Big Investors Pushing These 3 Small Caps Higher

Small caps Green Brick Partners NYSE: GRBK, Phototronics NASDAQ: PLAB and Sterling Construction NASDAQ: STRL are getting strong institutional support that’s sending the prices higher.

With large caps comprising 80% or more of domestic market capitalization, it’s easy for investors to overlook small-cap opportunities. Part of the reason is that smaller companies aren’t generally household names, like bigger companies often are. 

However, it’s a mistake to ignore these little-known companies, as academic research going back to the 1960s shows that small caps tend you outperform their larger peers, in a phenomenon known as the small-cap premium. 

While no one knows exactly why small caps outperform, there are some plausible theories. For one thing, small caps often have scant analyst coverage, which can result in asymmetric information. In other words, the absence of analysts and media often means investors and traders can take advantage of pricing inefficiencies. The lower percentages of institutional ownership, relatively speaking, can also help the small investor. 

In addition, small company managers are often well-positioned to be nimble and respond quickly to opportunities. 

In recent years, small caps as an asset class have lagged large caps, although that is largely due to outperformance of large techs that dominate the S&P 500 and Nasdaq Composite. 

Green Brick Partners switched its listing from the Nasdaq to the NYSE as of Monday. 

The Plano, Texas company owns, develops and sells land and constructs single-family homes in the Atlanta and Dallas metro markets. With the real-estate boom in 2020 and 2021, it’s easy to understand how Green Brick’s revenue and earnings have been on a tear.

The stock, with a market cap of $1.53 billion, has been on a tear. It’s up 26.35% in the past month, 38.11% in the past three months and 38.89% year-to-date. 

Revenue grew at double-digit rates in each of the past eight quarters, while revenue grew at double- or triple-digit rates during that time. According to MarketBeat earnings data, Green Brick missed earnings and revenue views in the most recent quarter, although the stock bounced back fast after a one-day selloff.

Shares jumped 11% on December 6, ahead of the move to the NYSE. Since then, it’s been trading in a pennant formation with increasingly higher highs and lower lows. It’s currently out of a buy zone, but a new base or moving-average pullback may offer a new opportunity. 

Phototronics is involved in the business of photomasks, which are photographic quartz plates used in the process of manufacturing flat-panel displays and integrated circuits.

The stock has a market cap of $1 billion. The stock bolted an astonishing 26% on December 8, clearing a cup-with-handle buy point above $14.57 in monster volume. 

As you might expect, that kind of extraordinary price increase followed a corporate event. In this case, it was Phototronics’ better-than-expected fourth-quarter report. Earnings data compiled by MarketBeat show that the company earned $0.33 per share, topping analysts’ views by $0.08. Revenue of $181.30 million also came in ahead of expectations. 

The stock is up 14.99% in the past month, 16.29% in the past three months and 47.13% year-to-date. With that huge jump last week, the stock is trading at multi-year highs. 

It’s not buyable at the moment, as it’s far extended beyond its most recent base. However, if Phototronics meets expectations for double-digit earnings growth this year and next, there should be plenty of opportunities to catch the next rally.
 

Like Green Brick, Sterling Construction is also a beneficiary of the housing boom, but stands to gain even more from infrastructure spending. 

The company’s business is organized into three segments:  Heavy Civil, Specialty Services, and Residential. Heavy civil construction comprises highway, road and bridge projects, as well as work at airports, ports, and railways. Its residential construction unit focuses on concrete foundations for the single-family home market. 

The company has a market cap of just $766 million, but it’s attracted a growing number of mutual fund owners in the past three quarters. 

Yearly earnings grew in the past three years, and Wall Street pegged growth at 41% this year, to $2.15 per share and another 10% next year, to $2.36 per share. 

The stock cleared a third-stage base the week ended November 5, and rallied to a high of $29.67 the following week. Since then, it pulled back and successfully tested its 50-day moving average. 

This stock is currently in buy zone, having closed Monday at $26.61, above its 50-day line and below its early November high.