3 Small-Cap Stocks on Fire After CPI-Fueled Russell 2000 Rally


  • Lower U.S. inflation might reduce the discount rates on small-cap stocks. Consider these three small-cap stars!
  • Limbach Holdings (NASDAQ:LMB): LMB is an overlooked small-cap gem operating in a niche industry with a stellar growth-by-acquisition record.
  • Aris Water Solutions (NYSE:ARIS): ARIS is a firm filling a critical void in the water recycling business with early-stage profitability as a tailwind.
  • Immersion Corporation (NASDAQ:IMMR): IMMR is a best-in-class haptic technology play that recently strolled past its earnings estimates.
Small-Cap Stocks - 3 Small-Cap Stocks on Fire After CPI-Fueled Russell 2000 Rally

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At long last, price levels in the United States are settling. The U.S. April CPI report communicated broad-based inflation of 3.4% and core inflation of 3.6%. These figures were lower than March’s numbers of 3.5% and 3.8%, respectively, presenting a base case for a stock market rally. This has led to some very undervalued small-cap stocks.

You might be wondering why lower inflation can lead to a market rally. The answer is linked to discount rates. Lower inflation translates into lower discount rates on future corporate earnings, which often results in higher stock valuations.

The Russell 2000 has ticked up in the past five trading days, providing testimony to the above. Of course, lower implied discount rates aren’t the only factor influencing stock prices. However, it’s salient enough for me to highlight a few small-cap investment opportunities.

Without further ado, here are three small-cap stocks worth considering after last week’s CPI news.

Limbach Holdings (LMB)

100 dollar bills being passed from one hand to the other. Can represent stimulus checks or payment. millionaire-maker stocks
Source: Maryna Pleshkun/Shutterstock.com

Limbach (NASDAQ:LMB) is an overlooked American construction and renovation company. The firm operates via two segments, namely General Contractor Relationships and Owner-Direct Relationships. Among its key functions are mechanical, plumbing, building controls, and electrical services.

Although under the radar, Limbach’s stock has jumped by approximately 1.3x in the past year. Much of its gains derive from robust fundamental performance. However, accretive acquisitions have played a critical part. For example, Limbach recently acquired Industrial Air at its enterprise value of $13.5 million, concurrently phasing in $30 million in revenue potential and cross-sales synergies.

The Industrial Air acquisition is merely one example of Limbach’s solid execution in its niche industry. I believe a sustained acquisition strategy accompanied by a recent first-quarter earnings-per-share beat of 30 cents, and a price-to-earnings-growth ratio of 0.22x sets LMB stock up for victory.

Aris Water Solutions (ARIS)

A photo of small bubbles in a container of water.
Source: khak/ShutterStock.com

Water scarcity is a serious societal concern, which naturally gives rise to not-for-profit and for-profit opportunities within the arena. 

I believe Aris Water Solutions (NYSE:ARIS) will play a critical role in the commercial water recycling industry. It primarily operates as a recycling business in the oil and gas industry. Its presence in the Permian Basin has delivered robust preliminary results, leading the company to sustainable net profitability within ten years after its inception. 

Aris Water Solutions achieved $16.8 million in net income during its first quarter, translating into a net profit margin of approximately 16.25%. Moreover, the company possesses a three-year compound annual growth rate of 33.13%, showing that its top and bottom lines have additional growth potential. In essence, the data suggests there is untapped shareholder value in play.

There is no doubt that Aris Water Solution has yet to reach a consolidation phase. Nevertheless, the firm has a hot concept. Moreover, it has illustrated robust financial results and has $324 million in available liquidity to expand on its key verticals.

I’m bullish here, folks!

Immersion Corporation (IMMR)

IMMR stock: two people using virtual reality (VR) headsets
Source: Shutterstock

Fortune Business Insights forecasts that the haptic technology market will grow at an annualized rate of 13.6% until 2030. Although some market researchers might forecast different growth rates, most think the industry is set up for exponential growth. As such, I looked for best-in-class market participants, leading me to Immersion Corporation (NASDAQ:IMMR).

Founded in the early 1990s, Immersion Corporation is a haptic technology market participant emphasizing the development and licensing of touch feedback technology. Its five-year compound annual growth rate of 18.16% speaks volumes, especially considering its well-placed price-to-earnings ratio of 6.8x. Additionally, to my knowledge, Immersion Corporation is debt-free, allowing its shareholders full access to its residual book value.

Furthermore, Immersion Corporation recently strolled past its fourth-quarter earnings estimates, delivering a revenue beat of $2.16 million and an earnings-per-share beat of 36 cents. This conveys the firm’s resilient short-term results, which could coalesce with Immersion Corporation’s sumptuous trend growth to deliver its shareholders perpetual returns.

IMMR stock trades above its 10-, 50-, 100-, and 200-day moving averages, suggesting a trendline has shaped. I think it is time to ride the wave! Do yourself a favor and grab these small-cap stocks.

On the date of publication, Steve Booyens 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.

Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for cross-asset research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa. He holds an MSc in Investment Banking from Queen Mary – University of London. Furthermore, Steve obtained his CFA Charter on April 26, 2024, and is working toward his Ph.D. in Finance. His articles are published on various reputable web pages such as Seeking Alpha, TipRanks, Yahoo Finance, and Benzinga. Steve’s articles on InvestorPlace don’t constitute financial advice. However, they form an interesting juxtaposition between mainstream opinion and objective theory, allowing readers to benefit from unbiased commentary. Readers can expect coverage on frequently traded stocks, REITs, fixed-income funds, CEFs, and ETFs.

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