Hi there, Fools. I’m back again to highlight three attractive small-cap stocks. As a reminder, I do this because companies with a market cap under $2 billion:
- have much more room to grow than larger more established “blue chips”; and
- are largely ignored by professional analysts.
The three stocks below have risen as high as 130% over the past year. So while small-cap stocks tend to be on the volatile side, the upside return potential is often well worth the risk.
If you’re looking to get your 2020 off to a hot start, this is a good place to begin looking.
Kicking off our list is Russel Metals (TSX:RUS), which currently sports a market cap of about $1.3 billion.
Slumping steel prices have weighed on the stock, but Russel’s diverse family of companies, sector leadership, and hefty dividend could fuel a big price rebound in 2020.
In Q3, EPS of $0.29 missed estimates as revenue declined 24% to $869 million. On the bright side, the stock how offers a juicy dividend yield of nearly 7%.
“The cyclical nature of our business was evident this quarter with all three business segments experiencing challenging conditions,” cautioned CEO John Reid. “Hot rolled coil pricing is currently at levels last experienced in 2016.”
Russel trades at a forward P/E of around 10.
Silvercorp’s strong balance sheet and operational efficiency, along with continued support from silver prices, should fuel more impressive gains in 2020. In the most recent quarter, EPS of $0.07 topped estimates as revenue increased 4% to $49.9 million.
More important, the company generated operating cash flow of $26.2 million.
“The company expects its consolidated production in fiscal 2020 will exceed its annual guidance and that production costs will be within the budget,” said Silvercorp.
Silvercorp trades at a forward P/E in the low-20s.
Rounding out our list is Absolute Software (TSX:ABT), which sports a market cap of $400 million. Over the past year, shares of the security software technologist are up about 14%.
Absolute’s solid gains continue to be supported by scale advantages (it has over 12,000 customers globally), recurring revenue, and overall cloud-based tailwinds. In the most recent quarter, for instance, EPS of $0.08 easily topped estimates as revenue improved 6% to $26 million.
“Q1 was a solid start to the fiscal year; we are pleased with our results, which continue to be accentuated by double-digit growth across enterprise and government businesses and healthy profit margins,” said CEO Christy Wyatt.
Absolute shares currently trade at a forward P/E of around 40.
The bottom line
There you have it, Fools: three attractive small-cap stocks worth checking out.
As always, they aren’t formal recommendations. Instead, view them as a starting point for more research. Small-caps carry more risk than the average stock on the TSX Index, so extra caution is required.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Brian Pacampara owns no position in any of the companies mentioned.