Small-cap stocks should perform well in the next market advance, possibly outperforming large-capitalization companies. That’s partly because our view of the international global supply chain changed. For a while we figured, the best idea was to make things wherever it was cheapest. It didn’t really matter, you could ship it anywhere.
Well, the pandemic put a stop to that notion. International supply chains locked up. And maybe that thinking was wrongheaded to begin with, and even if the pandemic had not happened, a global supply chain was bound to fail anyway.
Case in point is Russia’s invasion into Ukraine — even though it did not destroy the energy market, it certainly exacerbated the supply situation, driving up oil prices and causing serious economic problems for many countries. Nathan Sheets, Citi’s global chief economist, points out that “the pandemic added a new set of unforeseen challenges.”
Small-cap stocks, which service mostly the countries in which they are domiciled, should do very well when countries expand their domestic supply chains. Normally small-caps are up to $2 billion in market capitalization, but for this article, we’re looking up to $5 billion.
| FIX | Comfort Systems | $89.20 |
| ENSG | The Ensign Group | $75.87 |
| PTEN | Patterson-UTI Energy | $18.19 |
| IDCC | InterDigital | $64.67 |
| RCII | Rent-A-Center | $25.57 |
| LPI | Laredo Petroleum | $112.22 |
| CCS | Century Communities | $50.13 |
Comfort Systems (FIX)
Comfort Systems (NYSE:FIX) services the electrical and mechanical industry of the U.S. by offering electrical installation, maintenance, replacements and other solutions to owners of buildings, engineers, property managers and other end users. It also is involved in maintaining, monitoring and repairing finished buildings.
The price of real estate in the U.S. has gone up and the costs of construction have spiked. This is causing demand for FIX’s services.
In fact, as reported by Alanna Quillen on Feb. 16, “Recent data from the U.S. Census Bureau shows construction costs went up by 17.5% year-over-year from 2020 to 2021, the largest spike in this data from year to year since 1970.”
That means it’s been over 50 years since we saw these kinds of increases.
Morninstar.com shows a five-year PEG ratio of 1.79, which is high. As in some other small-cap stocks, investors might want to dollar cost average on purchases.
The Ensign Group (ENSG)
The Ensign Group (NASDAQ:ENSG) is a growing company with good earnings forecast and is in a good sector: the healthcare industry. Analysts reporting to Yahoo.com estimate that the average earnings per share the company will earn in 2022 is $4.09; in 2023 the estimate is $4.48; last year earnings were $3.64 a share.
Morningstar.com reports its current price/earnings multiple at 22.11, and its forward PEG ratio at 1.32, which is reasonable, especially with good earnings forecasted.
The company recently announced that it increased its credit facility by $250 million. “These new borrowings further strengthen our long-term capital structure and . . . provide lots of dry powder for growth . . .” Ensign CEO Barry Port said.
The Ensign Group operates urgent care centers, healthcare services, and other businesses related to health care operations. It also offers senior living services, home health hospice services, and other operations related to senior healthcare.
Patterson-UTI Energy (PTEN)
Patterson-UTI Energy (NASDAQ:PTEN) is one of the leading oilfield services and products companies and services oil explorers, natural gas exploration companies, and energy production companies throughout the U.S. and internationally.
Patterson is small but growing. In the U.S., in May, it had an average of 121 drilling rigs operating.
With the price of energy staying strong, and geopolitical uncertainty high, PTEN is one of the small-cap stocks to consider for growth. The company’s loss from operations is lessening lately.
Patterson is expected to report its second-quarter 2022 earnings per share in July; the analysts’ consensus forecast from Tipranks.com is -4 cents; this is against the same period loss last year of -54 cents.
The average estimate of the analysts reporting to Yahoo.com has Patterson earning 91 cents in 2023. This could really move the stock upwards.
InterDigital (IDCC)
InterDigital (NASDAQ:IDCC) makes technologies that improve wireless communications in the U.S. and throughout the world. IDCC also develops technologies for the consumer market, such as automobiles, smart homes and electronic products.
Earnings are good. Zacks.com estimates earnings for this year to be $3.28 per shares; that is up from $1.77 per share last year. Also, Zacks estimates its forward price/earnings multiple to be 19.9 times with a forward PEG ratio of 1.33, which is a reasonable PEG for a growth company.
The growth of 5G usage is important for IDCC’s growth, and in May Globenewswire.com reported that IDCC commissioned a study that examined the uses and experience of 5G networks and services, and how video could harness the 5G networking technology.
The report outlined how consumers will have a much better experience and in different ways with 5G. IDCC is one of the small-cap stocks that can be bought for trading or long-term growth.
Rent-A-Center (RCII)
Rent-A-Center (NASDAQ:RCII) rents out computers, smartphones, furniture, and many other items to consumers and gives its customers the option to purchase the items when the rental period is up.
RCII operates company-owned stores and also has an online platform.
Business is good in this sector: The average estimate for RCII from analysts reporting to Yahoo.com is that the company will earn $4.65 per share this year; next year that number is $5.64; the company earned $2.02 per share a year ago.
Morningstar.com estimates a forward price/earnings ratio of 13.74, which is low for a company with this much estimated growth. Reporting analysts at TipRanks.com has a $35.50 12-months target on the stock.
Laredo Petroleum (LPI)
Oil company earnings are going up along with the price of oil and gas. Laredo Petroleum (NASDAQ:LPI) is expected to report its second-quarter earnings in August and the consensus earnings forecast from analysts reporting to TipRanks.com is $7.34 a share; this compares to last year’s earnings per share of $1.71. That’s a big increase. And this is in a stock that has a price/earnings multiple of 20 times, which is reasonable considering the big earnings gain, and makes Laredo one of the small cap stocks to buy.
Laredo has benefited greatly from its drilling location, which is located in west Texas and southeastern New Mexico, in the Permian Basin — one of the most productive oil and gas rich regions in the country.
Laredo writes that it acquired data about the region early and obtained many core samples that “has enabled Laredo to model and map the upside potential so multi-zone co-development prioritization can occur throughout the property set.”
Century Communities (CCS)
Century Communities (NYSE:CCS) buys and develops land on which it builds attached and detached homes. It also offers mortgage, title, and insurance services to the buyers of the homes. The homes are sold in 17 states under the Century Communities and Century Complete brand names.
Earnings are good. TipRanks.com expects Century to announce second quarter 2022 earnings in August, and analysts report a consensus forecast of $4.56 per share; last year in the same quarter the company made $3.47 per share. This is a substantial increase. Yahoo.com shows the company has a price/earnings ratio of 3.2 times based on its trailing-12-months earnings. This makes CCS a strong buy among small cap stocks.
Zacks Research announced last month that CCS expanded its Tucson, Arizona presence by opening two new communities.
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.
