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Welcome to Episode #355 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
Historically, small cap value has been the best performing stock asset class. But you wouldn’t have known it over the last 5 years. Big caps have crushed small caps, and certainly the value stocks.
The Russell 2000 ETF (IWM) is up 28.3% over the last 5 years but the S&P 500 is up 77.4% and the Invesco QQQ ETF is up 145.7% over that same period. The problem for the small caps is that there is no Microsoft or Apple. Strip out the Magnificent 7, and the returns are subpar.
But eventually, the large caps will be out of favor and the small caps will outperform. On the Zacks Market Edge Podcast, Tracey recently talked with Zacks Stock Strategist, Andrew Rocco, about how small caps could be outperformers in 2024.
But what about small cap value stocks, in particular?
Screening for Small Cap Value Stocks
Zacks premium screens has a screen called “Small Caps with Big Growth.” This screen not only looks for growth, but it also seeks value with a P/S ratio under 1.0. A P/S ratio under 1.0 indicates value because the investor is getting the sales for less.
The screen looks for very small companies. It has to have a market cap under $1 billion. It also has to have a price above $5 to avoid the penny or dollar stocks.
And it has the top Zacks Ranks of #1 (Strong Buy) or #2 (Buy). This should hopefully provide companies that have rising earnings estimates.
The screen also looked for growth, which is a bonus for value investors. Value and growth? That’s a rare combination.
This screen returned just 14 stocks. There was, obviously, no Microsoft or Apple among them.
Xperi invents, develops and delivers the technologies that create extraordinary experiences. The company is in digital entertainment. Xperi has a market cap of $464 million.
Shares of Xperi rallied in the small cap rally to end 2023. It has gained 20.4% in the last 3 months but over the last 2 years, shares are still down 55%.
Xperi is cheap with a P/S ratio of just 0.9. It’s a Zacks Rank #2 (Buy).
Virco Manufacturing is a manufacturer of office and school furniture. It’s a micro cap with a market cap of just $193.7 million. Yet Zacks still has one analyst estimate on the company.
Virco’s earnings are expected to rise 32.4% in fiscal 2024 and another 27.4% in fiscal 2025. Shares of Virco have been on fire. Over the last 2 years, they’re up 251% and continue to hit new highs. It remains cheap, with a P/S ratio of only 0.7.
Virco is a Zacks Rank #1 (Strong Buy).
Is it too late to jump into Virco Manufacturing in 2024?
Anywhere Real Estate offers US residential real estate services, brokerage, relocation, title and settlement services. It has a market cap of $741.4 million.
Shares of Anywhere Real Estate rallied big in the last 3 months, as small caps rallied to end 2023. It has jumped 48.7% in that time. But over the last 2 years, the shares are still down 59.9%.
Anywhere Real Estate is extremely cheap on a P/S ratio basis. It has a P/S ratio of 0.1. It’s a Zacks Rank #2 (Buy).
Should Anywhere Real Estate be on your small cap short list?
What Else Do You Need to Know About Small Cap Value Stocks?
Tune into this week’s podcast to find out.
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5 Outstanding Small Cap Value Stocks
Welcome to Episode #355 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
Historically, small cap value has been the best performing stock asset class. But you wouldn’t have known it over the last 5 years. Big caps have crushed small caps, and certainly the value stocks.
The Russell 2000 ETF (IWM) is up 28.3% over the last 5 years but the S&P 500 is up 77.4% and the Invesco QQQ ETF is up 145.7% over that same period. The problem for the small caps is that there is no Microsoft or Apple. Strip out the Magnificent 7, and the returns are subpar.
But eventually, the large caps will be out of favor and the small caps will outperform. On the Zacks Market Edge Podcast, Tracey recently talked with Zacks Stock Strategist, Andrew Rocco, about how small caps could be outperformers in 2024.
But what about small cap value stocks, in particular?
Screening for Small Cap Value Stocks
Zacks premium screens has a screen called “Small Caps with Big Growth.” This screen not only looks for growth, but it also seeks value with a P/S ratio under 1.0. A P/S ratio under 1.0 indicates value because the investor is getting the sales for less.
The screen looks for very small companies. It has to have a market cap under $1 billion. It also has to have a price above $5 to avoid the penny or dollar stocks.
And it has the top Zacks Ranks of #1 (Strong Buy) or #2 (Buy). This should hopefully provide companies that have rising earnings estimates.
The screen also looked for growth, which is a bonus for value investors. Value and growth? That’s a rare combination.
This screen returned just 14 stocks. There was, obviously, no Microsoft or Apple among them.
5 Outstanding Small Cap Value Stocks
1. Potbelly Corp. (PBPB - Free Report)
Potbelly Corp. operates Potbelly sandwich restaurants across the United States. It has a market cap of $378 million.
Potbelly shares rallied to end 2023, rising 73% over the last 3 months. But it’s also up 123.6% over the last 2 years.
Potbelly is cheap, with a P/S ratio of just 0.8. It’s a Zacks Rank #2 (Buy) stock.
Should a restaurant company like Potbelly be on your small cap short list?
2. Xperi Inc. (XPER - Free Report)
Xperi invents, develops and delivers the technologies that create extraordinary experiences. The company is in digital entertainment. Xperi has a market cap of $464 million.
Shares of Xperi rallied in the small cap rally to end 2023. It has gained 20.4% in the last 3 months but over the last 2 years, shares are still down 55%.
Xperi is cheap with a P/S ratio of just 0.9. It’s a Zacks Rank #2 (Buy).
Should Xperi be on your small cap short list?
3. Virco Manufacturing (VIRC - Free Report)
Virco Manufacturing is a manufacturer of office and school furniture. It’s a micro cap with a market cap of just $193.7 million. Yet Zacks still has one analyst estimate on the company.
Virco’s earnings are expected to rise 32.4% in fiscal 2024 and another 27.4% in fiscal 2025. Shares of Virco have been on fire. Over the last 2 years, they’re up 251% and continue to hit new highs. It remains cheap, with a P/S ratio of only 0.7.
Virco is a Zacks Rank #1 (Strong Buy).
Is it too late to jump into Virco Manufacturing in 2024?
4. Enviri Corp. (NVRI - Free Report)
Enviri Corp. is in environmental solutions. It has 160 sites across the globe. Enviri has a market cap of $689.7 million.
Shares of Enviri joined in on the 2023 small cap rally, adding 27% in the last 3 months. Over the last 2 years, however, the shares remain down 53%.
Enviri is dirt cheap, with a P/S ratio of 0.3. It’s a Zacks Rank #1 (Strong Buy).
Should Enviri be on your small cap short list?
5. Anywhere Real Estate Inc. (HOUS - Free Report)
Anywhere Real Estate offers US residential real estate services, brokerage, relocation, title and settlement services. It has a market cap of $741.4 million.
Shares of Anywhere Real Estate rallied big in the last 3 months, as small caps rallied to end 2023. It has jumped 48.7% in that time. But over the last 2 years, the shares are still down 59.9%.
Anywhere Real Estate is extremely cheap on a P/S ratio basis. It has a P/S ratio of 0.1. It’s a Zacks Rank #2 (Buy).
Should Anywhere Real Estate be on your small cap short list?
What Else Do You Need to Know About Small Cap Value Stocks?
Tune into this week’s podcast to find out.