We have certainly seen the rise — and fall — of the mega-cap tech stocks, and big-cap stocks in general. The past few months have been a heady time.
But the real indicator of a market comeback will feature small-cap stocks prominently. They are the green shoots of recovery.
Small caps can hit their numbers in sectors that are still doing well today, but in a more muted way.
And when things turn around, it’s the small caps that will move faster to upside. They often prove to be the brightest performers, assuming you select the companies behind revolutionary movements like I do in Growth Investor.
But right now, let’s take a deep dive into each of these stand out small-cap stocks in particular:
- Camping World Holdings (NYSE:CWH)
- Forterra (NASDAQ:FRTA)
- MarineMax (NYSE:HZO)
- K12 Inc (NYSE:LRN)
- Superior Group of Companies (NASDAQ:SGC)
- Shutterstock (NYSE:SSTK)
- Viemed Healthcare (NASDAQ:VMD)
Each of these stocks is an A-rated small cap at the top of my Portfolio Grader list.
Small-Cap Stocks to Buy: Camping World Holdings (CWH)
During the novel coronavirus pandemic, many people have gone a bit cabin crazy trying to figure out how to get out of the house but not use high-traffic areas like airports, trains, buses, hotels or restaurants.
Many have found the great outdoors the place where they can escape the pandemic monotony and still be isolated, but in a much nicer environment. And CWH helps make that happen.
It’s one of the nation’s largest retailers of recreational vehicles. Having a home on wheels means you can go almost anywhere and yet have a controlled environment in which to live and travel.
CWH stock is up nearly 138% year to date, as this sector has drawn a lot of interest, but it’s up 273% in the past 12 months, meaning it has been a hot stock before Covid-19 hit.
Having been around for 54 years, its Good Sam brand sells RVs but it also has more than 2,400 parks around the U.S. and Canada. Plus, it offers roadside assistance, loans, insurance and financing.
This company has been making industrial grade pipe since 1899.
No, it’s hardly a headline-grabbing business sector. But when you think about it, between waste water, clean water, storm water and drainage for roads, buildings, cities and neighborhoods, there’s a lot of it. And there’s a constant need for it, whether in new construction or in replacement pipes.
This is a key piece of infrastructure spending that many people don’t think about. Investors think about wood prices for housing, but never the cost of laying pipe into the neighborhood and linking it to the municipal system. These are the kind of out-of-the-box plays that make you money in the long run.
When you’re in business for more than 120 years, you’re doing something right. FRTA has about a $900 million market cap and it’s up nearly 90% in the past year (only 22% year to date). It’s slightly expensive here, but an infrastructure stimulus package after the election could send it much higher. So would signs of a recovery.
Like CWH, HZO has seen a huge uptick in business during the pandemic. People cancelled their summer holiday plans and realized that maybe it was time to invest in their own safe holiday zone.
In the case of HZO, customers were buying boats from the biggest pleasure boat retailer in the U.S.
The one thing that retailers have over builders is, once the boom in new boats is over, the builders’ business slows down. But bigger boats are financed like houses, and they maintain their retail value much longer than cars do.
That means a boat retailer can simply shift from new boat sales to used boat sales. And the financing, slip space leases and maintenance still adds to cash flow.
HZO is up 72% in the past 12 months, yet it’s trading at a price-to-earnings ratio of 10x. It only has a market cap of $573 million, but it is well-positioned and has a longer tail than most boat builders. All of that adds up to make it one of the more appealing small-cap stocks to buy today.
K12 Inc (LRN)
Another pandemic trend that has changed the way we look at seemingly regular, everyday activities is school.
Every parent knows what it’s like with kids during cold and flu season. Crammed classrooms, kids that touch everything … and then bring it home. Now, it’s just not a cold they may be sharing.
And given the number of families that live in multi-generational households, this is even more of a challenge during the pandemic.
While home schooling has been around for decades, it has now hit the mainstream. And companies that had built out sturdy online curricula are now benefiting from the remote learning boom that’s happening now.
LRN has been in the online school business for two decades now and has helped over a million students.
Superior Group of Companies (SGC)
Starting as the Superior Uniform Group in Long Island, NY in 1920, it has grown and diversified in the past century. But its core has remained the same. It produces uniforms, corporate identity apparel as well as apparel and accessories for the healthcare, medical, leisure and public service industries.
If having clean, fresh clothing for your workers has ever been important, it’s now more important than ever. And that’s good business for SGC stock.
As a matter of fact, in the past three months, the stock is up nearly 100%.
But uniform and commercial apparel companies don’t really garner the top stories in the financial press. Yet after that big run, SGC is still trading at a P/E that’s less than half of the average P/E for the S&P 500.
This firm only has a $357 million market cap, but in this industry, it sets the standard for customer service and distribution. And that makes it a very attractive takeover target for bigger players. Each of these factors make it one of the best small-cap stocks to buy today.
Started in the post-dotcom bubble days, SSTK grabbed an interesting sector of the market. As photography became digital, processing images became a different type of business.
No longer did people take their film to a local store for processing. Now it was on a memory card. But getting quality prints was a different matter. The paper was expensive. The ink and printers were expensive. And it was a hassle if you needed various sized prints or wanted to edit the photos.
That’s where SSTK came in. It was a cheap way to get your digital pictures processed. And as the business developed, you could make Christmas cards or even photo books of friends and family.
But SSTK has continued to evolve. It now has a commercial content image business out of all this. It houses more than 340 million images from over a million contributors, with more than a billion downloads.
There are only a handful of big stock photography and video firms out there — like Adobe (NASDAQ:ADBE) and Apple (NASDAQ:AAPL) — and most people have the same services. That’s why you tend to see the same images pop up on corporate websites and advertising. In that sense, SSTK has a competitive advantage because it is a stock image service that isn’t overused. It also licenses music.
SSTK stock is doing well, up nearly 30% in the past year. And with a $1.7 billion market cap, it’s still an attractive takeover target.
Viemed Healthcare (VMD)
Home healthcare is a huge megatrend. As boomers begin to get older, chronic diseases tend to add to the burden of age-related issues. And hospitals are no longer the places where patients want to be — and neither do insurance companies.
We’ve seen this trend in outpatient care facilities where any procedure that can be done and the patient can be sent home is ideal for everyone involved.
But some issues are recurring and need regular visits. With Covid-19 making hospitals more a source of potential danger than assistance, home healthcare is accelerating.
VMD provides a network of home healthcare workers for people with respiratory conditions like COPD (chronic obstructive pulmonary disease). They provide therapists and nurses that make sure their patients are looked after.
What’s more, since many recovering Covid-19 patients have long-term pulmonary issues, this is also a new source of business.
The stock has only been around about four years, yet it already sports a $351 million market cap. And after a 33% run in the past year, it still has a P/E of 12. When you compare it to many other hot small-cap stocks on the market, it’s a bargain.
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Source: Investor Place