In this article, we will look at the 15 most profitable small-cap stocks now.
Small-cap stocks can offer investors the potential for higher returns than investing in larger companies. While small-cap stocks may be more volatile than large-cap stocks, they generally have higher growth potential. Small-cap stocks also offer investors the opportunity to benefit from a promising company’s growth story, rather than relying solely on the performance of a large company or sector. Moreover, small-cap stocks can also offer investors the potential to diversify their portfolios. Since small-cap stocks are generally less correlated to the performance of larger companies, they can provide an additional layer of diversification for investors.
Before investing in small-cap stocks, it is important to research the company thoroughly. Make sure to look at the company’s financials, management team, and competitive landscape. Additionally, investors should consider the risk-reward ratio and whether the potential return justifies the potential risks. Finally, it is important to diversify across different small-cap stocks, so that no single stock has too much of an impact on the overall portfolio.
“In 2023, Small-Caps Are The Place To Be”
On January 12 Boyar Value Group’s managing director, Jonathan Boyar, appeared in an interview on Yahoo Finance Live where he discussed some investment areas he currently likes. One particular area was small-cap stocks. Jonathan Boyar noted that while “it’s always a good time to invest in stocks that are selling below within their worth, but now is a particularly good time, especially with the implosion in some of the mega-cap tech names”.
Boyar said that “we are finding a lot of value, especially in the small-cap space” and he thinks that currently “it is the cheapest area of the market”. Boyar noted that although he follows a long-term strategy, currently he is more focused on finding areas of the market that will “work the best in the year ahead” and he reiterated that in 2023 “small-caps are the place to be”.
Finally, Boyar spoke about tech stocks and what he sees for them ahead. Boyar noted that “this is definitely a stock picking environment” so “what worked well over the past 10 years, is probably not going to work well in the medium to long term”.
Some of the most profitable small-cap stocks right now include CONSOL Energy Inc. (NYSE:CEIX), M/I Homes, Inc. (NYSE:MHO), and Danaos Corporation (NYSE:DAC). These, among others, are discussed in detail below.
Photo by Ruben Sukatendel on Unsplash
Our Methodology
To determine the most profitable small-cap stocks now, we first screened for companies that had market caps between $300 million and $2 billion. For measuring profitability, we considered the net income of the company. We narrowed down our screen and looked for companies that had a trailing twelve-month net income of greater than $200 million. We used data from Yahoo Finance to validate each company’s net income and finally picked the 15 companies that had reported the highest annual net income for fiscal 2022. We have ranked these stocks in ascending order of their TTM net income, as of fiscal 2022. Since companies use different fiscal years, we have mentioned the end-date of each company’s fiscal year along with its net income.
Most Profitable Small-Cap Stocks Now
15. SFL Corporation Ltd. (NYSE:SFL)
Number of Hedge Fund Holders: 18
Net Income (TTM) as of December 31, 2022: $202.7 Million
SFL Corporation Ltd. (NYSE:SFL) is a marine transportation company, involved in the operation, and chartering of vessels and offshore assets. It is one of the most profitable small-cap stocks now. The company’s TTM net income as of December 31, 2022, sits at $202.7 million.
On February 15, SFL Corporation Ltd declared a quarterly dividend of $0.24 per share, up 4.3% from its prior dividend of $0.23. As of February 17, the stock is offering a forward dividend yield of 8.85% and is trading at a PE multiple of 5x.
At the close of Q3 2022, 18 hedge funds were long SFL Corporation Ltd. and disclosed positions worth $64.15 million in the company.
In addition to SFL Corporation Ltd., other profitable small-caps that are trading at compelling PE ratios include CONSOL Energy Inc., M/I Homes, Inc., and Danaos Corporation.
14. Enova International, Inc. (NYSE:ENVA)
Number of Hedge Fund Holders: 19
Net Income (TTM) as of December 31, 2022: $207.4 Million
Enova International, Inc. (NYSE:ENVA) is an innovative fintech company that leverages AI and machine learning to provide financial services to clients in the United States, Canada, Australia, and Brazil. For the fiscal fourth quarter of 2022, Enova International, Inc. reported an EPS of $1.76 and outperformed EPS consensus by $0.05. The company’s net income for fiscal 2022 amounted to $207.4 million. Enova International, Inc. is ranked among the most profitable small-cap stocks now and has gained 22.72% over the past 12 months, as of February 17.
