In this article, we discuss the top 10 small company stocks you should own now.
The Dow Jones Industrial Average and the S&P 500 broke a four-day losing streak and closed higher on September 2. Meanwhile, the Nasdaq Composite fell about 0.3% and all major averages were expected to close the week lower. This is partly due to the 2-year U.S. Treasury yield exceeding 3.5% on September 1, the highest level since November 2007. The yield impacted rate-sensitive growth equities, making future profits uncertain and less attractive. Even the biggest market players like Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT) are feeling the heat of macro volatility.
The stock market has almost consistently faced a slump as investors are unsure how to deal with mandates from Fed officials, who have given no indication of easing up on rising rates. There has been a debate in the stock market about equities potentially hitting the June lows in September, a historically weak month for markets.
According to a Bloomberg report from August 12, macro factors such as a strong dollar and narrower credit spreads have benefited smaller companies. Ned Davis Research has moved its tactical recommendation to small caps from large caps. The new recommendation is supported by valuations and interest rates, to name a few factors. “Small caps tend to outperform in early stages of a market rally. They have high betas and they tend to be more oversold”, said the firm’s chief US strategist, Ed Clissold.
According to Lori Calvasina, head of US equity strategy at RBC Capital Markets, recessionary periods are excellent times to buy small caps. The analyst cited valuations as a primary reason, as well as the strength of earnings given small caps have made lesser changes to earnings guidance despite market volatility.
Marcin Balcerzak/Shutterstock.com
Our Methodology
We chose the relatively unknown stocks that have a market cap of less than $5 billion, a net profit margin of more than 40%, as well as considerable sales and EPS growth on a quarter over quarter basis. We have mentioned the latest earnings, analyst ratings, and business fundamentals for the companies, in addition to the Q2 2022 hedge fund sentiment, to provide a better understanding for our readers.
Top Small Company Stocks You Should Own Now
10. Stock Yards Bancorp, Inc. (NASDAQ:SYBT)
Number of Hedge Fund Holders: 2
Stock Yards Bancorp, Inc. (NASDAQ:SYBT) is a Kentucky-based holding company for Stock Yards Bank & Trust Company, offering various financial services for individuals and enterprises in the United States. The company provides multiple services including mortgage banking, commercial real estate lending services, online banking, treasury management, investment management, financial and retirement planning, and trust and estate services.
Stock Yards Bancorp, Inc. (NASDAQ:SYBT) declared on August 17 a $0.29 per share quarterly dividend, a 3.6% increase from its prior dividend of $0.28. The dividend is payable on October 3, to shareholders of the company as of September 16. The stock delivered a dividend yield of 1.77% on September 2.
On July 27, Stock Yards Bancorp, Inc. (NASDAQ:SYBT) posted a Q2 GAAP EPS of $0.91, topping the $0.86 analyst consensus in its first full quarter since acquiring Commonwealth Bancshares. EPS in Q1 2022 came in at $0.29 and $0.17 in the same quarter a year earlier. The Q2 net interest income of $57.2 million also increased from $48.9 million in Q1 2022 and from $41.6 million in the prior-year quarter.
Piper Sandler analyst Brendan Nosal on July 13 assumed coverage of Stock Yards Bancorp, Inc. (NASDAQ:SYBT) with a Neutral rating and a $65 price target. The company’s return profile justifies a “top-tier valuation”, though short-term upside will be limited due to the “top-class valuation,” the analyst told investors. Stock Yards Bancorp, Inc. (NASDAQ:SYBT)’s “phenomenal profitability profile more than accounts for where shares trade”, added the analyst.
According to Insider Monkey’s Q2 data, Jim Simons’ Renaissance Technologies and Cliff Asness’ AQR Capital Management held stakes worth $562,000 and $253,000 in Stock Yards Bancorp, Inc. (NASDAQ:SYBT), respectively.
In addition to Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT), Stock Yards Bancorp, Inc. (NASDAQ:SYBT) is one of the stocks to consider for a diversified portfolio.
