6 Low-Risk Small-Caps With Strong Sources Of Profitability

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 |  Includes: ABM, ARI, ARR, AWR, DMLP, MIC
by: Kapitall

Do you worry about risk when evaluating stocks? One idea is to consider a stock's recent trading volatility.

With this idea in mind, we ran a screen. We began by screening the small-cap sector for low-volatility stocks, with average intra-day volatility over the last month under 2% (meaning, on average, these stocks have traded within a 2% range each day).

Then to analyze these companies' profitability, we ran DuPont analysis on the names. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:

ROE

= (Net Profit/Equity)

= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)

= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these positive characteristics: Increasing ROE along with,

•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)

•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Those companies that pass DuPont are seeing positive trends in the sources of their increasing profitability, which adds further weight to the idea that the names are profitable.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for six of the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these stocks offer less risk? Use this list as a starting point for your own analysis.

List sorted by average intra-day volatility over the last month.

1. ARMOUR Residential REIT, Inc. (NYSE:ARR): Market cap at $1.23B, most recent closing price at $6.90. Average intra-day volatility over the last month at 0.68%. MRQ net profit margin at 84.76% vs. 75.9% y/y. MRQ sales/assets at 0.006 vs. 0.005 y/y. MRQ assets/equity at 10.616 vs. 10.633 y/y.

2. Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI): Operates as a commercial real estate finance company in the United States. Market cap at $331.79M, most recent closing price at $16.16. Average intra-day volatility over the last month at 1.62%. MRQ net profit margin at 62.99% vs. 47.35% y/y. MRQ sales/assets at 0.02 vs. 0.012 y/y. MRQ assets/equity at 2.084 vs. 3.065 y/y.

3. American States Water Company (NYSE:AWR): Provides water, electric, and contracted services in the United States. Market cap at $695.37M, most recent closing price at $37.04. Average intra-day volatility over the last month at 1.73%. MRQ net profit margin at 9.49% vs. 8.05% y/y. MRQ sales/assets at 0.086 vs. 0.078 y/y. MRQ assets/equity at 3.004 vs. 3.162 y/y.

4. Macquarie Infrastructure Company LLC (NYSE:MIC): Operates in a diversified group of infrastructure businesses in the United States. Market cap at $1.63B, most recent closing price at $34.88. Average intra-day volatility over the last month at 1.82%. MRQ net profit margin at 5.32% vs. 4.65% y/y. MRQ sales/assets at 0.121 vs. 0.109 y/y. MRQ assets/equity at 3.049 vs. 3.118 y/y.

5. Dorchester Minerals LP (NASDAQ:DMLP): Engages in the acquisition, ownership, and administration of producing and non-producing natural gas and crude oil royalty, net profits, and leasehold interests in the United States. Market cap at $713M, most recent closing price at $23.11. Average intra-day volatility over the last month at 1.86%. MRQ net profit margin at 54.36% vs. 54.16% y/y. MRQ sales/assets at 0.099 vs. 0.095 y/y. MRQ assets/equity at 1.005 vs. 1.008 y/y.

6. ABM Industries Inc. (NYSE:ABM): Provides facility services for commercial, industrial, institutional, and retail facilities primarily in the United States. Market cap at $1.2B, most recent closing price at $22.51. Average intra-day volatility over the last month at 1.90%. MRQ net profit margin at 0.99% vs. 0.82% y/y. MRQ sales/assets at 0.569 vs. 0.526 y/y. MRQ assets/equity at 2.343 vs. 2.612 y/y.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.