Below we presented the list of 5 Best Micro-Cap Stocks to Buy Now. For our detailed discussion and a more comprehensive list please see 15 Best Micro-Cap Stocks to Buy Now.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a look at the best micro-cap stocks to buy:
5. GameStop Corporation (NYSE:GME)
No of HFs: 28
Total Value of HF: $164 Million
One of the biggest hedge funds having stakes in the company is Richard Mashaal’s Rima Senvest Management, with 3.22 million shares of the company . An insider purchased 500,000 shares at around $16 in December 2020. The stock is up 225% since then. RF Capital mentioned GME in its Q3 2019 investor letter:
“Gamestop is a video game retailer with over 5,700 stores across 14 countries. GME offers new and used video gaming consoles, video games (both physical and digital), accessories, collectibles, and other miscellaneous items. Customers are able to trade in consoles, games, and accessories for cash or store credit through GME’s buy-sell-trade program. GME also publishes Game Informer magazine.
The business is currently challenged due to the rise of digital downloads, competition from other retailers, and increased gaming on mobile and computers. Furthermore, earnings will continue to suffer until Q4 2020 because the industry is currently at the end of the console cycle. (Sony and Microsoft will be launching new consoles next year in Q4.) Although sales and earnings have been down significantly, at least we are seeing trough earnings or somewhere close to it.
Despite all the negative press around GME, we believe the situation looks worse than it actually is. The company has a strong balance sheet and continues to generate free cash flow. GME currently has $424 million in cash versus $418 million in long-term debt. Management has also projected adjusted diluted EPS of $1.15-$1.30 and adjusted FCF of $225-$250 million for 2019. Thus, GME should be able to stay afloat while waiting for the release of the next-gen consoles.
We made GME a 5% position. Our average cost was $5.30 per share. At this point, GME is difficult to value based on earnings. However, the strong balance sheet provides downside protection, and there will be more visibility when the new consoles and product titles launch next year. We will increase our position size if management continues to do the right things. The new CEO and CFO are off to a good start with 180-200 planned store closures and the completion of the modified Dutch auction tender offer for 12 million shares at $5.20 per share.”
4. Clear Channel Outdoor Holdings, Inc. (NYSE:CCO)
No of HFs: 30
Total Value of HF: $121 Million
At the end of September 2020, a total of 30 hedge funds tracked by Insider Monkey were long this stock. One of the biggest hedge funds having stakes in the company is Kenneth Mario Garschina’s Mason Capital Management which had $35 million invested in the stock at the end of September. An insider purchased 400,000 shares at around $1 in August 2020. The stock is up 100% since then.
3. Revlon, Inc. (NYSE:REV)
No of HFs: 32
Total Value of HF: $253 Million
REV stands 3rd on the list of 15 best micro-cap stocks to buy now. One of the biggest hedge funds having stakes in REV is Parvinder Thiara’s Athanor Capital which had $1 million invested in the stock at the end of September. An insider purchased 20,000 shares at around $23 in June 2019. The stock is down 52% since then. Mittleman Brothers mentioned REV in their Q3 2020 investor letter:
“Revlon’s (REV) stock price has been a disaster calendar YTD, dropping from $21.42 on 31 December 2019 to a low of $4.81 on 26 October 2020 (-78% to $256M market cap.).
Revlon is in a very tight spot now as it urgently needs to refinance $345M in 5.75% notes due on 15 February 2021. These bonds are trading just under $30 currently (par $100), somewhat like Revlon’s notes did in 2002 when its 8.625% notes (due in 2008) dropped to $32 before recovering to $100 (after Perelman provided more capital).
MIM asserts that Revlon’s liquidity issues are not a solvency issue, so once cured with asset sales or capital infused by Ron Perelman⁵, much better times lie ahead for Revlon. MIM thinks the probability is very low that Perelman would risk his 87% stake in Revlon to the vagaries of a Federal Bankruptcy Court.
2. At Home Group, Inc. (NYSE:HOME)
No of HFs: 34
Total Value of HF: $370 Million
One of the biggest hedge funds having stakes for HOME is Clifford A. Sosin’s CAS Investment Partners which had $155 million invested in the stock at the end of September. An insider purchased 275,007 shares at around $17 in January 2021. The stock is up 41% since then. Recently, HOME resumed its growth strategy with three new stores. The company is projecting to open 12 to 15 stores in 2021.
Marko Poplasen/Shutterstock.com
1. Zogenix, Inc. (NASDAQ:ZGNX)
No of HFs: 38
Total Value of HF: $409 Million
Topping the list of 15 best micro-cap stocks to buy now is ZGNX. At the end of September, a total of 38 hedge funds tracked by insider monkey were long this stock. Peter Kolchinsky’s RA Capital Management is one of the top hedge funds having positions in ZGNX, which had $98 million invested in the stock at the end of September. An insider purchased 8,000 shares at around $20 in November 2020. The stock is up 10% since then.
Please also see 10 Best Small-Cap Stock to Buy Now and 15 Best Small-Cap Healthcare Stock to Buy
Disclosure: None.