Here is what Harding Loevner has to say about Stock Yards Bancorp, Inc. (NASDAQ:SYBT) in its Q2 2021 investor letter:
“If Signature, which currently sits around our market cap ceiling, could be the next First Republic, then the Louisville-based bank Stock Yards could be the next Signature. Stock Yards operates in Kentucky, Ohio, and Indiana, smaller markets where local bankers develop knowledge of their communities not easily replicated by national competitors. Stock Yards’ 60 relationship managers live in the neighborhoods where they do business and have spent decades getting to know local companies and their owners, serving them with a high level of personal attention. The result is a bank that has grown at twice the pace of the industry, while earning higher returns.
Like Signature, Stock Yards was able to grow its market share during last year’s pandemic-driven downturn. Working closely within their local communities, its bankers understood how urgently businesses needed the federally funded small business loans offered under the 2020 Payroll Protection Program Flexibility Act. Many banks struggled to process the loans, which, among other things, required close coordination with the federal Small Business Administration. Stock Yards learned the procedures quickly and was able to provide loans when other banks could not. In addition to helping its existing clients during a difficult time, it was able to attract a large number of new clients by agreeing to write the loans on condition that they move their deposit accounts from their old banks to Stock Yards.”
9. Dorchester Minerals, L.P. (NASDAQ:DMLP)
Number of Hedge Fund Holders: 5
Dorchester Minerals, L.P. (NASDAQ:DMLP) was founded in 1982 and is based in Dallas, Texas. The company engages in the acquisition and ownership of producing and non-producing natural gas and crude oil royalty, net profit, and leasehold interests in the United States. On August 4, Dorchester Minerals, L.P. (NASDAQ:DMLP) reported a Q2 GAAP EPS of $0.96, up considerably from per share earnings of $0.46 in the prior-year quarter. Revenue in the second quarter more than doubled on a year over year basis, coming in at $47.45 million.
On July 21, Dorchester Minerals, L.P. (NASDAQ:DMLP) declared a $0.969 per share quarterly dividend, a 28.5% increase from its last dividend of $0.754. The dividend was distributed to shareholders on August 11. The dividend yield as of September 2 stands at 10.19%.
According to Insider Monkey’s data, 5 hedge funds were bullish on Dorchester Minerals, L.P. (NASDAQ:DMLP) at the end of June 2022, up from 4 funds in the prior quarter. Murray Stahl’s Horizon Asset Management is the largest stakeholder of the company, with more than 1 million shares worth $24.5 million.
8. Centrus Energy Corp. (NYSE:LEU)
Number of Hedge Fund Holders: 6
Centrus Energy Corp. (NYSE:LEU) is a Maryland-based supplier of nuclear fuel and services for the nuclear power market in the United States, Japan, Belgium, and internationally. The company operates through two segments – Low-Enriched Uranium (LEU) and Technical Solutions. On August 4, Centrus Energy Corp. (NYSE:LEU) posted a Q2 non-GAAP EPS of $2.51 and a revenue of $99.1 million.
On August 8, Roth Capital analyst Joe Reagor upgraded Centrus Energy Corp. (NYSE:LEU) to Buy from Neutral, lifting the price target to $48 from $45 after June quarter results exceeded expectations. The analyst believes results topped estimates given the lumpiness of sales that LEU experiences. Additionally, he thinks the risks from Russia have partially subsided. Similarly, on August 5, Lake Street analyst Rob Brown upgraded Centrus Energy Corp. (NYSE:LEU) to Buy from Hold with a $70 price target.
According to Insider Monkey’s data, Centrus Energy Corp. (NYSE:LEU) was part of 6 hedge fund portfolios at the end of the second quarter of 2022, with combined stakes worth $14.70 million, compared to 9 funds in the prior quarter worth $15.4 million.
Here is what Old West Investment Management has to say about Centrus Energy Corp. (NASDAQ:DMLP) in its Q3 2020 investor letter:
“The global enrichment market is highly concentrated with significant barriers to entry, and only a handful of companies control global capacity. The majority of these are state-owned or privately held, and as a result there are very few opportunities to invest in this crucial portion of the fuel cycle.
