7 Small-Cap Value Stocks With Outsized Potential


  • Evergy (EVRG): The utility company increased its dividend and stands to gain from green energy transitions.
  • Flexible Solutions International (FSI): This low-key value stock is massively undervalued.
  • Sturm Ruger (RGR): Gun sales spike in election seasons, which should offset recent losses for the manufacturer.
  • Keep reading for more small-cap value stocks with strong potential!

small-cap value stocks - 7 Small-Cap Value Stocks With Outsized Potential

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Small-cap value stocks stand out as one of the top ways to anchor a long-term portfolio. We all know that small-caps outperform their large-cap cousins over a sufficiently long horizon. The reasoning is obvious – small-caps have more room to grow than bigger stocks, and given enough time, their growth compounds more than mega-caps.

But investors often look toward small-cap growth stocks, which isn’t a bad call generally. Small-cap growth stocks offer the exact growth upside that the investment thesis hinges upon. But solely focusing on growth is a mistake – you overexpose yourself to volatility and risk while missing out on a slew of benefits (including dividends) that usually come with small-cap value stocks like the ones on this list.

Evergy (EVRG)

the Evergy logo seen displayed on a smartphone EVRG stock
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Evergy (NASDAQ:EVRG) is a quality small-cap value stock offering upside in the evolving landscape of sustainable energy. Serving Kansas and Missouri, Evergy stands as one of the nation’s second-largest wind energy producers. Notably, Evergy recently boosted its quarterly dividend by an impressive 5% to $0.6425 per share, providing green energy investors with a forward yield of 5%.

Similar to REITs and consumer staples, utilities faced challenges this year. Price caps and rising energy expenses squeezed already narrow margins. Since January, the collective utility sector experienced a nearly 10% decline, with EVRG underperforming the broader industry with an 18% loss. Nevertheless, its leadership in sustainable solutions and dividend growth makes it increasingly appealing to income-focused investors.

Following a dispute with Kansas regulators over rate adjustments, Evergy settled in November. These developments are expected to steer the utility back on course and strengthen its competitive position. However, utilities, being debt-heavy entities, face challenges, particularly in expanding wind power, which comes with significant costs. If the speculated Fed rate cuts materialize, Evergy stands to rebound, especially in conjunction with its rate settlement.

Flexible Solutions International (FSI)

A photo of small bubbles in a container of water.
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Pool covers and fertilizers might not seem an exciting investment opportunity, but small-cap value stock Flexible Solutions International (NYSEAMERICAN:FSI) is materially undervalued and set to rebound rapidly. The company quadrupled its revenue over the past ten years, notable considering its relatively niche target market. At the same time, its healthy balance sheet shows cash far outstripping debt, meaning the company’s capital structure is steady and well-positioned to ride out volatility or support growth initiatives.

FSI shares nosedived in November 2023 after a poor earnings report, but all indications point to the news being a one-off aberration that won’t likely happen again. Still, FSI trades below book value (0.7x) and below sales (0.58x). While the stock won’t make you a millionaire, considering its limited growth potential, it is decidedly undervalued – making it a perfect short-term small-cap value stock play.

Sturm Ruger (RGR)

a pistol on a white surface
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In election years, gun sales tend to peak. To that end, Sturm Ruger (NYSE:RGR) is a small-cap value stock positioned to take advantage of this trend. With a modest valuation of 13x earnings, 2x book value, and 1.4x sales, this small-cap value stock is primed for a strong performance in 2024.

The company faced challenges in 2023. As CEO Christopher Kilroy stated, “Our third-quarter sales and profitability declined from last year, reflecting an overall decrease in firearms demand and a competitive marketplace filled with promotions.”

But looking back, gun sales reached record highs in 2020 during the election, surpassing the (high) rate seen before President Obama’s second term in 2012. Regardless of political motivations, investor sentiment should remain objective. In terms of profitability, RGR is positioned to thrive as we approach another potentially contentious election season.

Apartment Income REIT Corp. (AIRC)

REITs to buy Real estate investment trust REIT on an office desk.
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Higher interest rates generally lead to fewer new mortgages, with rents rising to keep pace with inflation. Both trends contribute to Apartment Income REIT Corp.’s (NYSE:AIRC) standout status among small-cap value stocks in a higher interest rate environment.

