[Editor’s note: “10 Small-Cap, Up-And-Coming Stocks to Keep on Your Radar” was previously published in July 2019. It has since been updated to include the most relevant information available.]
2019 has been a seemingly good year for the broad market, but take a closer look. That strength has been limited to large caps. In the last three months, the S&P 500 has gained 2.4%, while the Russell 2000 small cap index has given up 1.4% of its value. The S&P 600 small cap index, with an even smaller typical market cap, is down nearly 4% in the last month.
The group-wide weakness of the recent past, however, doesn’t necessarily portend more weakness for all of these names in the foreseeable future. Indeed, as investors seek to lock in profits on their more recognizable large-cap positions, it’s small-cap stocks that are most likely to be viewed as oversold, undervalued opportunities.
With that as the backdrop, here’s a rundown of ten up-and-coming stocks that could energize portfolios at a time when more familiar names have little left to give. Not all of these names will ring a bell. But, that’s the point.
Odds are good you’ve eaten something within the past 24 hours that Bunge (NYSE:BG) helped put on your plate. The company is one of the biggest global suppliers of grains like corn and wheat, but it also sells fertilizers, milled products and edible oils like olive oil and coconut oil.
It isn’t stopping there though. At the same time it’s addressing the world’s food scarcity crisis by establishing facilities closer to where needs exist, Bunge is also taking aim at the burgeoning energy crises. It and oil giant BP (NYSE:BP) announced this week they’ll be working on a bioenergy project that makes the pair the world’s third-biggest sugarcane processor.
It’s all working. Though revenue growth has been and will remain modest, these are businesses that scale well. This year’s expected per-share earnings of $3.65 are projected to reach $3.84 next year.
Exelixis (NASDAQ:EXEL) is a small biopharma outfit primarily focused on the treatment of cancer. Its flagship product, Cabometyx, accounts for roughly 80% of the EXEL’s business, while collaboration income makes up most of the remainder.
Exelixis isn’t stopping with the development of Cabometyx’s underlying tyrosine kinase-inhibitor though. The same molecular formula is now the basis of several dozen different clinical trials — including a couple of phase three tests — most of which are being handled by other pharmaceutical companies that want to use Exelixis’ cabozantinib in conjunction with another drug.
It’s not a recipe for a massive, one-off growth spurt. But EXEL has set the stage for years of potential double-digit sales and earnings growth.
Teladoc Health (TDOC)
Teladoc Health (NYSE:TDOC) isn’t a profitable company, but at its current pace of progress, there’s a light at the end of the tunnel. This year’s and enxt year’s top line are expected to improve by nearly 25%. That improvement should shrink 2020’s loss meaningfully.
It’s a business model whose time has not only come, but is a sign of the times. Teladoc Health, in simplest terms, let’s patients receive medical attention online. Rather than having to go into a doctor’s office, an internet-based conversation — either video chatting or a voice call — can get you the clinical medical attention you need. Teladoc’s doctors can even write a prescription when necessary.
Brooks Automation (BRKS)
It was inevitable. As improved computers in turn improved robotics, manufacturing organizations would increasingly automate their operations. Not only are robots cheaper than humans, they tend to fabricate more precise products.
Enter Brooks Automation (NASDAQ:BRKS), which offers automation solutions manufactures want, and even need.
The company has carved out a couple of niches in the most lucrative of industries. That is, Brooks caters specifically to semiconductor makers, and life sciences companies. Its Spartan Sorters, for instance, handle ultra-thin wafers used in high-end technologies, allowing the fabrication of electronics components in a perfectly dust-free environment that might otherwise compromise the functioning of that component.
In the red just three years ago, Brooks has found a bullish (and profitable) groove, easily qualifying BRKS as one of the top up-and-coming stocks among small-cap names.
Speaking of semiconductor technologies, add Qorvo (NASDAQ:QRVO) to the list of small cap stocks to mull. Whereas Brooks Automation makes a means of handling them, Qorvo makes the chips that need special care when handling.
It’s clearly not an Intel (NASDAQ:INTC). It’s not even a Texas Instruments (NASDAQ:TXN). Don’t let its small size fool you though. What Qorvo may not be a head turner, but it’s got a diverse menu of technology products that serve industries ranging from automobiles to mobile devices to aerospace outfits to the nascent Internet of Things arena.