One such company is Centrus, which traces its origins back to the beginning of the nuclear age when the US government originally developed the technology for nuclear enrichment. Those enrichment assets, representing billions of dollars of research and development, were privatized in the 1990s and subsequently listed on the New York Stock Exchange. In 2013, due to market conditions and advances in technology, the company shut down the last of the legacy enrichment assets but maintained their relationships with fuel buyers and suppliers, in effect serving as a broker of enriched fuel into the US market.
The US is the world’s largest consumer of nuclear fuel, powering 20% of its electricity supply, but has no domestic enrichment capacity. The only operating facility, in New Mexico, is owned by a consortium of foreign entities. The country is heavily dependent on imports from Russia, whose state-owned nuclear enterprise controls half of global supply. The US government has readily acknowledged that this is a serious problem, and a trade investigation in 2018 led to a cabinet-level Nuclear Fuel Working Group report that revealed strong bipartisan support for revitalizing the domestic industry.
The government set out to remedy the problem by awarding a contract to Centrus to build a new enrichment plant, and agreeing to fund most of the $115 million cost. When completed next year, it will be the only facility capable of producing the advanced fuel (known as “HALEU”) required by the next generation of nuclear reactors and satisfying the domestic origin requirements of the US government. With their first mover advantage and strong government support we believe Centrus will have a dominant position in HALEU fuel, a market that is expected to grow 100-fold this decade. (Click here to read more)
7. Canaan Inc. (NASDAQ:CAN)
Number of Hedge Fund Holders: 8
Canaan Inc. (NASDAQ:CAN) is a Beijing-based company that designs and sells integrated circuit final mining equipment products for bitcoin mining in the People’s Republic of China. On August 18, Canaan Inc. (NASDAQ:CAN) reported a Q2 GAAP EPADS of $0.53 and the non-GAAP adjusted net income was $102.7 million, an increase of 26.6% from Q1 2022 and an increase of 115.0% from the prior-year quarter. The revenue of $246.7 million also gained 52.8% on a year over year basis.
On August 29, the US Public Company Accounting Oversight Board announced finalizing an agreement with Chinese regulators in moving towards higher accounting transparency – a move in an attempt to curb a “draconian de-listing outcome”, H.C. Wainwright analyst Kevin Dede told investors in a research note. The analyst believes Canaan Inc. (NASDAQ:CAN)’s delisting risk has decreased since the U.S. and China “have reached what we see as an important agreement”. He sees an attractive entry point at current share levels. The conclusion of a tough bitcoin mining cycle could start to move mining rig sales and prices higher next year and Canaan Inc. (NASDAQ:CAN) has a cash balance representing roughly $2.60 per share, he added.
According to Insider Monkey’s data, Canaan Inc. (NASDAQ:CAN) was part of 8 hedge fund portfolios at the end of Q2 2022, compared to 7 funds in the prior quarter. Polunin Capital is the leading position holder in the company, with 1.40 million shares worth $4.5 million.
6. Costamare Inc. (NYSE:CMRE)
Number of Hedge Fund Holders: 8
Costamare Inc. (NYSE:CMRE) owns and charters containerships to container companies worldwide. On July 28, the company posted a Q2 non-GAAP EPS of $0.95, beating market consensus by $0.04. The revenue climbed 75.5% year over year to $292.69 million, outperforming Wall Street estimates by $7.28 million. On July 1, Costamare Inc. (NYSE:CMRE) declared a $0.115 per share quarterly dividend, in line with previous. The dividend was paid to shareholders on August 8. Costamare Inc. (NYSE:CMRE) delivers a dividend yield of 4.15% as of September 2.
On July 20, Jefferies analyst Omar Nokta initiated coverage of Costamare Inc. (NYSE:CMRE) with a Buy rating and a $19 price target. Costamare Inc. (NYSE:CMRE) benefited from stronger and outsized returns in the container segment last year to invest in dry bulk assets “opportunistically,” said the analyst, who expects to see more special dividend payments in the future due to the firm’s robust operating platform.
