Small-cap stocks continue to put some distance between themselves and their large cap brethren. Though the Dow Jones Industrial Average and the S&P 500 ended Monday’s trading in the red on lingering fears of a trade war, once again the Russell 2000 Small Cap Index mustered a gain most other market indices couldn’t.
Whatever the reason — or reasons — it’s leadership that could last for a while.
Savvy investors would be wise to pay a little extra attention to lesser-known and less visible companies for the foreseeable future, while bigger names continue to get kicked around.
And if you’re looking a place to start the search, look no further.
Here’s a run-down of 7 of the top small-cap stocks as we move into the second half of 2018.
USANA Health Sciences, Inc. (USNA)
To simply describe USANA Health Sciences, Inc. (NYSE:USNA) as a nutrition and supplement company doesn’t even come close to doing the company justice. USANA is the proverbial gold standard within the business. It’s turned nutrition into an art and a science. It does some impressive R&D work, and forms some impressive partnerships.
Take the recent reorganization of its research and development arm as an example. It’s being rebuilt to focus even more on clinical studies. Most nutrition and supplement outfits don’t do any testing. Underscoring the seriousness of its science is the fact that one of the two individuals heading up the department is an MD, while the other is a Ph.D. A recent addition to the research and development team is an MD and a Ph.D.
USANA’s market-leading science translates into growth too. The top line is expected to grow 11% this year, expanding 2017’s per-share profits of $4.06 to $4.53. Next year’s bottom line is expected to reach $5.11 per share on another round of respectable sales growth. Thing is, the company has topped earnings estimates for three straight quarters, and the bar looks set pretty low for the foreseeable future.
TTM Technologies, Inc. (TTMI)
In a world where cutting-edge technology companies like NVIDIA Corporation (NASDAQ:NVDA) and Intel Corporation (NASDAQ:INTC) tend to draw a crowd simply because what they’re doing with silicon is so amazing, it’s easy to forget that not everything we use has to be “high tech.” There’s still plenty of need for the basics, and the basic printed circuit board is hardly going out of style.
That’s good news for TTM Technologies, Inc. (NASDAQ:TTMI), which not only makes good, old-fashioned circuit boards, but has modernized to art to reflect more modern processors, chips and transistors than can be attached to them.
It’s a broad economic play more so than a technology play, well-positioned to capitalize on general economic growth than on yet-another technology evolution like IoT, quantum, computing, AI and the like. TTM’s real selling point, however, is its diversity. TTM Technologies services industries ranging from aerospace to healthcare to telecom to the industrial sliver of the economy, buffering it from any major cyclical swings.
The forward-looking P/E of 9.3 is pretty compelling too.
Sunrun Inc (RUN)
While solar panel-mania has run its course, reaching a peak frenzy in 2008, don’t think for a minute the industry is simply fading away. It’s just matured and settled down. But it’s most definitely still around. Just ask Sunrun Inc (NASDAQ:RUN), which not only installs residential solar panels, but helps customers pay for them by offering what is effectively a savings-funded payment plan.
The underlying opportunity is certainly in place. Even up against years of rapid adoption of solar power, residential solar panel installations grew another 11% year-over-year during the first quarter of this year. Yet, solar power still only accounts for about 1% of the electricity generated each year in the United States despite its amazing long-term cost effectiveness.
What’s holding the industry back? The up-front costs… costs that outfits like Sunrun are helping consumers finance, as the company educates people to think bigger-picture. This year’s expected 11% improvement in revenue and profit growth of 27% says that whatever Sunrun is doing, it’s the right thing.
Prestige Brands Holdings, Inc. (PBH)
You know the company, even if you don’t know you know the company. Prestige Brands Holdings, Inc. (NYSE:PBH) is the name behind Chloraseptic sore throat spray lozenges, motion sickness preemptive treatment Dramamine, Compound W wart-removal solution, itchy-eye soother Clear Eyes, and more.
There’s nothing particularly sexy about any of its business or brands, when compared to a pharmaceutical stock or a bigger OTC care player like Johnson & Johnson (NYSE:JNJ). But, that’s kind of the point. It’s boring, but highly marketable, yet doesn’t necessarily invite competition into the fray. Besides, it’s going to be tough to dethrone names like Chloraseptic and Dramamine as the go-to brand names in their respective categories.
Don’t look for sales growth either. The nature of its businesses may mean it’s shielded from a slowing economy, but it also contends with a revenue ceiling. Where Prestige Brands can really shine is with its bottom line. Analysts are looking for last year’s earnings of $2.58 per share to reach $2.99 this year, and swell to $3.2.2 per share next year. That’s earnings growth many of its peers aren’t matching.
American Outdoor Brands Corp (AOBC)
The name American Outdoor Brands Corp (NASDAQ:AOBC) likely won’t ring a bell with many investors, or consumers for that matter. The name Smith & Wesson, however, will be more familiar. The iconic gunmaker became American Outdoor Brands early last year as it expanded its product and brand name base to include Thompson/Center rifles, Bubba Blade fishing knives, Lockdown gun-storage solutions and more.
It’s been a tough business to be in lately, with far too much gun violence putting the company’s future existence in jeopardy. AOBC shares lost nearly another 40% of their value last year with new gun laws largely expected to permanently crimp its business.
As it turns out though, the gun industry may sidestep new heavy-handed regulation after all. Shares are on the mend again, and the stock’s trailing P/E of 17.4 makes it something of a bargain.
Codexis, Inc. (CDXS)
Despite all we know about how the human body works, science continues to make surprising discoveries. The importance of proteins not just as building blocks of our physiology but as a pathway to better wellness is one of those relatively new understandings. Problem: Not all the proteins we’d like to create are easy to make.
Enter Codexis, Inc. (NASDAQ:CDXS). Or, more specifically, enter Codexis’ CodeEvolver platform. It combines machine learning with existing know-how to create food ingredients, supplements and even pharmaceuticals based on molecular formulations that wouldn’t otherwise exist.
The caliber of some of its partners speaks volumes. It’s working with GlaxoSmithKline plc (ADR) (NYSE:GSK), for instance, as well as with Merck & Co., Inc. (NYSE:MRK) to help each drug giant create more novel enzymes and more efficiently mass produce those molecules.
Codexis is not profitable — yet — making it one of the riskier small-cap stocks to think about. It’s on a growth trajectory though, and shrinking that loss pretty quickly. That might be enough.
OraSure Technologies, Inc. (NASDAQ:OSUR)
Last but not least, add OraSure Technologies, Inc. (NASDAQ:OSUR) to your list of small-cap stocks to mull as we march into the second half of 2018.
OraSure makes a variety of diagnostic and testing tools, along with a small number of clinical supplies. Included in its lineup is an in-home HIV test, a hepatitis test, a flu test, plus forensic investigation kits. It even offers cryosurgery tools that can freeze warts, skin tags and the like.
As was the case with Prestige Brands Holdings, by healthcare stock standards, OraSure may seem a little less than thrilling. As was the case with Prestige Brands, there’s a lot to be said for certainty. Besides, this year’s projected revenue growth of 10% followed by next year’s expected 10% growth rate is nothing to sneeze at.
— James Brumley
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Source: Investor Place