Small-cap stocks tend to offer investors greater growth opportunities than large-cap alternatives, although this comes with its fair share of added risk. One way to minimize that risk is to focus on small cap stocks that analysts have given positive ratings to, which is what we did today. We further narrowed our list by looking for stocks that appear undervalued from a price multiple perspective. We arrived at a rather interesting list - we hope you find it useful.
The Price/Earnings ratio is one of the most commonly used price-multiple metrics. Often, EPS from the last four quarters is used to derive this number. A firm that has a high P/E ratio generally indicates that investors have high expectations of the firm relative to future earnings growth. By the opposite token, investors generally have lower expectations of a firm with a low P/E ratio. A firm that holds a P/E below 10 could be viewed as having "value investment" potential. One thing to remember is that EPS is an accounting measure that could be potentially manipulated. Thus the P/E is only as good as the quality of the earnings.
The PEG ratio (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share [EPS], and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate. Thus using just the P/E ratio would make high-growth companies appear overvalued relative to others. It is assumed that by dividing the P/E ratio by the earnings growth rate, the resulting ratio is better for comparing companies with different growth rates. A lower ratio is 'better' (cheaper) and a higher ratio is 'worse' (expensive) - a PEG ratio of 1 means the company is fairly priced.
We first looked for small cap dividend stocks. We then looked for businesses that analysts rate as "Buy" or "Strong Buy" (mean recommendation < 3). We then screened for businesses that are trading at a discount (P/E<10)(PEG Ratio < 1). We did not screen out any sectors.
Do you think these small-cap stocks should be priced higher? Please use our list to assist with your own analysis.
1) Aircastle LTD (AYR)
|Industry:||Rental & Leasing Services|
Aircastle LTD has a Dividend Yield of 5.24%, a Payout Ratio of 35.54%, a Analysts' Rating of 2.40, a Price/Earnings Ratio of 7.43, and a Price/Earnings to Growth Ratio of 0.76. The short interest was 3.25% as of 06/18/2012. Aircastle Limited, through its subsidiaries, engages in the acquisition, lease, and sale of high-utility commercial jet aircraft to passenger and cargo airlines worldwide. The company also makes investments in various aviation assets, including debt investments secured by commercial jet aircraft. As of December 31, 2011, its aircraft portfolio consisted of 144 aircrafts that were leased to 65 lessees located in 36 countries, and managed through offices in the United States, Ireland, and Singapore.
2) Kronos Worldwide Inc. (KRO)
Kronos Worldwide Inc. has a Dividend Yield of 3.68%, a Payout Ratio of 17.51%, a Analysts' Rating of 2.50, a Price/Earnings Ratio of 4.75, and a Price/Earnings to Growth Ratio of 0.68. The short interest was 28.84% as of 06/18/2012. Kronos Worldwide, Inc. engages in the production and marketing of titanium dioxide pigments under the Kronos brand name primarily in North America and Europe. It produces titanium dioxide pigments in two crystalline forms, rutile and anatase to impart whiteness, brightness, opacity, and durability for products, such as coatings, plastics, papers fibers, and ceramics, as well as for various specialty products, including inks, food, and cosmetics. The company also offers ilmenite, a raw material used directly as a feedstock by sulfate-process titanium dioxide pigment plants; iron-based chemicals, which are co-products and processed co-products of the titanium dioxide pigment production process and used as treatment and conditioning agents for industrial effluents and municipal wastewater, as well as in the manufacture of iron pigments, cement, and agricultural products; and titanium oxychloride and titanyl sulfate, which are side-stream products from the production of titanium dioxide pigments.
3) Legacy Reserves Lp (LGCY)
|Industry:||Oil & Gas Drilling & Exploration|
Legacy Reserves Lp has a Dividend Yield of 8.71%, a Payout Ratio of 69.41%, a Analysts' Rating of 1.70, a Price/Earnings Ratio of 7.84, and a Price/Earnings to Growth Ratio of 0.74. The short interest was 0.29% as of 06/18/2012. Legacy Reserves LP, an independent oil and natural gas limited partnership, engages in the acquisition and development of oil and natural gas properties primarily located in the Permian Basin, Mid-Continent, and Rocky Mountain regions of the United States. As of December 31, 2010, it owned interests in producing oil and natural gas properties in 370 fields in the Permian Basin, Texas Panhandle, Wyoming, Oklahoma, and several other states; operated 2,132 gross productive wells; and owned non-operated interests in 3,227 gross productive wells, as well as had proved reserves of approximately 52.8 million barrels of crude oil equivalent.
