For many investors, the mantra “no risk, no reward” can apply to their decision of whether they choose to add small-cap stocks to their portfolio. Small-cap stocks are a class of stocks that showcase stocks that have an average market cap of between $500 million and $2 billion dollars. These stocks don't have some of the big names of stocks like Amazon or Apple, but the attraction to these stocks is that they can rise to that level. With 2019 just a couple of weeks old, the Russell 2000 Index, considered the standard mutual fund for small-cap stocks was up 9%. This, however, followed a double-digit loss in 2018.
Small-cap stocks have posted annual gains of over 12% from 1926-2017, a rate of growth that outpaces large stocks which have grown just over 10% over the same period. Small-cap stocks deliver this growth for several reasons including the ability of these stocks to provide diversification that can help investors experience growth when other stocks are sagging. These stocks also are typically U.S. companies which limit an investor's exposure to the volatility of international markets. Closer to home, these companies will be among the best positioned to benefit from the Trump tax cuts with small-cap companies expected to receive 5% more from the tax cuts than larger companies. And finally, small-cap stocks are less affected by the potential of a strong dollar. So however interest rate policy moves, these stocks should be able to be strong performers.
In this slide show, we’ve identified 8 small-cap stocks that are poised for solid growth in 2019. These stocks are all riding the wave of the current rally and have fundamentals in place that offer investors a good value.
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- Blackline
- ANI Pharmaceuticals
- Axos Financial
- Green Dot Corp.
- BJ’s Restaurants, Inc.
- H.B. Fuller Company
- Insperity Inc.
- IRobot Corp.
#1 - Blackline (NASDAQ:BL)
Blackline (NASDAQ: BL) - Cloud computing continues to be one of the hot trends in the software industry, but that doesn’t mean the stocks are immune to the volatility that the rest of the market is experiencing. Stocks, such as Blackline (BL) have been punished lately, but where other SaaS companies have a higher profile, Blackline may be better positioned for growth. Blackline excels at generating revenue through a recurring subscription base that numbers in the thousands. What’s better still, that customer base is actually spending more while continuing to add new customers. As an investor, this means that the company is poised to deliver consistent financial results. In the last quarter, they posted an impressive 29% growth in revenue. Blackline’s management is estimating their current market is in excess of $18 billion compared to the $227 million it is estimated to generate in 2019. The company was recognized by Software Magazine as the seventh largest SaaS (Software-as-a-Service) providers. This is the eighth year in a row that the company has achieved this rank. The stock is currently trading slightly below the midpoint of its 52-week high and low. Current analyst rankings have the stock listed as a Moderate Buy. The company will deliver their fourth-quarter earnings report on February 14, 2019.
About BlackLine
BlackLine, Inc provides cloud-based solutions to automate and streamline accounting and finance operations worldwide. It offers financial close management solutions, such as account reconciliations that provides a centralized workspace for users to collaborate on account reconciliations; transaction matching that analyzes and reconciles individual transactions; task management to create and manage processes and task lists; and financial reporting analytics that enables analysis and validation of financial data.
Read More - Current Price
- $58.53
- Consensus Rating
- Hold
- Ratings Breakdown
- 4 Buy Ratings, 6 Hold Ratings, 2 Sell Ratings.
- Consensus Price Target
- $63.60 (8.7% Upside)
#2 - ANI Pharmaceuticals (NASDAQ:ANIP)
ANI Pharmaceuticals (NASDAQ: ANIP) - ANI Pharmaceuticals has a lot going in its favor. ANIP is known for developing a growing number of generic and branded therapies. Since 2014, the company has more than quadrupled the number of products it has on the market and in the process has also increased its revenue from $56 million to over $200 million in 2018. However, while revenue can be a misleading indicator, it's hard to ignore the company's corresponding growth in EBITDA (earnings before interest, taxes, depreciation, and amortization). And with an annual market size of $3.3 billion, it's easy to see why the company is poised for growth in 2019 and beyond. In fact, despite the 20% drop in their stock price in the trailing year, they are projecting annual earnings growth between 10-15% between now and 2021. The company has a P/E ratio that is under 10 and is currently trading solidly between its 52-week high and low.
About ANI Pharmaceuticals
ANI Pharmaceuticals, Inc, a biopharmaceutical company, develops, manufactures, and markets branded and generic prescription pharmaceuticals in the United States and Canada. The company manufactures oral solid dose products; semi-solids, liquids, and topicals; controlled substances; and potent products, as well as performs contract development and manufacturing of pharmaceutical products.
