Small-cap companies are those whose market capitalization ranges from $300 million to $2 billion. Typically, such companies have outperformed large-cap ones; therefore, a high-quality portfolio of small-cap stocks could lead to massive returns. That’s why finding the best small-cap stocks to buy can be worthwhile for investors.
Small-cap stocks are represented by the Russell 2000 Index. The index has underperformed compared to the broader market, gaining only 5.3% in the past year. On the flip side, the S&P 500 grew 15.3% in the same period.
The novel coronavirus has heavily impacted small and medium-sized businesses. Large companies were able to shore up liquidity and weather the storm somewhat, a luxury which most small companies don’t have.
However, several small caps are doing exceptionally well despite the downturn. Let’s look at three of the most promising small-cap stocks to buy:
Small-Cap Stocks to Buy: Unisys Corporation (UIS)
Market cap: $684 million
Unisys is an information technology consulting services company based in Blue Bell, Pennsylvania. The company provides data analytics, network, financial services, and outsourcing services for various clients across the world. Despite the coronavirus-led market slowdown, UIS stock’s 12-month return relative to the S&P 500 is an impressive 40.4%.
Second-quarter results for the company were weighed down by Covid-19. Revenues dropped 22.9% compared to the same period last year. As a result, the company posted a net loss of $76.5 million compared to a $0.7 million net income in the prior-year period.
Most of the revenue decline was linked to a slowdown in services, currency movements and intra-year shifts in ClearPath Forward.
However, full-year revenue expectations remain unchanged as the management remains confident of its abilities. “Our client satisfaction is high, represented by an industry-leading Net Promoter Score, and our liquidity is strong coming out of the most challenging Covid-19 quarter,” said Unisys Chairman and CEO Peter A. Altabef.
UIS stock is currently trading at a hefty discount to its mean price target of $18.80; it’s best to grab the stock at this time.
Big Lots (BIG)
Market Cap: $1.8 billion
Big Lots is a retail company that deals in various housewares, furniture, consumables, merchandise, electronics and other items. The company has more than 1,400 stores across 47 states in the U.S.
Covid-19 has done little to slow down BIG stock’s momentum, as its 12-month return relative to the S&P 500 is a massive 123%.
Its second quarter this year was its best in history, with a record increase in revenues and its adjusted EPS. Revenues grew 31% compared to the prior-year period, which helped expand its already impressive margins. Adjusted EPS of $2.75 came in almost five times higher than the second quarter last year.
Perhaps the company’s most impressive aspect was its cash balance, which grew to $899 million from $54 million a year earlier. Debt levels shrunk to $43 million from $468 million a year earlier.
Big Lots’ strategies perfectly aligned with the stay-at-home, recessionary environment. Management seems to have figured out the omnichannel experience offering greater flexibility and efficiency to its customers. Additionally, its assortment of home products at lower price points perfectly aligned with the current scenario.
As a result, price estimates for BIG stock are going at $75 per share, almost 60% higher than its current price.
Textainer Group Holdings (TGH)
Market Cap: $798 million
Textainer Group is a holding company involved in the purchasing, leasing, and resale of dry freight containers. It has three primary segments, which include container ownership, container management and container resale. The company stayed resilient despite the pandemic’s effects, with TGH generating a 12-month return of 62%.
Second-quarter results were impressive despite the global economic downturn. Revenues remained stable at $144.8 million, and net income improved substantially to $16 million from $314,000 in the prior-year period.
“Though the second quarter saw a worsening in global trade, our container fleet of mostly long-term leases continued to perform strongly, with only a slight decrease in utilization,” CEO Olivier Ghesquiere said.
The third quarter looks a lot more promising as the company is witnessing a considerable uptake in demand for containers. There has been a cyclical increase in trade in the European and North American regions and the easing of quarantine restrictions.
Hence, TGH stock is up 21% this month, and investors should grab it before it shoots even higher.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.