19 hedge funds disclosed positions in Enova International, Inc. in the third quarter of 2022. The total stakes of these hedge funds amounted to $201.7 million. As of December 31, 683 Capital Partners owns over 2.5 million shares of the company and is the largest stockholder.
Here is what Blue Tower Asset Management had to say about Enova International, Inc. in its third-quarter 2022 investor letter:
“One of our portfolio holdings that we believe will be relatively resilient is Enova International (down 26% YTD). We last wrote about Enova in our Q3 2018 letter. Since that letter, the trailing twelve-month earnings of the company have quadrupled and tangible book value per share has grown more than 12x. Despite that huge growth, their stock is trading at almost the same price it was back then!
Enova is a subprime lender that uses machine learning methods to provide an automated underwriting of loans for a variety of different loan products. Enova has traded down to an extremely cheap valuation despite having strong organic growth and recently acquiring OnDeck Capital, a small business lender, at a bargain valuation. Enova is still in the process of realizing all of the synergies of combining its core business with OnDeck Capital and we should expect this combination to perform even better in the future. Enova’s current cheap valuation is the result of two main fears; the regulatory risk against high interest loans and the potential impact that an impending recession will have on the company.
Business Overview
Enova is an online-only subprime lender that originally spun out of Cash America International in 2014. As an online-based business, they have more flexibility to scale up or scale down their lending than the brick-and-mortar lenders they have displaced. Another key advantage is that they are constantly building up data on their interactions with customers and can determine which customers are better credit risks. New pools of customers tend to be less profitable to Enova than seasoned ones as the company has not yet figured out which customers are good credit risks. Therefore, in periods of business growth, we should expect the company to have compressed margins compared to their steady state. During 2020 and 2021, Enova became more conservative in their underwriting and faced reduced customer demand resulting in their net charge-offs falling dramatically to the lowest levels in the company’s history…” (Click here to see the full text)
13. The Bank of N.T. Butterfield & Son Limited (NYSE:NTB)
Number of Hedge Fund Holders: 15
Net Income (TTM) as of December 31, 2022: $214 million
The Bank of N.T. Butterfield & Son Limited is a Bermuda-based bank, offering a variety of commercial, private, and community banking services to individuals and SMEs. On February 13, The Bank of N.T. Butterfield & Son Limited posted earnings for fiscal 2022 and reported that its net income for the year amounted to $214 million, or $4.29 per share, up from $162.7 million in fiscal 2021, or $3.26 per share.
The Bank of N.T. Butterfield & Son Limited is one of the most profitable small-cap stocks right now and is also trading at a compelling PE multiple. As of February 17, the stock is trading at a TTM PE ratio of 8.62 and is offering a forward dividend yield of 4.78%.
At the close of Q3 2022, The Bank of N.T. Butterfield & Son Limited was spotted on 15 investors’ portfolios that disclosed collective positions worth $87.8 million in the company. As of December 31, Adage Capital Management is the largest shareholder and has a stake worth $24.8 million in the company.
12. Hope Bancorp, Inc. (NASDAQ:HOPE)
Number of Hedge Fund Holders: 18
Net Income (TTM) as of December 31, 2022: $218.2 million
Hope Bancorp, Inc. (NASDAQ:HOPE) is a financial holding company that provides financial services to individuals and SMEs in the United States. For fiscal 2022, Hope Bancorp, Inc. reported a net income of $218.2 million, up from $204.6 million in 2021. Hope Bancorp, Inc. is one of the most profitable small-cap stocks now and is trading at a PE multiple of 7x, as of February 17.
Hope Bancorp, Inc. was a part of 18 hedge funds’ portfolios at the end of the third quarter of 2022. The total stakes of these hedge funds amounted to $70.3 million in the company. As of December 31, Pzena Investment Management is the top shareholder in the company and has disclosed a stake worth $41.9 million.
11. RPC, Inc. (NYSE:RES)
Number of Hedge Fund Holders: 18
Net Income (TTM) as of December 31, 2022: $218.3 million
RPC, Inc. (NYSE:RES) is an American oilfield services and equipment company with operations across the globe. As of February 17, the stock has gained 13.16% over the past 12 months and is trading at a price-to-earnings multiple of 8.94.