Read More - Current Price
- $55.10
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 5 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $77.33 (40.4% Upside)
#3 - Axos Financial (NYSE:AX)
Axos Financial (NYSE: AX) - One of the tenets of solid fundamental investing is to find small companies that are primed for rapid growth. That would seem to define the situation surrounding Axos Financial. The company, formerly named Bank of Internet USA has been busy acquiring Nationwide's deposit base and is also investing in their Universal Digital Bank (UDB) initiative which is putting all of its products and services on a single platform that will allow the company to have more cross-selling opportunities to its customers. Investors can also celebrate a business model that keeps costs low when compared to traditional brick-and-mortar banks. Case in point, in their most recent quarter Axos, generated a 15% return on equity (ROE), easily exceeding the industry average of 10%. Axos is still a small company ($10 billion in assets), but they are showing signs of rapid growth. In the last year, their net income has increased by almost 14% and their loan portfolio is up over 15%. The stock is trading towards the lower half of their 52-week range and has received a strong buy rating by analysts.
About Axos Financial
Axos Financial, Inc, together with its subsidiaries, provides consumer and business banking products in the United States. It operates through two segments, Banking Business and Securities Business. The company offers deposits products, including consumer and business checking, demand, savings, time deposit, money market, zero balance, and insured cash sweep accounts.
Read More - Current Price
- $79.72
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 3 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $79.80 (0.1% Upside)
#4 - Green Dot Corp. (NYSE:GDOT)
Green Dot Corp. (NYSE: GDOT) - Banking as a service (BaaS) is another industry that is redefining how companies relate to their customers. Green Dot is not a name that consumers would easily recognize, but companies like Apple, Wal-Mart, and Uber are, and Green Dot provides products for them. And one of their key initiatives is their BaaS initiatives that allow these companies to provide person-to-person payment apps and company-branded payment cards. Apple Pay Cash uses Green Dot for their person-to-person payment platform as does Wal-Mart with their MoneyCard prepaid MasterCard. Uber also uses the company’s products for their instant Pay application. This is looking like the tip of the iceberg for Green Dot which has seen its share price increase by nearly 28% in 2018 which easily outperformed the broader market and the company is generating significant profit from that revenue. The stock is currently trading in the higher range of its 52-week average and is a Moderate Buy according to many analysts. Guidance on the company shows increasing revenue and earnings per share (EPS).
About Green Dot
Green Dot Corporation, a financial technology and registered bank holding company, provides various financial services to consumers and businesses in the United States. It operates through three segments: Consumer Services, Business to Business Services, and Money Movement Services. The company provides deposit account programs, including consumer and small business checking account products, network-branded reloadable prepaid debit cards and gift cards, and secured credit programs.
Read More - Current Price
- $10.23
- Consensus Rating
- Hold
- Ratings Breakdown
- 1 Buy Ratings, 2 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $10.75 (5.1% Upside)
#5 - BJ’s Restaurants, Inc. (NASDAQ:BJRI)
BJ’s Restaurants, Inc. (NASDAQ: BJRI) - Despite the up-and-down movement in the market, 2018 was a great year for the restaurant industry. Many companies delivered strong earnings and BJ’s Restaurants is a good example. BJRI is becoming the apple of value investors’ eye, and it’s not hard to see why. The company saw stock growth of 53% for the year, and one of the primary reasons for that is an increase in foot traffic that saw same-store sales go from a negative -1.4% to a positive 4.9%. The company operates both regular restaurants (called BJ's Restaurant & Brewhouse) and specialty restaurants that include breweries (BJ's Restaurant & Brewery). The company is not just competing, but thriving, in the tough casual dining segment. To help illustrate this, the company beat analysts' expectations for a top and bottom line growth in the third quarter. Moving into 2019, the company has said it will not be opening as many new stores, but will instead be focused on improving operations at their current locations including the potential to deliver innovative new menu items.
About BJ's Restaurants
BJ's Restaurants, Inc owns and operates casual dining restaurants in the United States. Its restaurants offer pizzas, craft and other beers, appetizers, entrées, pastas, sandwiches, specialty salads, and desserts under brand name Pizookie. The company was formerly known as Chicago Pizza & Brewery, Inc and changed its name to BJ's Restaurants, Inc in August 2004.
Read More - Current Price
- $34.13
- Consensus Rating
- Hold
- Ratings Breakdown
- 2 Buy Ratings, 4 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $38.57 (13.0% Upside)
#6 - H.B. Fuller Company (NYSE:FUL)
H.B. Fuller Company (NYSE: FUL) - When looking for diamonds in the rough, value investors could do worse than look at a company like H.B. Fuller. You have to overlook metrics such as its industry rank which is in the bottom 13% of 250 industries, and recent consensus estimates have been negative on the stock. But from a value perspective, the stock scores on several metrics such as a PEG ratio of 0.9 which is just below the industry average of 1.6. Moving forward into 2020, the company is projecting annual organic growth of 4.5% as it has announced plans to shift its focus to products that service their markets that offer the highest margin and the highest potential for growth. With this shift, the company is forecasting revenue that exceeds $3 billion (as opposed to $2.3 billion in 2017) and expects to retire nearly 25% of its outstanding debt. At that time, the company is expecting to have a market cap of, at a minimum, $5 billion, which would put it at nearly double of where it is today.