According to Insider Monkey’s data, Costamare Inc. (NYSE:CMRE) was part of 8 hedge fund portfolios at the end of Q2 2022, compared to 13 funds in the last quarter. Jim Simons’ Renaissance Technologies is the biggest position holder in the company, with 2.4 million shares worth about $29 million.
Apart from mega caps such as Apple Inc. (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corporation (NASDAQ:MSFT), Costamare Inc. (NYSE:CMRE) is one of the small company stocks to consider as the market faces extreme volatility.
5. Starwood Property Trust, Inc. (NYSE:STWD)
Number of Hedge Fund Holders: 13
Starwood Property Trust, Inc. (NYSE:STWD) is a Connecticut-based real estate investment trust operating in the United States, Europe, and Australia. The REIT has four segments – Commercial and Residential Lending, Infrastructure Lending, Property, and Investing and Servicing segments.
On August 4, the firm posted a Q2 non-GAAP EPS of $0.51, beating market estimates by $0.01. The revenue of $333.2 million jumped 14.6% year over year, but fell short of analysts’ predictions by $0.71 million. Starwood Property Trust, Inc. (NYSE:STWD) reported $3.8 billion of investment activity, including $2.2 billion in commercial lending. The undepreciated book value also increased 26% year-over-year to $21.51.
According to Insider Monkey’s data, Starwood Property Trust, Inc. (NYSE:STWD) was part of 13 hedge fund portfolios at the end of the second quarter of 2022, compared to 15 funds in the last quarter. Amy Minella’s Cardinal Capital is the leading position holder in the company, with more than 5 million shares worth $104.70 million.
4. Diana Shipping Inc. (NYSE:DSX)
Number of Hedge Fund Holders: 15
Diana Shipping Inc. (NYSE:DSX) was incorporated in 1999 and is based in Athens, Greece. The company offers shipping transportation services, moving dry bulk cargoes such as iron ore, coal, and grain, among other materials through shipping routes worldwide. The company posted a Q2 GAAP EPS of $0.42, beating estimates by $0.06. The revenue of $74.52 million gained 58.5% year over year and outperformed Wall Street consensus by $2.68 million. The fleet utilization in Q2 2022 was 99.7% versus 99.6% in the same period a year ago. Diana Shipping Inc. (NYSE:DSX)’s latest quarterly dividend, paid on August 19, increased by 10% to $0.275 per share from its prior dividend of $0.250.
On August 11, Diana Shipping Inc. (NYSE:DSX) agreed to purchase nine modern ultramax dry bulk vessels built between 2015 and 2018. The vessels will be delivered by Q4 2022 and will be paid for in terms of cash and issuance of common shares. The company will acquire the nine vessels for a purchase price of $330 million.
Among the hedge funds tracked by Insider Monkey, Jeremy Hosking’s Hosking Partners is the largest stakeholder of Diana Shipping Inc. (NYSE:DSX) as of Q2 2022, with 4.30 million shares worth $20.6 million. Overall, 15 hedge funds were bullish on Diana Shipping Inc. (NYSE:DSX) at the end of June, up from 12 funds in the prior quarter.
3. Star Bulk Carriers Corp. (NASDAQ:SBLK)
Number of Hedge Fund Holders: 18
Star Bulk Carriers Corp. (NASDAQ:SBLK) was incorporated in 2006 and is based in Marousi, Greece. The company specializes in the ocean transportation of dry bulk cargoes worldwide. On August 4, Star Bulk Carriers Corp. (NASDAQ:SBLK) reported a Q2 non-GAAP EPS of $2.00, beating market estimates by $0.15. The revenue of $417.33 million gained 34% year over year, topping analysts’ predictions by $94.1 million. The company also declared a $1.65 per share quarterly dividend, in line with previous. The dividend is distributable on September 8, to shareholders of record as of August 25. On September 2, Star Bulk Carriers Corp. (NASDAQ:SBLK) delivered a dividend yield of 33.18%.
