Seeking Alpha

Top Small-Cap Stocks To Buy Now

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Includes: AAR, AEGN, AIR, ANIK, BHE, BIG, BKD, BRC, BZH, CERS, CMCO, CPLG, CSGS, CVCO, CYTR, DDS, DEA, DIOD, EGY, EMKR, FBC, FCN, GCI, GLRE, GSS, HMN, HOS, HOV, HUBG, IMGN, IVC, KFRC, KLIC, LYTS, MACK, MEI, MNDO, MRTN, NANO, NVAX, PACB, PLX, PMT, RMTI, ROCK, SAIA, SCOR, SDRL, SGMA, SYKE, TBBK, TLND, TRUP, USPH, UTMD
by: Limelight Alpha Management Partners
Summary

The best ranked small-cap sector is industrial goods.

The top-scoring industry is aerospace/defense.

The top-scoring stock is Hub Group Inc.

Small-cap stocks have underperformed large-cap stocks, and recent manufacturing and services industry data increases concerns that profits could stagnate. The risk of decelerating economic activity to small-cap stocks shouldn't be ignored, but that doesn't mean there aren't sectors, industries, and stocks you can buy.

Best and worst small-cap sectors

After aggregating our ratings on over 1,600 stocks by sector, the top-ranked small-cap basket is industrial goods, led by AAR Corp. (AAR), Cavco Industries (CVCO), Beazer Homes (BZH), Aegion Corporation (AEGN), and Hovnanian Enterprises, Inc. (HOV).

The services, financials, REITs, and technology sectors are neutral-rated, with scores that are roughly in line with the average universe score. Below-average scores in basic materials, utilities, consumer goods, and healthcare suggest small-cap investors are best off staying industry and stock-specific in those sectors for now.

Source: Limelight Alpha Management Partners.

Best and worst small-cap stocks to buy

The following are the top and bottom-ranked small-cap stocks across our 1,600 stock universe this week. An overview of our scoring methodology is available here, but as a quick reminder, scores are based on forward earnings growth, historical trends in reporting earnings that beat Wall Street estimates, insider buying, short-term and long-term institutional money flow, forward valuation relative to historical valuation, contra-trend short interest analysis, and quarterly seasonality over the past decade.

Since stocks tend to follow earnings over time, insiders only buy one reason, money flow indicates institutional optimism or pessimism, and seasonal patterns often rhyme, these individual stocks have characteristics that are likely to be reward investors in the future.

SMALL CAP

10/10/2019

4 Week MA

Company Name

Symbol

Sector

INDUSTRY

SCORE

SCORE

BEST

Hub Group Inc.

HUBG

SERVICES

AIR DELIVERY & FREIGHT SERVICES

105

88.75

PennyMac

PMT

REITS

REITS

105

76.25

Anika

ANIK

HEALTHCARE

BIOTECHNOLOGY

100

90

CSG Systems International Inc.

CSGS

TECHNOLOGY

BUSINESS SOFTWARE & SERVICES

100

86.25

Dillard's Inc.

DDS

SERVICES

DEPARTMENT STORES

100

62.5

Diodes Inc.

DIOD

TECHNOLOGY

SEMICONDUCTOR- INTEGRATED CIRCUITS

100

83.75

The Bancorp Inc.

TBBK

FINANCIALS

REGIONAL BANKS

100

82.5

AAR Corp.

AIR

INDUSTRIAL GOODS

AEROSPACE/DEFENSE PRODUCTS & SERVICES

95

92.5

FTI Consulting Inc.

FCN

SERVICES

MANAGEMENT SERVICES

95

82.5

Kulicke and Soffa

KLIC

TECHNOLOGY

SEMICONDUCTOR EQUIPMENT & MATERIALS

95

86.25

Methode Electronics

MEI

TECHNOLOGY

DIVERSIFIED ELECTRONICS

95

88.75

Nanometrics Inc.

NANO

TECHNOLOGY

SCIENTIFIC & TECHNICAL INSTRUMENTS

95

68.75

Gibraltar Industries

ROCK

BASIC MATERIALS

STEEL & IRON

95

81.25

U.S. Physical Therapy

USPH

HEALTHCARE

SPECIALIZED HEALTH SERVICES

95

92.5

Utah Medical

UTMD

HEALTHCARE

MEDICAL INSTRUMENTS & SUPPLIES

95

85

Brady Corp.

BRC

SERVICES

BUSINESS SERVICES

90

83.75

Beazer Homes USA Inc.