Over the past decade, AIRC has optimized its multifamily building portfolio, concentrating on prime assets in metropolitan areas with robust demographic trends. This strategic focus has resulted in consistently high occupancy rates and steady rent escalations. Key factors driving future demand for AIRC include job and income growth, declining homeownership rates, and the allure of urban hubs – all influenced by higher interest rates.

During this period, Apartment Income REIT Corp. has fine-tuned both its portfolio and strategy. Despite reducing its property count from 300 in 2008 to 75 today, it has maintained a stable asset base in core markets. This indicates adept management decision-making, prioritizing operational excellence in preferred locations over superficial growth. Additionally, divesting from slower-growth markets has enhanced the portfolio’s growth potential, positioning AIRC for success irrespective of interest rate fluctuations.

Presently, AIRC offers a 5.71% forward yield, reinforcing its small-cap value stock status.

Iridium Communications (IRDM)

the Iridium Satellite Communications logo seen displayed on a smartphone
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Growth stock investor Cathie Wood loves Iridium Communications (NASDAQ:IRDM), but that doesn’t detract from its small-cap value stock status. Shares of the sat-phone stock suffered thus far in 2024, dropping 28% since January, but that represents an ideal buying point for investors interested in adding the small-cap value stock to their portfolio.

Most of its recent downturn stems from the company’s decision to terminate its joint venture with Qualcomm (NASDAQ:QCOM) in November. The original plan aimed to utilize Qualcomm’s cell-centric semiconductor business to develop chips enabling standard cell phones to connect to Iridium’s low-earth satellite array. However, after the partnership’s dissolution, Iridium appeared increasingly marginalized in the evolving space-based telecom market.

Nevertheless, Iridium is intensifying its efforts to integrate its satellite constellations with consumer smartphones. If successful, this strategic shift could propel the stock’s value, positioning it as one of the more established players in the specialized telecom industry. Rather than modifying cell phones to align with their satellite capabilities, Iridium is adapting its satellite protocols to accommodate existing devices. This initiative will further expand IRDM’s total addressable market, providing further growth opportunities for the small-cap value stock.

Murphy USA (MUSA)

Murphy USA gas station and convenience store located on an out parcel of a Walmart Supercenter
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Murphy USA (NYSE:MUSA), boasts a stable of more than 1,700 convenience stores with plans to expand and is on the higher end of small-cap value stocks.

Since its separation from Murphy Oil (NYSE:MUR) in 2013, the company aggressively increased shareholder value by repurchasing over half its outstanding shares, with ongoing buybacks further improving shareholder standing.

Today, Murphy USA is undergoing a strategic transition, shifting its focus from primarily fuel sales to offering a broader selection of food and beverage options in larger store formats. Murphy USA is adeptly navigating this landscape by expanding its network with new stores annually and refurbishing existing ones. Additionally, fully integrating QuickChek stores will further enhance its growth trajectory.

One notable aspect of the company’s growth is its exceptional trajectory. Its free cash flow steadily climbed over the past four quarters, further amplified by its comprehensive buyback program that quintupled its FCF per share. Looking forward, Murphy USA’s potential appears even more promising.

H&R Block (HRB)

Image of a yellow building featuring the H&R Block (HRB) logo
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H&R Block (NYSE:HRB) is a standout choice among small-cap value stocks during tax time, but the company’s success extends well beyond April of each year. To counteract the seasonal fluctuations inherent in the tax sector, HRB strategically introduced a mobile banking service called Spruce. The initiative proved popular, and HRB’s recent filing attributes $26 million in quarterly revenue to the financial service segment of its business (compared to $99 million in tax prep sales). HRB is actively pursuing technological advancements to streamline tax filing processes, including the development of an AI-powered tax assistance product in collaboration with Microsoft (NASDAQ:MSFT).

HRB also stands apart from other small-cap value stocks based on its impressive total yield, currently sitting at 11.69%. This substantial yield is maintained by a modest 33.24% payout ratio, indicating that HRB retains a considerable portion of its earnings for growth initiatives while still generously rewarding its shareholders.

On the date of publication, Jeremy Flint held no positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Jeremy Flint, an MBA graduate and skilled finance writer, excels in content strategy for wealth managers and investment funds. Passionate about simplifying complex market concepts, he focuses on fixed-income investing, alternative investments, economic analysis, and the oil, gas, and utilities sectors. Jeremy’s work can also be found at www.jeremyflint.work.

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