Jefferies analyst Omar Nokta initiated coverage of Star Bulk Carriers Corp. (NASDAQ:SBLK) on July 20 with a Buy rating and a $30 price target. The analyst assumed coverage of the maritime shipping sector and views companies with modern fleets as positioned competitively to achieve “higher, out-sized earnings going forward”. Star Bulk Carriers Corp. (NASDAQ:SBLK) has become a huge dividend payer given its exposure to rising rates, and its dividends should remain high over the next multiple quarters, the analyst told investors.
Among the hedge funds tracked by Insider Monkey, 18 funds reported owning stakes in Star Bulk Carriers Corp. (NASDAQ:SBLK) at the end of June 2022, compared to 21 funds in the last quarter.
Here is what Massif Capital has to say about Star Bulk Carriers Corp. (NASDAQ:SBLK) in its Q3 2021 investor letter:
“We initiated one long position, one short position and exited one position during the third quarter. Our new long position was in Star Bulk Carriers (SBLK), a pure-play dry bulk operator with roughly 120 controlled vessels and 14 million tons of combined cargo capacity globally.
SBLK has one of the better management teams in the maritime shipping industry and the lowest cost structure among all dry bulk names. After announcing their new dividend policy in May, SBLK now has one of the best payout structures in shipping. The firm has paid out $0.3 and $0.7 per share in dividends for the first and second quarters of 2021. SBLK will most likely announce a dividend for the third quarter somewhere in the $1.15-$1.25 per share range, depending on movement in net working capital.
We believe the best way to look at this business is through cash generation potential and how much is returned to investors. The current equity valuation does not reflect current rates for shipping (earnings), partly because of the velocity of the move in rates and because shipping cycles turn, and it’s not clear whether this is a local top or the early innings of a multi-year cycle. Our belief is the latter. Part of our catalyst is the market re-rating the stock higher once the length of the increased earnings power becomes understood. It is a relatively strong catalyst in the sense that with a strong dividend policy, we can be patient for the market to underwrite this story as the cash is either returned to us via a high dividend yield if the market is either slow or chooses not to join our side of the trade.
Our estimates suggest a time-charter equivalent rate (net profit or loss of operating a vessel daily) of at least $30,000 for SBLK in Q4, with the firm earning a potential annual average of $26,000. Our base case is that this is a strong floor going into next year, with little need to articulate much more upside. If rates hold, which we expect them to do, we could see a 20+% annual dividend next year for SBLK. If the market priced the equity such that the dividend yield was 8%, that implies a $62 stock. Today our base case target for the firm is $37 per share. This is likely conservative as we know that third-quarter rates are higher than the second quarter, and third-quarter dividends will most likely reflect that. We are cautious about diving too deep into the sensitivities to the upside with this position as we are arriving at some pretty remunerative torque using current contracted values and seemingly conservative forecasts…” (Click here to see the full text)
2. Global Ship Lease, Inc. (NYSE:GSL)
Number of Hedge Fund Holders: 20
Global Ship Lease, Inc. (NYSE:GSL) is a London-based company that owns and charters containerships to container shipping companies. On August 30, Global Ship Lease, Inc. (NYSE:GSL) announced a new multi-year charter with Hapag-Lloyd for six ECO 6,900 TEU ships. The charters are expected to generate an average adjusted EBITDA of roughly $13.1 million per ship annually and total adjusted EBITDA of around $393 million for the six ships over the charter period. Jefferies analyst Omar Nokta on July 20 initiated coverage of Global Ship Lease, Inc. (NYSE:GSL) with a Buy rating and a $22 price target, saying he finds the shares “very compelling” at current levels.
On August 4, the company reported a Q2 non-GAAP EPS of $1.85 and a revenue of $154.5 million, gaining 86.4% year-over-year. The adjusted EBITDA was $95.3 million for the second quarter 2022, up from $49.5 million in the second quarter of 2021. Global Ship Lease, Inc. (NYSE:GSL) also declared a $0.375 per share quarterly dividend, in line with previous. The dividend was paid to shareholders on September 2. The company delivered a dividend yield of 8.05% on September 2.