On January 25, RPC, Inc. posted strong earnings for the fiscal fourth quarter of 2022. The company reported an EPS of $0.41 and outperformed EPS estimates by $0.12. For fiscal 2022, RPC, Inc. reported net income of $218.3 million, up from $7.2 million in fiscal 2021. RPC, Inc. is one of the most profitable small-cap stocks now.
At the end of Q3 2022, 18 hedge funds were eager on RPC, Inc. and held collective stakes worth $61.5 million in the company. As of December 31, Mario Gabelli’s GAMCO Investors is the largest stockholder in the company and owns over 3.1 million shares.
10. Himax Technologies, Inc. (NASDAQ:HIMX)
Number of Hedge Fund Holders: 10
Net Income (TTM) as of December 31, 2022: $236.9 million
Himax Technologies, Inc. (NASDAQ:HIMX) is a leading Taiwanese semiconductor company that specializes in display-driver ICs and timing controllers for consumer electronics and automobiles. With a trailing twelve-month net income of $236.9 million, as of December 31, Himax Technologies, Inc. is placed tenth on our list of the most profitable small-cap stocks now.
Himax Technologies, Inc. is currently trading cheaply relative to earnings. As of February 17, the stock is trading at a PE multiple of 6x and has gained 12.55% over the past 6 months.
Himax Technologies, Inc. was a part of 10 investors’ portfolios at the end of Q3 2022. The total stakes of these hedge funds amounted to $42.65 million. As of December 31, Yiheng Capital owns more than 5.1 million shares of the company and is the largest investor.
9. Apollo Commercial Real Est. Finance Inc (NYSE:ARI)
Number of Hedge Fund Holders: 10
Net Income (TTM) as of December 31, 2022: $248.8 million
Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) is a REIT that acquires, invests in, and manages commercial real estate mortgage loans and other commercial real estate-related debt investments. Apollo Commercial Real Estate Finance, Inc. is a profitable small-cap stock that is trading at an attractive valuation and also offering a strong dividend. As of February 17, the stock has a TTM PE ratio of 7x and is offering a forward dividend yield of 11.70%. Apollo Commercial Real Estate Finance, Inc. has a TTM net income of $248.8 million, as of December 31, 2022.
At the close of the third quarter of 2022, 10 hedge funds were long Apollo Commercial Real Est. Finance Inc and disclosed positions worth $17.55 million in the company. As of December 31, Ken Griffin’s Citadel Investment Group is the top investor in the company and has a position worth $2.37 million.
8. Textainer Group Holdings Limited (NYSE:TGH)
Number of Hedge Fund Holders: 17
Net Income (TTM) as of December 31, 2022: $289.5 million
Textainer Group Holdings Limited (NYSE:TGH) is a global leasing company involved in the acquisition, management, and leasing of marine cargo containers. The company has three business divisions: Container Ownership, Container Management, and Container Resale. On February 14, Textainer Group Holdings Limited declared a quarterly cash dividend of $0.30 per share, up 20% from its prior dividend of $0.25. The dividend is payable on March 15 to investors of record on March 3. As of February 17, the stock is offering a forward dividend yield of 3.66% and is trading at a PE ratio of 5x.
Textainer Group Holdings Limited is one of the most profitable small-cap stocks now. The company’s net income for fiscal 2022 amounted to $289.5 million, up from $273.4 million in fiscal 2021.
At the end of Q3 2022, 17 hedge funds were bullish on Textainer Group Holdings Limited and held collective stakes worth $42.4 million in the company. As of December 31, Gratia Capital is the largest shareholder in the company and owns roughly 235,000 shares.
7. Patrick Industries, Inc. (NASDAQ:PATK)
Number of Hedge Fund Holders: 19
Net Income (TTM) as of December 31, 2022: $328.1 million
Patrick Industries, Inc. (NASDAQ:PATK) is a leading manufacturer of parts, construction products, and materials for recreational vehicle, marine, manufactured housing, and industrial markets. The company has operations in the United States, Canada, and China. On February 9, Patrick Industries, Inc. posted strong earnings for the fiscal fourth quarter of 2022. The company reported an EPS of $1.68 and beat EPS estimates by $0.14. The company’s net income for fiscal 2022 amounted to $328.1 million. Patrick Industries, Inc. is ranked among the most profitable small-cap stocks.
