity of noodle-based dishes, it’s easy to understand the demand for its products. But the challenge for a chain restaurant like this is its ability to scale profitably.
Some debt is expected as it grows, but the real litmus test is if it is growing its revenue as its growing its store count. And NDLS is doing just that.
A-Rated Cheap Stocks: Destination Maternity (DEST)
Destination Maternity Corporation (NASDAQ:DEST) specializes in the design, manufacture and sale of maternity clothes and accessories. It sells under three separate brands — Motherhood Maternity, A Pea in the Pod and Destination Maternity.
A strengthening economy is the biggest opportunity for DEST, since that kind of optimism encourages couples to have children but also encourages mothers to buy more products.
This has been reflected in its recent earning numbers and stock price. The stock is up 109% in the past three months, after a solid fiscal Q1 earnings report last month. It was also announced recently that the entire board has been replaced with a majority-female board.
A-Rated Cheap Stocks: Reed’s (REED)
Reed’s (NYSEAMERICAN:REED) has been making carbonated and non-carbonated boutique sodas since 1987.
And during that time, it has weathered some challenging environments, especially when the big soda companies were at the height of their power. But that’s no longer the case, as with many other products.
Now, consumers are much more scrupulous about what they buy, what’s in it and how it’s made. This is a great time for REED.
It has been a solid performer in the boutique beverage business, so distributors can count on the company filling orders, and consumers know that they’re still buying an independent brand that hasn’t been purchased by a big firm and reformulated.
REED stock is up 63% year to date and that growth should continue as consumers can afford to vote with their pocketbook.
A-Rated Cheap Stocks: Stag Stores (SSI)
Stage Stores (NYSE:SSI) is holding company for a group of retail clothing stores, including Bealls, Peebles, Palais Royal and Goody’s.
The company was founded in the 1920’s, but the current version started when it began acquiring more retail brands and expanded its reach. Now SSI operates 800 stores in 42 states, with the average store about 18,200 square feet.
SSI was hammered by the “death of the malls” cycle in the past couple of years. So much so that its current market cap is around $68 million but its average annual sales in 2017 were over $1 billion.
But things are turning around. SSI stock is up 44% year to date and its likely that if it continues to show that the worst is over, this kind of growth has little to stop it.
A-Rated Cheap Stocks: Smith Micro Software (SMSI)
Smith Micro Software Inc (NASDAQ:SMSI) develops software to make accessing and using mobile computing easier, safer and more efficient.
While most people think that their service provider is doing most of that heavy lifting, that’s like thinking that your smartphone is a walkie-talkie with a few transistors in it.
There is an entire industry built between service towers and mobile devices and service providers. But regardless of the intricacies of the work that SMSI does, suffice it to say that mobility is the key to tech transformation for the next decade, at least.
But the road will not be even, nor paved completely, so SMSI has its ups and downs. For example, SMSI stock is up 70% for the past 12 months, off 14% year to date but up 24% in the past three months.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, 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.
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