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3 Stocks to Buy (And 4 to Skip) in This Small-Cap Value ETF

stocks to buy - 3 Stocks to Buy (And 4 to Skip) in This Small-Cap Value ETF

Source: Shutterstock

  • If you’re looking for stocks to buy you may not have heard of, look in the small-cap value index.
  • Helmerich & Payne (HP): The stock price already reflects its growth.
  • Group 1 Automotive (GPI): A stock to buy for growth and value.
  • PBF Energy (PBF): A stock to buy for high energy price participation.
  • Owens & Minor (OMI): A stock to buy that could be oversold.
  • Allegiant Travel Company (ALGT): Not making money in a tough market.
  • Select Medical Holdings (SEM): Avoid SEM until they make more money.
  • Independent Bank Group (IBTX): Interesting, but not a stock to buy now.

Small-cap stocks are volatile — often far more volatile than mid-cap or large-cap stocks. But if an investor can stomach the volatility, he or she could be rewarded with higher returns than those from the larger stocks.

There are reasons why small-cap companies could look interesting here. As an example, the domestic manufacturing sector could grow if more companies move their manufacturing processes back to the U.S. This seems to be the trend, with the threat of the Ukraine war spreading. and Covid-19 risks still remaining. More manufacturing domestically could help our economy greatly.

If this were to happen, it could benefit small-caps greatly, since they have lagged the market as an asset class. This trend seems to have started, and even if it gathers steam, could have a long way to go.

And don’t forget about the value side of things. Comparing the iShares S&P Small-Cap 600 Value ETF (NYSE:IJS) to the iShares Core S&P Small-Cap ETF (NYSE:IJR) shows that IJS outperformed IJR over the last two years, over the last year, and over the last six months. So if you want to invest in small caps, value picks are a great option.

Investors can look in these funds for stocks that are representative of an asset class without getting also the biases of stock pickers. Certainly there are really good, professional stock pickers in the industry, but stock pickers have penchant toward certain companies. This can cause even the best pickers to be wrong sometimes. An index following specified guidelines does not make stock picking its main objective. So let’s use this index to find some stocks to buy (and some that aren’t buys right now).

HP Helmerich & Payne $44.92
GPI Group 1 Automotive $175.90
PBF PBF Energy $27.50
OMI Owens & Minor $37.04
ALGT Allegiant Travel Company $141.49
SEM Select Medical Holdings $21.89
IBTX Independent Bank Group $69.89

Helmerich & Payne (HP)

A photo of the Helmerich Payne Company logo on a smartphone screen in front of a computer, being held in a hand.

Source: Trismegist san/ShutterStock.com

Helmerich & Payne (NYSE:HP) has been on a tear lately, the stock being up about 90 % year to date, according to Yahoo.com. Oil drilling has picked up, and this U.S. drilling contractor is in the middle of the action. HP’s stock price adequately reflects, and more, a bright future. But that’s why I think investors should not rush in to buy the stock here.

On April 27, as reported by Liz Hampton in Yahoo.com, Helmerich & Payne “beat Wall Street estimates for second-quarter earnings, as surging oil and gas prices have boosted demand for its services and equipment.”

Oil prices have gone up as a result of many factors, including the Russian invasion of Ukraine, and have been mostly above $100 a barrel since March 9. This has created a more demand for drilling equipment and services, and HP provides these items for exploration and drilling companies. HP is big, with operating divisions in North America, the Gulf of Mexico and internationally.

For the second quarter, HP lost 5 cents a share. Analysts had expected a loss of 32 cents a share, according to Refinitiv IBES. Between that and the surge in the stock price, I’d stay away for now.

Group 1 Automotive (GPI)

Car sitting outside with the sun behind it.

Source: Shutterstock

Through subsidiaries, Group 1 Automotive (NYSE:GPI) operates in the automotive industry by selling cars and trucks (both new and used), as well as automotive parts. It also services autos and trucks, and sells insurance contracts. GPI also branches out by arranging vehicle financing.

According to Yahoo.com, GPI, as of Feb. 18, 2022, owned and operated 200 automotive dealerships, 266 franchises and 45 collision centers.

The stock is one that investors should consider among the stocks to buy. Zacks ranks the company as a “buy;” estimates a forward price/earnings ratio of 4.65; calculates a price/earnings to growth ratio of 0.43, which is good; and says earnings-per-share growth over the next three to five years is estimated at 10.72%.

As a value stock, it is priced reasonably, and there could be growth, enhancing the stock and emphasizing its price enough to place it among the stocks to buy.

PBF Energy (PBF)

oil stocks: stacks of oil barrels

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PBF Energy (NYSE:PBF) is a large refiner and operates oil refineries and other facilities in five states. The company is community-minded, stating that “Our mission is to operate our facilities in a safe, reliable and environmentally responsible manner, provide employees with a safe and rewarding workplace.”