Patrick Industries, Inc. was a part of 19 investors’ portfolios at the close of Q3 2022. The total stakes of these hedge funds amounted to $52.8 million. As of December 31, AQR Capital Management is the top investor in the company and has a stake worth $8.4 million.
6. GrafTech International Ltd. (NYSE:EAF)
Number of Hedge Fund Holders: 24
Net Income (TTM) as of December 31, 2022: $382.9 million
GrafTech International Ltd. (NYSE:EAF) produces graphite electrodes and petroleum coke. The company’s products are used in the manufacturing of electric arc furnace steel and graphite electrodes. With a trailing twelve-month net income of $382.9 million, as of December 31, GrafTech International Ltd. is placed sixth on our list of the most profitable small-cap stocks now.
On February 9, GrafTech International Ltd. declared a quarterly cash dividend of $0.01 per share. The dividend is payable on March 31 to shareholders of record on February 28. As of February 17, the stock is offering a forward dividend yield of 0.71%.
At the end of the third quarter of 2022, GrafTech International Ltd. was spotted on 24 investors’ portfolios that disclosed collective positions worth $112.4 million in the company. As of December 31, Yacktman Asset Management is the leading investor in the company and has disclosed a position worth $38.5 million.
Profitable small-caps that are popular among elite money managers include GrafTech International Ltd., CONSOL Energy Inc., M/I Homes, Inc., and Danaos Corporation.
5. CONSOL Energy Inc. (NYSE:CEIX)
Number of Hedge Fund Holders: 31
Net Income (TTM) as of December 31, 2022: $466.9 million
CONSOL Energy Inc. is a leading manufacturer and exporter of bituminous coal. The company operates through two segments: Pennsylvania Mining Complex and CONSOL Marine Terminal. As of February 17, the stock has gained 87.26% over the past 12 months.
CONSOL Energy Inc. is one of the most profitable small-cap stocks right now. On February 7, the company reported strong earnings for the fiscal fourth quarter of 2022. The company reported an EPS of $3.88 and outperformed EPS consensus by $0.47. For fiscal 2022, CONSOL Energy Inc. generated a net income of $466.9 million, up from $34.1 million in fiscal 2021.
At the end of the third quarter of 2022, 31 hedge funds were eager on CONSOL Energy Inc. and held collective stakes of $360.6 million in the company. As of December 31, David Einhorn’s Greenlight Capital is the most prominent investor in the company and has a position worth $117.8 million.
Here is what Greenlight Capital had to say about CONSOL Energy Inc. in its fourth-quarter 2022 investor letter:
“As CONSOL Energy Inc. (NYSE:CEIX) rode a surge in coal prices, the shares soared from $22.71 to $65.00 and the company paid $2.05 per share in dividends. In 2022, part of the higher coal prices were absorbed by hedges and forward contracts at what turned out to be below-market prices. Even so, we believe the company ended the year with no net debt. From here, with the below market contracts mostly behind, we expect the higher prices to translate directly into much higher earnings, with most of the free cash flow to be returned to shareholders. Much of the pricing in 2023 and some of the pricing in 2024 is locked in. As a result, we believe that the company will generate free cash flow over the next two years equal to its current market capitalization. While thermal coal will probably never be cool to own, we believe the returns for owning CEIX should continue to be hot.”
4. M/I Homes, Inc. (NYSE:MHO)
Number of Hedge Fund Holders: 26
Net Income (TTM) as of December 31, 2022: $490.6 million
M/I Homes, Inc. is an American homebuilding company. The company has four business segments: Northern Homebuilding, Southern Homebuilding, and Financial Services. As of February 17, M/I Homes, Inc. has returned 21.64% to investors over the past 6 months.
On February 1, M/I Homes, Inc. posted earnings for the fourth quarter of fiscal 2022. The company reported earnings per share of $5.15 and outperformed EPS expectations by $0.99. For fiscal 2022, M/I Homes, Inc. generated a net income of $490.6 million. The stock ranks fourth among the most profitable small-cap stocks.
M/I Homes, Inc. was spotted on 26 investors’ portfolios at the end of Q3 2022. The total stakes of these hedge funds amounted to $109.7 million. As of December 31, Balyasny Asset Management is the largest shareholder in the company with a stake worth $23.8 million.