4) Navios Maritime Holdings Inc. (NM)
Navios Maritime Holdings Inc. has a Dividend Yield of 7.45%, a Payout Ratio of 28.25%, a Analysts' Rating of 1.90, a Price/Earnings Ratio of 4.29, and a Price/Earnings to Growth Ratio of 0.27. The short interest was 0.54% as of 06/18/2012. Navios Maritime Holdings Inc. operates as a seaborne shipping and logistics company. It focuses on the transportation and transshipment of dry bulk commodities, including iron ore, coal, fertilizers, and grains. The company controls a fleet of 31 owned vessels and 26 chartered-in vessels totaling 5.
5) Cascade Corp. (CASC)
|Industry:||Farm & Construction Machinery|
Cascade Corp. has a Dividend Yield of 3.07%, a Payout Ratio of 18.86%, a Analysts' Rating of 2.50, a Price/Earnings Ratio of 8.34, and a Price/Earnings to Growth Ratio of 0.76. The short interest was 4.29% as of 06/18/2012. Cascade Corporation engages in the manufacture and distribution of materials handling load engagement devices and related replacement parts under the Cascade name primarily for the lift truck and construction industries worldwide. It offers lift truck related products that are designed to handle loads with pallets and for specialized application loads without pallets; and specialized products, which include devices specifically designed to handle appliances, carpet and paper rolls, baled materials, textiles, beverage containers, drums, canned goods, bricks, masonry blocks, lumber, and plywood, as well as boxed, packaged, and containerized products. The company also provides construction related products to enable loaders, backhoes, and rough terrain lift trucks to move materials, as well as for use on excavators and loaders for conventional and specialized ground engagement applications. Its customers include lift truck original equipment manufacturers (OEM), original equipment dealers, and distributors; and OEMs who manufacture construction, mining, agricultural, and industrial vehicles.
6) Hercules Technology Growth Capital, Inc. (HTGC)
Hercules Technology Growth Capital, Inc. has a Dividend Yield of 8.91%, a Payout Ratio of 62.62%, a Analysts' Rating of 1.70, a Price/Earnings Ratio of 7.43, and a Price/Earnings to Growth Ratio of 0.66. The short interest was 5.88% as of 06/18/2012. Hercules Technology Growth Capital, Inc. is a private equity, venture capital, and venture debt firm specializing in providing debt and equity to privately held venture capital and private equity backed companies and select publicly-traded companies. The firm is also a Small Business Investment Company (SBIC). It offers growth and emerging growth capital and structured debt financing to companies at all stages of development and specializes in venture debt in the forms of senior secured and subordinated working capital loans, senior revolving loans and bridge loans, venture leasing, and select direct equity capital.
7) Ingles Markets Inc. (IMKTA)
Ingles Markets Inc. has a Dividend Yield of 4.21%, a Payout Ratio of 37.78%, a Analysts' Rating of 2.00, a Price/Earnings Ratio of 9.38, and a Price/Earnings to Growth Ratio of 0.71. The short interest was 3.43% as of 06/18/2012. Ingles Markets, Incorporated operates a supermarket chain in the southeast United States. Its supermarkets offer food products, including grocery, meat and dairy products, produce, frozen foods, and other perishables; and non-food products, such as fuel, pharmacy products, health and beauty care products, and general merchandise, as well as provides private label items. The company's stores also offer products and services, such as home meal replacement items, delicatessens, bakeries, floral departments, video rental departments, and greeting cards, as well as a selection of organic, beverage, and health-related items. In addition, it engages in the fluid dairy processing and shopping center rental businesses.
8) Newcastle Investment Corp. (NCT)
|Industry:||REIT - Diversified|
Newcastle Investment Corp. has a Dividend Yield of 12.70%, a Payout Ratio of 32.29%, a Analysts' Rating of 1.60, a Price/Earnings Ratio of 2.57, and a Price/Earnings to Growth Ratio of 0.86. The short interest was 4.54% as of 06/18/2012. Newcastle Investment Corp. operates as a real estate investment and finance company that invests in and manages a portfolio consisting primarily of real estate securities. The company's portfolio of real estate securities includes commercial mortgage backed securities, senior unsecured debt issued by property REITs, real estate related asset backed securities, and agency residential mortgage backed securities. Newcastle also owns interest in loans and pools of loans, including real estate related loans, commercial mortgage loans, residential mortgage loans, and manufactured housing loans.
9) PennyMac Mortgage Investment Trust (PMT)
|Industry:||REIT - Residential|
PennyMac Mortgage Investment Trust has a Dividend Yield of 11.54%, a Payout Ratio of 73.68%, a Analysts' Rating of 1.70, a Price/Earnings Ratio of 7.01, and a Price/Earnings to Growth Ratio of 0.28. The short interest was 3.59% as of 06/18/2012. PennyMac Mortgage Investment Trust is based in the United States.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.