Investors who are waiting for small-cap stocks to stage a comeback may be feeling like they are watching grass grow or paint dry. Large-cap stocks have been outperforming small-caps in recent years, with the Standard & Poor’s 500 Total Return Index increasing by 7.86% compared to a decline of 0.8% for the Russell 2000 Index through April 12. Large-cap stocks are typically more stable and have better international exposure, but small-caps can offer opportunities for individual investors to find undiscovered gems.
Dorian LPG Ltd. is a small-cap stock that owns a fleet of ocean tankers for transporting liquefied petroleum gas. Despite its spotty earnings history, the company has been showing strong profits in recent years. With a net profit margin of 55%, the stock is trading at nine times estimated earnings for the fiscal year. Similarly, Photronics Inc., a company that makes photomasks for integrated circuits and flat-panel displays, has seen earnings increase by 24% in the past year and is priced at 12 times earnings.
International Money Express Inc. is another small-cap stock that helps Latin American workers in the U.S. send money home. Despite having more debt than usual, the company has grown its earnings by over 23% per year over the past five years. Quanex Building Products Corp., based in Houston, Texas, makes windows and doors, showing a profit in eight of the past ten years. Although most analysts are predicting flat earnings ahead, the company has received positive recommendations from four out of five analysts.
John B. Sanfilippo & Son Inc., a company that processes and sells nuts under its own brands, has a 15-year profit streak and has grown earnings at an 11% annual rate over the past decade. Despite its success, the stock is largely ignored by Wall Street analysts. Overall, small-cap stocks have the potential to offer investors attractive opportunities for growth and profitability, with past columns recommending small-cap stocks having delivered an average one-year return of 16.2%.
While past performance does not guarantee future results, the success of small-cap stocks in the face of larger market trends suggests that there may be value in looking beyond the large-cap sector. With companies like Dorian LPG Ltd., Photronics Inc., International Money Express Inc., Quanex Building Products Corp., and John B. Sanfilippo & Son Inc., small-cap investors may find promising opportunities for growth and profit in an ever-changing market landscape.
