Hi there, Fools. I’m back to highlight three attractive small-cap stocks. As a reminder, I do this primarily for young investors because small-cap stocks
- have a much more room to grow than more established large-cap companies;
- are largely ignored by Bay Street analysts and the financial media; and
- provide solid diversification benefits.
While small-cap stocks tend to be on the volatile side, all it takes a few big winners to make up for the risk.
Let’s get to it.
Auto-correct
Kicking things off is Martinrea International (TSX: MRE), which has a market cap of $915 million. Shares of the auto industry supplier are down 34% over the past year versus a loss of 19% for the S&P/TSX Capped Consumer Discretionary Index.
Trade wars and economic concerns wreaked havoc with the stock in 2018, but 2019 might be a turnaround year. In the most recent quarter, Martinrea posted record Q3 adjusted income of $37.2 million on sales of $851 million.
“This year should be a record year for us, and next year is shaping up to be better still,” said President and CEO Pat D’Eramo.
With the stock sporting a paltry forward P/E of four along with a decent dividend yield of 1.7%, now might be the perfect time to bet on that optimism.
Precious cargo
Next up, we have Cargojet (TSX: CJT), which currently sports a market cap of about $950 million. Shares of the overnight air cargo company are up 21% over the past year versus a loss of 5% for the S&P/TSX Capped Industrials Index.
I wouldn’t bet on Cargojet’s business momentum to slow in 2019. In Q3, adjusted EBITDA climbed 24% as revenue surged 28% to $114.1 million. Meanwhile, gross margin expanded 7.7%.
“Our team continues to optimize our network and fleet as we adapt to our growth as the leading e-commerce middle-mile service provider in Canada,” said President and CEO Ajay Virmani.
At a P/E of 38, the stock certainly isn’t cheap. But given its rather comforting beta of 0.7, the downside might be more limited than you’d expect.
Groovy choice
With a market cap of $475 million, Stingray Group (TSX: RAY.A) rounds out our list of attractive small caps. Shares of the multi-platform music company are down 34% over the past year versus a loss of 19% for the S&P/TSX Capped Consumer Discretionary Index.
Stingray is a solid candidate to bounce back in 2019. In the most recent quarter, adjusted EBITDA climbed 21% on revenue growth of 11%.
“Going forward, we are confident in our ability to deliver on the cross-selling and operational synergies related to acquisitions as well as have the capacity to pursue our acquisition program,” said President and CEO Eric Boyko.
With a solid dividend yield of 3.6% — backed by a comfy payout ratio of roughly 35% — Stingray shares seem like a sweet-sounding opportunity.
The bottom line
There you have it, Fools: three attractive small-cap stocks worth looking into.
They aren’t formal recommendations, of course. Instead, view them as a jump-off point for further research. Small-cap stocks are particularly fickle, so extra due diligence is required.
Fool on.
