Cliff Asness’s Small Cap Picks Include GameStop Corp. (GME)

In the 13F, AQR reported a position of about 14 million shares in Brocade Communications Systems, Inc. (NASDAQ:BRCD), the $2.5 billion market cap data storage company. The second quarter of Brocade’s fiscal year ended in April; while the company grew its net income substantially compared to the same period in the previous fiscal year, revenue was about flat. We’d be concerned, then, that future earnings growth might not be sustainable as it has recently come through margins alone. However, the sell-side is optimistic with Brocade carrying a forward P/E multiple of 8.

Rounding out our list of Asness’s picks in this category is Assurant, Inc. (NYSE:AIZ), an insurance company which focuses on accident and health insurance. At a market capitalization of $3.9 billion, its trailing and forward P/Es are 10 and 9 respectively. With a P/B ratio of 0.8 as well, it is a potential value play though recent performance has actually been weak. Specifically, its last quarterly report showed a 28% decline in net income compared to the first quarter of 2012 despite rising revenue.

Still, we think that Assurant is cheap enough to be worth further research, though of course we would want to see its business improving before making any moves there. American Capital and GameStop Corp. (NYSE:GME) seem like complicated situations- in one case because of the investments in private securities and in the other because of uncertainty regarding what Microsoft will do. It’s certainly possible that American Capital is a value opportunity, however, and while we are highly skeptical of GameStop Corp. (NYSE:GME)’s viability over the long term as more gaming goes electronic it may be worth watching for any upside surprises at the company.

Disclosure: I own no shares of any stocks mentioned in this article.