The advent of 5G connections (and the subsequent Internet of Things era it will help usher in) appears to be a particularly strong opportunity for the company. Not only does Qorvo make some of the 5G components used in 5G handsets, it makes solutions for so-called ‘smart homes‘ that will be monitored and managed using those ultra-high-speed connections.
Graphic Packaging Holding Company (GPK)
You don’t likely know it, but it would be unusual if within the past week you hadn’t seen, or even touched, something made by Graphic Packaging Holding Company (NYSE:GPK). The company makes a variety of packaging solutions, particularly for the food and beverage industries, but also manufactures cartons that can double as display solutions.
It’s hardly a riveting business, but it’s one that lends itself to scaling up. And, Graphic Packaging has kept things interesting by doing just that. GPK shares jumped more than 7% on Tuesday in response to the company’s second quarter earnings beat that was at least partially driven by last year’s acquisition of PFP and part of Letica Foodservice, and partially driven by its relatively new status as an approved member of Amazon’s Packaging Support and Supplier Network.
The company also announced ts intention to buy Artistic Carton, setting up more scale for later this year and beyond.
Arrow Electronics (ARW)
Add Arrow Electronics (NYSE:ARW) to your list of noteworthy up-and-coming stocks. Though this year is proving to be a tough one that’s taken a toll on the stock’s price, the company is expected to start growing in earnest again come next year.
If you need an electronics component, or even a completely self-contained system on a circuit board, Arrow Electronics probably offers it. If not, it can find or even develop one. The company sells thousands of various amplifiers, converters, capacitors, sensors, switches and more. None of it is sexy, but all of it is marketable.
And the tech industry has taken notice. Microsoft (NASDAQ:MSFT) recently deemed Arrow Electronics to be one of the technology sector’s top providers of Microsoft-based solutions for 2019.
If you’ve ever wondered who makes the capsules and coatings that surround pills and then melt in your stomach, it’s rarely the drug’s actual manufacturer. A company called Catalent (NYSE:CTLT) supplies them.
That’s only a fraction of the drug-delivery solutions the company brings to the table though. Catalent also offers spray-drying technology to improve a medicine’s solubility, beauty-related packaging and drug-development solutions just to name a few more. Its lineup largely consists of the things consumers take for granted, but couldn’t live without.
It’s not a high-growth business. It’s a company that saw explosive growth in 2017, though, that’s still largely being overlooked.
And that’s a big mistake. Patient investors would have been rewarded with a 79% gain thus far in 2019. And, with its growing role in the field of gene therapies, similar upside may still be on the table.
F.N.B. Corp (FNB)
It’s certainly no threat to the likes of Bank of America (NYSE:BAC) or Wells Fargo (NYSE:WFC)… at least not yet. Regional bank F.N.B. Corp (NYSE:FNB) is still a name to respect though, and perhaps even invest in.
F.N.B. Corp — consumers in the northeastern part of the country know it better as First National Bank — operates nearly 400 branches in seven different states, sporting an asset base in excess of $30 billion. That leaves the bank in something of a sweet spot, where it’s got enough size to make use of its fiscal muscle, but isn’t so big that it’s crimped by the Fed’s banking rules specifically taking aim at institutions that are ‘too big to fail.’
More important, F.N.B. is a steady-growth machine. Through a combination of acquisitions and smart execution, the company hasn’t failed to grow operating income in any quarter since 2011.
XPO Logistics (XPO)
One wouldn’t think a logistics market that already included the likes of United Parcel Service (NYSE:UPS) and FedEx (NYSE:FDX) would even allow another player to take shape, let alone thrive.
But XPO Logistics (NYSE:XPO) is doing something most enterprising newcomers to any market try to do. They’re using their competition’s sheer size against them, and leveraging technology to become a highly-nimble service provider for organizations that need very specific solutions. XPO is more of a supply chain consultant than a shipping company. It identifying where inefficiencies exist — something FedEx and UPS haven’t quite embraced.
The company’s results underscore the argument that XPO is one of a handful of up-and-coming stocks worth a closer look. Though revenue has only been growing at a single-digit pace, per-share earnings are expected to reach $3.86 this year, up from last year’s $3.19, and then soar to $4.65 in 2020.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.