On April 28, PBF reported that its 2022 first-quarter operations income was $91 million vs. $57.7 million a year ago. Excluding special items, first-quarter 2022 income operations income was $141.3 million; last year that metric was a loss from operations of $317.8 million. The company reported “Adjusted fully-converted net income for the first quarter 2022, excluding special items, was $43.3 million, or $0.35 per share on a fully-exchanged, fully-diluted basis, as described below, compared to adjusted fully-converted net loss of $315.5 million or $(2.61) per share, for the first quarter 2021.”

The financials look strong and improving. Investors can consider PBF as one of the stocks to buy, especially if energy prices remain strong.

Owens & Minor (OMI)

healthcare stocks: doctors posing. retirement stocks

Source: Shutterstock

An interesting small-cap healthcare company whose stock has soared as high as $49.16 in the last 52 weeks and is now selling at about $35, and one that should be considered as one of the stocks to buy, is Owens & Minor (NYSE:OMI). The company operates throughout the U.S. and internationally through two divisions: Global Solutions and Global Products.

Global Solutions sells products and services to healthcare providers and manufacturers. Global Products makes and distributes medical surgical products.

The company is gaining attention. Citigroup started covering the shares and recently issued a report with a “buy” rating, The Fly reported. And  Zacks Investment Research went from a “hold” to a “buy” on OMI on April 1. Zacks gave OMI a $50 price target.

Nasdaq.com on April 29 opined that OMI entered an oversold condition and that investors could start looking for buying opportunities. They wrote that the recent heavy selling is in a process that is “exhausting itself.” And I’m with the analysts in this case. OMI could be an excellent buy.

Allegiant Travel Company (ALGT)

An Allegiant Air (ALGT) Airbus A319 lands at a Los Angeles, California airport.

Source: Angel DiBilio / Shutterstock.com

Allegiant Travel Company (NASDAQ:ALGT) provides air transportation to cities in the U.S. that are underserved by the major airlines. Allegiant has 110 Airbus A320 series aircraft and earns further commissions by selling passengers other items such as rental car and hotel rooms.

ALGT has over 500 routes across the U.S.

The company sells its air service on a trip basis, or bundled with other services and products. Flyers may also purchase ground transportation, show tickets or other services from ALGT.

The company reported Q1 2022 earnings on May 3, and TipRanks.com reports a consensus earnings per share forecast of -1 cent vs actual EPS of -12 cents, a miss.

Based on five analysts, the consensus is that ALGT is a moderate buy. But in this case, I disagree and would avoid the stock for now. ALGT is not making money, and there are more promising sectors to focus on in this very difficult market environment.

Select Medical Holdings (SEM)

a photo of a stethoscope laying atop medical papers

Source: Shutterstock

Select Medical Holdings (NYSE:SEM) operates its healthcare services through hospitals, outpatient clinics and occupational health centers. SEM has over 1,800 rehabilitation clinics and operates throughout the U.S.

Morningstar lists SEM’s price/earnings multiple at 8.76 times; and its forward price/earnings multiple at 10.57 times; that number indicates that its earnings are declining.

SEM reported its Q1 earnings on May 4, and earnings of 37 cents beat the consensus earnings per share at TipRanks.com of 28 cents. However, for the same quarter last year SEM made 82 cents a share.

Based on three analysts, according to TipRanks, the company is a moderate buy.

I would personally avoid SEM until they boost on their earnings again. For investors liking the industry, they could monitor SEM and consider it as a stock to buy when earnings improve.

Independent Bank Group (IBTX)

bank customer sliding money to teller at bank desk

Source: Syda Productions / Shutterstock.com

Independent Bank Group (NASDAQ:IBTX) is the holding company for Independent Bank. The company has 93 full-service branches and is headquartered in McKinney, Texas. In April, Zacks reported that IBTX announced $1.22 per share for Q1 2022, which was better than the Zacks consensus estimate of $1.12 per share. Last year for this quarter, IBTX earned $1.39 per share.

For Q2 2022, TipRanks.com reports consensus estimated earnings of $1.25 a share vs. $1.35 a share for that quarter in the previous year.

The downward earnings are a problem for me when considering IBTX as a stock to buy, so I don’t recommend buying IBTX stock here.

To be fair, Simply Wall St writes that largely as a result of its dividend, IBTX returned 35% in total return over the last five years. If an investor wants a value stock, this is a decent return, but I would elsewhere and for a better return.

On the date of publication, Max Isaacman did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Max Isaacman is an Investment Advisor Representative in San Francisco. He was a Merrill Lynch Representative and a Vice President of Lehman Brothers. His investment books were published by McGraw-Hill and Financial Times Press, including the first book on ETFs, How to be an Index Investor (McGraw-Hill, 2000). He wrote for the Emmy award-winning Website Minyanville.com. His email is exch13@aol.com.


Article printed from InvestorPlace Media, https://investorplace.com/2022/05/3-stocks-to-buy-and-4-to-skip-in-this-small-cap-value-etf/.

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