3 Unstoppable S&P 600 Small-Cap Stocks to Buy in January


  • Small-cap stocks have a long history of beating larger stocks and an inflection point is approaching.
  • Crocs (CROX): This footwear specialist misjudged the market for a new;y acquired casual shoe but its core brand remains as strong as ever.
  • Catalyst Pharmaceuticals (CPRX): A string of wins for this maker of orphan drugs sets it up for significant future growth.
  • Sturm, Ruger (RGR): The gunmaker looks to capitalize on the demand for personal protection options as violent crime escalates.
Small-cap stocks - 3 Unstoppable S&P 600 Small-Cap Stocks to Buy in January

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As the saying goes, good things come in small packages. That goes for stocks, too. Small-cap stocks tend to outperform larger ones over time. It tends to follow periods of underperformance, and then the small caps surge in value and dominate. We may be at such an inflection point.

While the S&P 600 index of small-cap stocks handily outperformed both the S&P 500 and the Dow Jones Industrial Average since the pandemic began, it’s actually lagging over the past three years. The total return is at least 10 percentage points behind the other indices. That may signal we’re about to see small caps regain the upper hand. In the fourth quarter of 2023, the index beat both the S&P 500 and the Dow, so this could be where it continues to drive higher. What follows are three unstoppable small-cap stocks you should buy in January.

Small-Cap Stocks: Crocs (CROX)

The front of a Crocs (CROX) store in Chiang Mai, Thailand.
Source: Wannee_photographer / Shutterstock.com

On the surface, Crocs (NASDAQ:CROX) may not seem like a winner. Shares are down 17% over the past year, and the stock lost half its value from peak to valley. Crocs’ problems are primarily due to its $2.5 billion acquisition of casual footwear brand Heydude in early 2022. It predicted it would become a $1 billion brand by 2024. Reality hasn’t been so kind.

Sales naturally soared after pushing Heydude shoes into its sales channels following the purchase. Since then, however, demand has fallen, and retailers aren’t keen on stocking the product. Where Crocs brand sales jumped by double-digit rates in Q3, Heydude sales were down by high-single-digit rates.

Fortunately, Crocs itself remains extremely healthy. As the brand accounts for some 75% of total sales, the strong growth experienced throughout the year bodes well for the future. Plenty of expansion opportunities remain, particularly internationally, where sales only represent 40% of the total.

CROX stock now trades at extremely attractive valuations. It goes for just eight times earnings and 6x free cash flow. Yet analysts forecast Crocs will grow earnings by 10% annually. This is a deeply discounted stock with a still-valuable brand name that can run higher as it corrects the issues with its acquisition.

Catalyst Pharmaceuticals (CPRX)

A magnifying glass zooms in on the website of Catalyst Pharmaceuticals (CPRX).
Source: Pavel Kapysh / Shutterstock.com

Like the S&P 600 index, Catalyst Pharmaceuticals (NASDAQ:CPRX) finished 2023 on a high note. In the last three months, shares rocketed 41% higher. That helped it finish down just 7% for the year.

The reason for the surge began with the Food & Drug Administration’s agreement to review a supplemental new drug application (sNDA)for its primary therapy, Firdapse. It’s a treatment for many rare muscle diseases, and Catalyst was to increase the dosage from 80 mg to 100 mg for treating Lambert-Eaton myasthenic syndrome (LEMS). In this disease, the immune system attacks the body’s own tissue. Catalyst has the only FDA-approved treatment of LEMS in patients six years and older.

The FDA also approved Santhera Pharmaceuticals (OTCMKTS:SPHDF) to treat Duchenne Muscular Dystrophy (DMD), one of the most severe forms of the disease, using Agamree. Catalyst has exclusive rights to commercialize Agamree in North America and expects to launch the drug in Q1. A strong third-quarter earnings report topped out the year as revenue jumped 79% year over year and adjusted profits rose 88%.

Catalyst Pharmaceuticals is a biopharmaceutical that develops and commercializes medicines for rare diseases. By targeting orphan drug status for its therapies, Catalyst receives an extended exclusivity period and tax credits for their development. In addition to a powerful lineup of approved drugs, the biotech has a strong pipeline of candidates in trials. Catalyst should take off in 2024 and beyond, as it has sufficient capital to support its initiatives.

Sturm, Ruger (RGR)

An LCP Custom handgun manufactured by Sturm Ruger (RGR).
Source: Susan Law Cain / Shutterstock.com

Firearms manufacturer Sturm, Ruger (NYSE:RGR) disappointed the market with its own Q3 report that showed lower sales and profits. Its stock trades at about the same level it did a decade ago. Industry sales were down in 2023, despite remaining above historical averages. Ruger, though, has the long-term benefit of a large and growing base of consumers looking to purchase a firearm for personal protection, particularly among women.

The National Shooting Sports Foundation (NSSF) says women are one of the fastest-growing groups purchasing firearms. Black women, in particular, are buying guns at an elevated rate, up some 87% in 2021. That’s likely because personal protection is one of the primary motivations for purchasing a firearm. According to the Justice Dept, violent crime ratcheted 42% higher in 2022.

Although sales are lower now, gun buying tends to come in waves. With a contentious presidential election this year, sales will likely soar again. We’ve seen it happen in the last two election cycles as gun control tends to become a central, hot-button issue.

Ruger’s dividend currently yields about 2.9% annually, but the payout will vary as it is based on about 40% of net income. A firearms manufacturer might not be in everyone’s wheelhouse, but for investors looking for a stock primed to shoot higher, Sturm, Ruger should be on your buy list this month.

On the date of publication, Rich Duprey did not hold (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.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

Article printed from InvestorPlace Media, https://investorplace.com/2024/01/3-unstoppable-sp-600-small-cap-stocks-to-buy-in-january/.

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