According to Insider Monkey’s Q2 data, 20 hedge funds were bullish on Global Ship Lease, Inc. (NYSE:GSL), compared to 22 funds in the last quarter. Israel Englander’s Millennium Management is the biggest position holder in the company, with 1.3 million shares worth $21.8 million.
Here is what Massif Capital has to say about Global Ship Lease, Inc. (NYSE:GSL) in its Q4 2021 investor letter:
“We initiated a 6% position in GSL, bringing total maritime transit exposure up to ~9% of the portfolio when combined with our 3% SBLK position. GSL is a containership owner, leasing ships to container companies (such as a Maersk) at fixed rates. As owners, they own and manage the vessels (responsible for crews, maintenance, insurance) but do not have fuel costs. GSL focuses on mid-size to smaller containerships, which serve the faster-growing inter-regional trade routes that represent ~70% of global containerized trade volume.
As they own its containers, their business is both pro-cyclical (chartered tonnages used as growth platform by liner shipping companies) and counter-cyclical (with the sale and lease-back structures used by liner companies as a balance sheet management tool). GSL has a track record that includes both organic acquisitions and a strategic combination in Q4 2018 that doubled the size of the fleet.
We like GSL because they do not have as much operational leverage as a company like ZIM (which leases on both sides of the trade), and they sign 2–5-year contracts. Liners have been eager to secure that capacity for extended durations spanning multiple years, significantly longer than has been the case historically and well-aligned with GSL’s strategic preference to lock in value over time and provide forward visibility on cash flows…” (Click here to see the full text)
1. MP Materials Corp. (NYSE:MP)
Number of Hedge Fund Holders: 26
MP Materials Corp. (NYSE:MP) is a Las Vegas-based company that owns and operates rare earth mining and processing facilities. On August 4, the company posted a Q2 non-GAAP EPS of $0.43 and a revenue of $143.56 million, beating Wall Street estimates by $0.08 and $14.81 million, respectively. The revenue gained 96.4% on a year over year basis. The Q2 net income nearly tripled to $73.3 million from $27.2 million in the year-earlier quarter. The Q2 beat was supported by demand and prices rising for rare earth materials.
On August 5, Baird analyst Ben Kallo raised the price target on MP Materials Corp. (NYSE:MP) to $55 from $45 and kept an Outperform rating on the shares. The analyst said the company exceeded market consensus on Q2 results, and more importantly, reiterated the timeline for both its Stage 2 and Stage 3 expansions. Operationally, the company continues to execute well and production volumes were the highest in the mine’s long history. Cash flow was robust and paired with cash from operations, it will continue to drive growth and additional expansion this year.
According to Insider Monkey’s data, 26 hedge funds were long MP Materials Corp. (NYSE:MP) at the end of Q2 2022, compared to 25 funds in the preceding quarter. JHL Capital Group is the leading position holder in the company, with more than 38 million shares worth $1.2 billion.
Here is what Bernzott Capital US Small Cap Value Fund has to say about MP Materials Corp. (NYSE:MP) in its Q1 2022 investor letter:
“MP Materials (NYSE:MP): This rare earth specialty materials company reported solid earnings driven by higher production and selling prices of neodymium-praseodymium (NdPr), a vital component for the development of magnets used in EV production, wind turbines, drones, robotics, and other industrial applications. Also contributing were offtake agreements with General Motors for magnets and expansion plans for domestic production of magnets making MP the only domestic producer. The balance sheet and cash flow generation remain strong, supportive of expansion plans in the current NdPr pricing environment.”
You can also take a look at Best Warehouse and Self-Storage Stocks to Buy and Best Cheap Tech Stocks.
Follow Insider Monkey on Twitter
Suggested articles:
- 13 Largest Lithium Companies In the World
- Best Self-Driving Stocks To Invest In
- Best High-Yield Dividend Stocks for Retirees in 2022
Disclosure: None. Top 10 Small Company Stocks You Should Own Now is originally published on Insider Monkey.