Here is what Miller Value Partners had to say about M/I Homes, Inc. in its fourth-quarter 2022 investor letter:
“During the quarter, we initiated a new investment in M/I Homes, Inc. (NYSE:MHO), what we deem as a significantly misplaced homebuilder. M/I Homes’ share price is 40% below its recent highs, at valuation levels near/below 2008-09 and 2020 industry troughs. Homebuilders in general have been under pressure due to marketplace concerns on the potential impact from higher mortgage rates and lower housing affordability. However, we believe the positive demographics and lack of housing supply over the page 10 years provides a very favorable long-term supply/demand picture for the industry that should shorten the current downturn. M/I Homes is nicely diversified covering multiple home-type categories, with properties in valuable local communities in the Midwest and Southeast (#2 in the Jon Burns Real Estate Consulting Submarket Desirability Index). The company appears well positioned with a strong land portfolio and a backlog that remains higher than 2019 levels. M/I Homes also has a strong balance sheet, with net debt to capital near 25% and no debt maturities through 2028. With their strong backlog, management still sees potential for Return on Equity to remain above 20% which, if achieved, would lead to strong tangible book value growth over the next couple of years. With market expectations and valuation near historical troughs (EV/Revenue <.5x, EV/EBIT near 3x and deep discount to tangible book value), the share price is already discounting a deep and extended industry trough. M/I Homes’ attractive asset base, strong balance sheet and deep valuation discount to peers should provide an attractive long-term reward/risk investment opportunity.”
3. Costamare Inc. (NYSE:CMRE)
Number of Hedge Fund Holders: 9
Net Income (TTM) as of December 31, 2022: $523.8 million
Costamare Inc. (NYSE:CMRE) is one of the world’s leading marine shipping companies and is currently trading cheaply relative to earnings. As of February 17, Costamare Inc. has a TTM PE ratio of 2.38 and has gained 8.34% year to date. Costamare Inc. is placed high on our list of the most profitable small-cap stocks. The company’s net income as of December 31, 2022, amounted to $523.8 million, up from $404 million in fiscal 2021.
Costamare Inc. was a part of 9 investors’ portfolios at the close of Q3 2022. The total stakes of these hedge funds amounted to $28.4 million. As of December 31, Citadel Investment Group is the leading shareholder in the company and has disclosed a stake worth $4.69 million.
2. Century Communities, Inc. (NYSE:CCS)
Number of Hedge Fund Holders: 18
Net Income (TTM) as of December 31, 2022: $525.1 million
Century Communities, Inc. (NYSE:CCS) is an American homebuilding corporation, specializing in single-family attached and detached homes. On February 8, Century Communities, Inc. declared a quarterly cash dividend of $0.23 per share, up 15% from its prior dividend of $0.20. The dividend is payable on March 15 to investors of record at the close of business on March 1. As of February 17, the stock is offering a forward dividend yield of 1.53%.
On February 1, Century Communities, Inc. reported market-beating earnings for the fiscal fourth quarter of 2022. The company’s EPS for the quarter amounted to $2.71 and outperformed EPS estimates by $0.28. For fiscal 2022, Century Communities, Inc. generated a net income of $525.1 million, up from $498.5 million in fiscal 2021.
At the close of Q3 2022, 18 hedge funds were long Century Communities, Inc. and disclosed position worth $62.2 million in the company. As of December 31, Balyasny Asset Management is the top investor and has a position worth $28.1 million in the company.
1. Danaos Corporation (NYSE:DAC)
Number of Hedge Fund Holders: 15
Net Income (TTM) as of December 31, 2022: $559.2 million
Danaos Corporation is the most profitable small-cap marine shipping company on our list. The company has operations in Australia, Asia, Europe, and the United States. For fiscal 2022, the company’s net income amounted to $559.2 million. As of February 17, the stock has gained 11.43% year to date and is trading at a PE multiple of 2x.
On February 14, Danaos Corporation declared a quarterly dividend of $0.75 per share. The dividend is payable on March 14 to stockholders of record on February 28. As of February 17, the stock is offering a forward dividend yield of 5.03%.
At the close of the third quarter of 2022, 15 hedge funds held stakes in Danaos Corporation. The total value of these stakes amounted to $127.6 million. As of December 31, Balyasny Asset Management is the largest shareholder in the company and has a position worth $25.1 million.
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This article is originally published at Insider Monkey.