BZH

INDUSTRIAL GOODS

RESIDENTIAL CONSTRUCTION

90

88.75

Cavco Industries

CVCO

INDUSTRIAL GOODS

MANUFACTURED HOUSING

90

80

Easterly Government Properties Inc.

DEA

REITS

REITS

90

72.5

Flagstar Bancorp

FBC

FINANCIALS

SAVINGS & LOANS

90

91.25

Gannett Co. Inc.

GCI

SERVICES

PUBLISHING-NEWSPAPERS

90

81.25

Invacare Corp.

IVC

HEALTHCARE

MEDICAL APPLIANCES & EQUIPMENT

90

72.5

Kforce Inc.

KFRC

SERVICES

STAFFING & OUTSOURCING SERVICES

90

76.25

Mind C.T.I. Ltd.

MNDO

TECHNOLOGY

INFORMATION TECHNOLOGY SERVICES

90

88.75

Marten Transport

MRTN

SERVICES

TRUCKING

90

76.25

SCS Transportation

SAIA

SERVICES

TRUCKING

90

77.5

Sykes Enterprises

SYKE

TECHNOLOGY

INFORMATION TECHNOLOGY SERVICES

90

77.5

WORST

CorePoint Lodging Inc.

CPLG

REITS

REITS

10

22.5

EMCORE Corp.

EMKR

TECHNOLOGY

SEMICONDUCTOR- INTEGRATED CIRCUITS

10

27.5

ImmunoGen

IMGN

HEALTHCARE

BIOTECHNOLOGY

10

18.75

Protalix BioTherapeutics

PLX

HEALTHCARE

BIOTECHNOLOGY

10

11.25

Big Lots, Inc.

BIG

SERVICES

DISCOUNT, VARIETY STORES

15

32.5

Cerus

CERS

HEALTHCARE

BIOTECHNOLOGY

15

28.75

CytRx

OTC:CYTR

HEALTHCARE

BIOTECHNOLOGY

15

17.5

Golden Star Resources

GSS

BASIC MATERIALS

GOLD

15

21.25

Hornbeck Offshore Services Inc.

HOS

SERVICES

SHIPPING

15

21.25

Merrimack Pharmaceuticals

MACK

HEALTHCARE

BIOTECHNOLOGY

15

40

Novavax

NVAX

HEALTHCARE

BIOTECHNOLOGY

15

26.25

Pacific Biosciences

PACB

HEALTHCARE

BIOTECHNOLOGY

15

22.5

Rockwell Medical

RMTI

HEALTHCARE

DRUG MANUFACTURERS

15

17.5

comScore

SCOR

SERVICES

BUSINESS SERVICES

15

20

Seadrill Ltd.

SDRL

BASIC MATERIALS

OIL & GAS EQUIPMENT & SERVICES

15

16.25

Talend SA

TLND

TECHNOLOGY

BUSINESS SOFTWARE & SERVICES

15

27.5

Trupanion

TRUP

FINANCIALS

ACCIDENT & HEALTH INSURANCE

15

21.25

Best and worst small-cap industries

The best small-cap industries this week are aerospace/defense (AIR), staffing (KFRC), newspaper publishing (GCI), management services (FCN), and trucking (SAIA, MRTN).

Source: Limelight Alpha Management Partners.

Taking this analysis further, here are the best and worst industries by sector to help ensure small-cap investors are fishing in the right pond.

  • In basics, buy independent oil & gas (VAALCO Energy EGY) and steel & iron (ROCK).
  • Concentrate on processed & packaged goods and business equipment (LSI Industries LYTS) in consumer goods.
  • Focus on P&C insurers (Horace Mann Educators (HMN), Greenlight Capital Re (GLRE)), regional banks (TBBK), and S&Ls (Flagstar Bancorp FBC) in financials.
  • The top healthcare industries are medical instruments (Utah Medical Products UTMD), long-term care (Brookdale Senior Living BKD), and medical appliances (IVC).
  • Aerospace/defense, heavy construction (AEGN), and farm & construction machinery (Columbus McKinnon CMCO) offer upside in industrial goods.
  • The strongest scoring services baskets are staffing, newspaper publishers, and management services.
  • Semi equipment (KLIC), information technology (SYKE, MNDO), and printed circuit boards (SigmaTron International (SGMA), Benchmark Electronics (BHE)) are top-rated in technology.

The following table shows the strongest and weakest industries by sector, providing additional insight for sector-specific investors into what baskets may perform best and worst from here.

A ranking of small cap industries by sector

Source: Limelight Alpha Management Partners

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.