We recently published a list of 10 Small-Cap Stocks Jim Cramer is Talking About Amid Latest Market Rotation. Since SPX Technologies Inc (NYSE:SPXC) ranks 10th on the list, it deserves a deeper look.
Earlier this month Jim Cramer talked about the rally in the small-cap-heavy Russell 2000 Index, saying these kinds of rebounds show you have to “stay invested” in the market to make “big money.”
“When I say stay in I mean you have to be as invested as you possibly can be so you don’t miss monster moves.”
Cramer said the Russell 2000 index rally was led by several “oddball” stocks that many people aren’t aware of.
“The biggest winners in the Russell today are all the companies I either don’t know or I barely heard of. You know I know thousands of stocks!”
Cramer highlighted that almost half of the stocks rising in the Russell 2000 index were biotech or healthcare companies that are losing money. Cramer believes these companies might be worth something only “years from now” and called them “risky” stocks.
Jim Cramer talked about what he called “small- and medium-sized businesses” which he believes can benefit from two possible developments in the near term: a Trump win in the election and rate cuts. A Donald Trump presidency, according to Cramer, could provide a level-playing field for these small companies which often get left behind by major companies amid tough regulation. Since Trump is expected to decrease regulations if he comes to power, these small companies could thrive in this new environment. Cramer said that money is coming from the “sidelines” as investors begin to invest in stocks instead of hoarding cash to earn interest income.
Cramer has been talking about several small-cap stocks in his programs lately. In a recent program, he mentioned several small-cap stocks that were moving recently and briefly discussed their businesses. We picked these stocks and analyzed their fundamentals and growth potential. We also mentioned hedge fund sentiment around these stocks. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
SPX Technologies Inc (NYSE:SPXC)
Number of Hedge Fund Investors: 19
SPX Technologies Inc (NYSE:SPXC) is a heating, ventilation, and air conditioning, detection and measurement, power solutions company. Cramer mentioned that the stock trades 28 times earnings and said “no thanks.” Cramer said he prefers Carrier Global instead.
Oppenheimer also downgraded the stock to Perform from Outperform citing valuation concerns. The firm believes SPX is now fairly valued.
Over the past one year, the stock has gained about 80% in value. Oppenheimer said:
“The stock’s significant trailing outperformance has driven valuation to levels that seem to fairly reflect SPX’s (SPXC) compounder trajectory. Given the recent step change in buyside expectations and corresponding impact on margin of safety, we move to the sidelines (for now) on one of our favorite long-term stories.”
What’s propelling this stock growth? HVAC is the answer. During the first quarter, SPX Technologies Inc (NYSE:SPXC)’s HVAC segment revenue grew 20% and backlog growth in the segment also came in at 20%. HVAC business accounts for about 69% of group revenue and has the potential for improved margins. Last year’s EBIT margin was 21%, and operational initiatives could boost this to 25% in the coming years. A key strength of the HVAC segment is the high-margin replacement revenue from spare part sales, which make up about two-thirds of segment sales. SPX Technologies Inc (NYSE:SPXC) expertise in cooling towers is crucial for data centers, where demand is expected to surge by 160% by the end of the decade due to AI. Last year, 61% of the $1.1 billion HVAC sales were from cooling products. As data centers will need a lot of cooling, the company is positioned well to benefit from this demand. However, the stock’s valuation is now too high and it’d make sense to let the stock cool down itself before piling into it.
Overall, SPX Technologies Inc (NYSE:SPXC) ranks 10th on Insider Monkey’s list titled 10 Small-Cap Stocks Jim Cramer is Talking About Amid Latest Market Rotation. While we acknowledge the potential of SPX Technologies Inc (NYSE:SPXC), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SPXC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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