About H.B. Fuller
H.B. Fuller Company, together with its subsidiaries, formulates, manufactures, and markets adhesives, sealants, coatings, polymers, tapes, encapsulants, additives, and other specialty chemical products. It operates through three segments: Hygiene, Health and Consumable Adhesives; Engineering Adhesives; and Construction Adhesives.
Read More - Current Price
- $74.56
- Consensus Rating
- Moderate Buy
- Ratings Breakdown
- 2 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $97.67 (31.0% Upside)
#7 - Insperity Inc. (NYSE:NSP)
Insperity Inc. (NYSE: NSP) - In contrast to H.B. Fuller that operates in one of the lower ranked sectors, Insperity is enjoying the growth in the professional employer organization (PEO) industry. As more companies are looking to outsource certain human resources functions, Insperity is well positioned to meet the demand with its Workforce Optimization and Workforce Synchronization solutions that help the company provide a comprehensive suite of solutions for small- and medium-size solutions. Last year, second-quarter revenues came in just below 16%, which beat first-quarter revenues by 1% and was nearly 4% higher than the same quarter in 2017. Although the company competes in a very competitive industry, the overall strength of the industry looks to be a good sign for Insperity which should continue to post strong revenue and earnings growth in 2019 and beyond. The stock is rated as a Moderate Buy and is currently trading at about the midpoint of its 52-week high and low.
About Insperity
Insperity, Inc engages in the provision of human resources (HR) and business solutions to improve business performance for small and medium-sized businesses primarily in the United States. It offers its HR services through its workforce optimization and workforce synchronization solutions that include a range of human resources functions, such as payroll and employment administration, employee benefits, workers' compensation, government compliance, performance management, and training and development services.
Read More - Current Price
- $73.17
- Consensus Rating
- Reduce
- Ratings Breakdown
- 0 Buy Ratings, 3 Hold Ratings, 1 Sell Ratings.
- Consensus Price Target
- $95.67 (30.7% Upside)
#8 - IRobot Corp. (NASDAQ:IRBT)
IRobot Corp. (NASDAQ: IRBT) - Any investor who recently purchased IRBT would be welcoming the recent stock price surge of over 20%. However, for investors who jumped on the stock for the maker of the Roomba robotic home vacuum in 2017 that would only bring them back to even. Such is the nature of small-cap stocks. But many analysts still love what they are seeing with a product that is considered to be right up there with the iPhone as one of the most transformational consumer products in the last quarter century. The market for the robotic vacuum cleaners has grown from 13% of the global market in 2012 to over 23% of the market today. And of that market, iRobot commands an impressive 62% market share. This means that iRobot is the boat that stands to benefit from a rising tide. The stock is expensive both in its P/E ratio (40) and its price-to-cash flow (41). However, in late December 2018, the stock was rated as oversold which has helped fuel the recent bounce that has pushed the stock near the top end of its 52-week high and low. The stock has received a Moderate Buy consensus analyst rating.
About iRobot
iRobot Corporation designs, builds, and sells robots and home innovation products in the United States, Europe, the Middle East, Africa, Japan, and internationally. The company offers floor care products, including Roomba floor vacuuming robots; Roomba accessories and consumables, such as the Clean Base Automatic Dirt Disposal, replacement dirt disposal bags for the Clean Base, filters, brushes, and batteries; Braava family of automatic floor mopping robots; and Braava accessories and consumables, which include cleaning solution, washable and disposable mopping pads, replacement tanks, and batteries, as well as subscription services.
Read More - Current Price
- $6.52
- Consensus Rating
- Hold
- Ratings Breakdown
- 0 Buy Ratings, 2 Hold Ratings, 0 Sell Ratings.
- Consensus Price Target
- $13.00 (99.5% Upside)
As investors look into the crystal ball for 2019, equities face many headwinds. Two of the major factors for investors to consider as they consider where to invest their money are the tax cuts which consumers will be feeling for the first time in their 2018 tax returns and the ongoing trade dispute between the U.S. and China. Both of those issues set the table nicely for small-cap stocks as we enter 2019.
Small-cap stocks, which are typically defined as companies that have a market cap of between $500 million and $2 billion, are among the most volatile in the industry, but they also have the benefit of significant gains that outstrip the rest of the industry. After all, simple math dictates that it's easier for a small company to double $1 million in revenue than it would be for a company to double its revenue from a base of $1 billion.
As a case in point, the Russell 2000 Index, considered to be the leading small-cap index fund was down 12% over the last quarter of 2018 but has surged to a 9% gain for 2019, more than double the gain for the S&P 500 Index.
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