Small cap stocks should perform well in 2013, especially if they are chosen carefully for underlying value. We have endured a lot of talk about “risk on” and “risk off” trades and as long as the economy and the markets remain un-settled, investors are going to be very careful with the value they are getting for their investment. High flying speculative growth investments are fine when the investors are confident about their financial well being (not necessarily means these investments are prudent). We have seen Apple Computers (AAPL) being right-valued in the recent weeks (the process may not yet be over). But this is even more critical when you look at smaller company stocks.
This is a well balanced screen for potentially undervalued small cap stocks that one should consider as we go into the new year. All stocks are under $800 million in market capitalization at the time of writing.
All the stocks in this screen are chosen for reasonable Price multiples and respectable growth (better than average eps growth in the last 5 years). So in a sense you get value as well as future growth if the management is able to keep executing the way they have done in the past. Some of these stocks will end up in my watch list and ultimately in the premium portfolio.
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|Stock||Company Name||Stock Price||Market Cap ($m)||P/E||P/B||PEG|
|AFAM||Almost Family Inc||20.81||191.8||10.33||0.89||0.88|
|ANDE||The Andersons, Inc||41.71||768.8||9.04||1.32||0.81|
|HCKT||The Hackett Group||3.53||106.7||6.51||1.19||0.45|
|PCCC||PC Connection, In||10.78||282.9||9.12||0.96||0.54|
|QCRH||QCR Holdings, Inc||13.47||65.7||7.79||0.47||0.38|
|SMP||Standard Motor Products||19.79||450||7.03||1.49||0.79|
|TCRD||THL Credit, Inc.||14.28||376.3||11.7||1.09||0.39|
|TITN||Titan Machinery Inc.||24.40||495.4||11.24||1.32||0.52|
|TWGP||Tower Group, Inc.||17.21||678.1||12.55||0.63||0.92|
How to Use this Small Cap Value Stock List?
As is normal, I give you the results of the screen that you can use to further evaluate the companies. Some of these stocks will fit your criteria while some may not. One way to get started is to download the spreadsheet below that has some extra data for these companies. Using these data points (such as Return on Equity, Debt/Capital ratios, etc), you could narrow this list down even further before you have a workable number of small cap stocks you can dig deeper into. Reflecting the atypical market and economic conditions of the past few years, you will find that some of these financial ratios need adjustment as many companies have thrown the kitchen sink and taken non-cash charges and write downs to either save on taxes, or reflect impairment of their assets. So for example, a low P/E ratio may not really be so low. This is one of the reasons the screen also looks for cheap price to book multiple which is harder to fudge (more so if you look at tangible book value).
The attached Excel download also breaks down the list by sectors that you will find useful for diversification purposes (or playing sectorial cycles).