Let me use today to share a story.
A special TradeSmith story.
A story that will give you a peek behind the curtain — and an advance look at a unique research project we’ve been working on here.
And a tale that will give you four free small-cap stock picks you can buy right now.
All I ask is that you answer a couple quick questions (which I’ll share at the very end of this story).
So let me get started with my tale…
A Journey — And A Destination
Early this year, I gave the TradeSmith research team a special assignment. Under a special research project code-named “Trinity,” I asked our team to develop analytics that would identify big opportunities sharing three specific traits.
They all had to be:
- High-quality stocks.
- That are undervalued.
- And that feature positive momentum.
These traits weren’t chosen in a vacuum.
My goal was to spotlight “best-in-class” stocks that will muscle aside the economic and market obstacles that have caused investors to stumble this year — and deliver massive outperformance in 2023.
The team made an interesting discovery: We found that high quality is the key decider of future performance. When you pair that with undervalued stocks, and find shares that are exhibiting positive momentum, you can zero in on the biggest potential winners.
I already like what I’m seeing from “Trinity.”
And I wanted to do something unique here. I told our researchers to overlay “Trinity’s” screening requirements on small-cap stock plays — generally viewed as companies in the $300 million to $2 billion market-value range.
Small caps are powerful performers in a rebound environment — like the one several of our experts are predicting for 2023.
Furthermore, the recent response to our small-cap-stock coverage has been overwhelming. And you all have asked us for more.
We aim to please.
So I had our researchers fire up “Trinity” — to zero in on four small-cap stocks you can look to buy now.
And here they are…
Let’s Get Small
Small-Cap Play No. 1: Monarch Casino & Resort Inc. (MCRI): Thanks to a 2018 Supreme Court decision – and the emergence of outfits like DraftKings Inc. (DKNG) — sports betting has gone mainstream. And that shift has dovetailed with the longer-running proliferation of casinos as travel destinations.
The Reno, Nevada-based Monarch is riding that wave, having figured out how to transform its gaming, hospitality and dining operations into true “destination experiences” for its customers. It runs the 818-room Atlantis Casino Resort Spa in Reno and ventures like the 516-room Monarch Casino Resort Spa in Black Hawk, Colorado.
Those are hallmarks of a high-quality company.
Its recent market value of $1.54 billion qualifies it as a small cap. The company posted $395.37 million in revenue in 2021, and an even more robust $468.40 million over the past 12 months.
A projected 29.2% earnings growth rate for this year is stellar, and even with that tough comparison, profits are forecast to zoom another 9.7% in the year to come.
At a recent price near $83, the stock remains cheap: Its PEG ratio — a metric that relates a company’s stock valuation to its rate of earnings growth — is a super-low 0.4, indicating that MCRI is undervalued. But the stock is in our bullish zone.
Small-Cap Play No. 2: ShotSpotter Inc. (SSTI): Law enforcement has been one of America’s top storylines of the past decade. Any company whose offerings can blunt crime and boost police-officer safety — and help cities avoid the lethal mistakes that keep them in the headlines — will get the attention of customers and Wall Street.
The Fremont, California-based ShotSpotter is just that kind of company. It’s making headlines around America thanks to the gunshot-detection system it sells to urban law-enforcement agencies, campus police, and security services.
The system, which consists of sensors that detect the sound of gunshots and notify police, helps police respond more quickly to gunfire incidents. And it includes software and other tools that help police investigators bring those cases to a close.
With a market value of about $421 million, ShotSpotter is a smaller small cap. And it’s not just undervalued — it’s downright cheap.
The recent share price of roughly $35 means the stock has a very low PEG ratio of 0.24. Total revenue came in at $58.15 million last year and $73.97 million over the past 12 months. Like Monarch, ShotSpotter sits in the bullish zone of our rating system.
Small-Cap Play No. 3: NVE Corp. (NVEC): Air- and sea-based attack drones, Elon Musk’s driverless tractor trailers, machines that fill your Amazon Prime orders, and others that build your SUVs all have one thing in common: They’re all robots. The Eden Prairie, Minnesota-based NVE says its technology provides “the eyes, nerves, and brains of electronic systems.” Its “spintronic” technology is crucial to the microsensors powering some of the world’s tiniest factory and medical robots.
It’s a big opportunity: NVE is a player in a market for “digital isolator” technology — a sector that’s projected to grow 8.5% a year between now and 2028, when it will reach $4.13 billion, according to a brand-new report by The Insight Partners that specifically mentions NVE by name.
A $4 billion market is a big target for a company with a market cap of $299 million and trailing-12-month revenue of $31.1 million. That tiny market cap — and the fact that NVE’s shares are undervalued (the current PEG ratio is 0.56) — only adds to the stock’s allure. Mix in the positive momentum, the bullish rating, and a projected forward dividend yield of nearly 6.5%, and you’re looking at a small-cap tech stock with eye-popping potential.
Small-Cap Play No. 4: AssetMark Financial Holdings Inc. (AMK): Technology touches every aspect of our lives — including our finances. In spite of the gloomy economic backdrop investors have been obsessing over for most of this year, wealth management is one of the world’s fastest-growing businesses.
Indeed, this market is projected to grow from about $250.12 billion last year to $1.11 trillion by 2028 — a stunning 23.78% compound annual growth rate (CAGR) during that period, SkyQuest Technology Consulting Ltd. said in a report released this summer.
Technology will be a key fuel for that growth. And the Concord, California-based AssetMark could be a hefty beneficiary. It targets the wealth-management business with technologies that help advisors work with clients — tracking appointments, creating goals, crafting financial plans, tracking assets, measuring performance, and billing for services rendered.
There’s a big opportunity there, Financial Planning said in this year’s edition of its annual technology survey: While 93% of financial advisors say technology is crucial to what they do, only 38% say they’re currently buying the right products.
To get a sense of AssetMark’s reach, look at its Voyant Inc. subsidiary, which just announced a collaboration with Morningstar. The press release about the collaboration shared that Voyant serves more than 20,000 advisors in the United Kingdom, Canada, Ireland, Australia, and the United States. Its customers include Bank of Montreal and Lloyds Bank. This deal with Morningstar will bring Voyant’s tools to the 180,000 advisors who Morningstar’s technology serves in North America.
With a market value of $1.8 billion, AssetMark is still a small-cap opportunity. Total revenue was $530.29 million last year and $597.75 million over the past 12 months.
At a recent trading price of $24.31, the stock has a miniscule PEG ratio of 0.005. It’s trading in our bullish zone.
— Keith Kaplan
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Source: TradeSmith