We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Welcome to Episode #313 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
This week, Tracey takes a look at a value focused investing book called “The Case for Long-Term Value Investing” by Jim Cullen which was published just last year. Cullen has over 60 years of experience on Wall Street and leads Schafer Cullen Capital Management which manages more than $20 billion in assets.
It’s a book where you could read any of the 38 chapters, in no particular order. Tracey immediately leapt to Chapter 23: Small Cap Value as small cap value stocks have historically been the best performing asset class, beating even small cap growth.
In the book, Cullen mentions a 2005 Morningstar study that investing $1 in small cap growth and $1 in small cap value in 1927. 78 years later, by 2005, the small cap growth investment had grown to $1,723 but the small cap value investment had soared to $20,920.
Small Cap Value v Small Cap Growth
One of the most popular small cap value ETFs is the Vanguard Small Cap Value ETF (VBR - Free Report) .
For years, small cap growth was easily beating small cap value’s performance. But in 2022, Vanguard’s Small Cap Growth ETF (VBK) fell 28.4% while the value fund (VBR - Free Report) fell “only” 9.3%. It was enough to propel the small cap value fund to a 10-year win.
Over the last 10 years, Vanguard Small Cap Value (VBR - Free Report) now has an annualized return of 10.27% versus just 9.26% for the growth fund.
Is this a sign that the tide is turning for value?
Screening for Small Cap Value Stocks
While it’s easy to buy a basket of small cap value stocks through ETFs, some investors still want to buy individual stocks.
Cullen’s book considers small cap size to be under $3 billion so Tracey started there with the screen.
For value, she used a P/S ratio under 1.0 and a PEG ratio under 1.0 to also get some growth.
And then she added the secret sauce of the Zacks Rank, screening for Zacks #1 Rank (Strong Buy) and #2 (Buy) stocks. These are the top Zacks Ranks. There are currently 970 of those.
Hopefully, the high Zacks Rank should mean rising earnings estimates for those companies as the analysts are raising their earnings estimates.
a.k.a. Brands is a brand accelerator. It grows next generation fashion brands. Currently, those include Princess Polly, Culture Kings, Petal + Pup, Rebdolls and MNML. It is a direct-to-consumer business but in Nov 2022, Culture Kings opened its first US flagship store in Las Vegas.
a.k.a. Brands went public in Oct 2021. Shares have plunged since and are down 78% in the last year to around $1.50 per share. But while a.k.a. Brands’ earnings are expected to be $0.00 this year, analysts believe the company will make $0.11 in 2023.
It’s now cheap, with a P/S ratio of just 0.3 and a P/E of 14.2. It’s a Zacks Rank #2 (Buy).
With a market cap of just $192 million, is a.k.a. Brands a hidden value?
2. Veritiv
Veritiv is a full-service provider of packaging, JanSan and hygiene products, services and solutions, and has a logistics and supply chain management business. It has distribution centers thru-out the United States and Mexico.
Veritiv has a market cap of $1.7 billion and saw record earnings in the third quarter of 2022. In Nov 2022, Veritiv raised full year guidance.
The company had a $200 million share repurchase program which it completed in 2022. Going forward, it will pay a quarterly dividend, currently yielding 2%. It’s rare for small cap companies to pay dividends.
Veritiv is cheap with a forward P/E of just 7.4. It’s a Zacks Rank #1 (Strong Buy).
Sterling Infrastructure has three business segments: E-Infrastructure which is large scale site development for data centers, e-commerce distribution centers, warehousing, and others; Building Solutions which includes residential and commercial concrete foundations for single family and multi-family homes, parking structures and elevated slabs; and Transportation Solutions which is heavy civil infrastructure and rehab projects including highways, roads, bridges, airports and others.
Sterling has a market cap of $981 million. In Oct 2022, it had record third quarter results and raised full year guidance as E-Infrastructure saw strong demand. Revenue was up 20% year-over-year.
Shares of Sterling are up 15.4% over the last year, and are up 32% over the last 3 months. But even with the rally, Sterling is cheap, with a PEG ratio of just 0.5. Earnings are expected to rise 9.9% in 2023.
Sterling is a Zacks Rank #2 (Buy).
With a trillion-dollar infrastructure plan moving forward in the United States, should Sterling be on your short list?
Urban Outfitters is a specialty retailer that operates Urban Outfitters, Anthropologie and Free People. It has also expanded into restaurants and hospitality.
Urban Outfitters was the largest market cap company in the 8 stocks in the screen, with a market cap of $2.5 billion.
Over the last year, shares have been volatile. Shares are down just 3.1% over the last year but that is because they have rallied 18% in the last 3 months.
This Zacks Rank #2 (Buy) has a PEG ratio of 0.88.
Should a retailer like Urban Outfitters be on your watch list?
What Else Should You Know About Small Cap Value Stocks?
Listen to this week’s podcast to find out.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
Is it Finally Time for Small Cap Value Stocks?
Welcome to Episode #313 of the Value Investor Podcast.
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.
This week, Tracey takes a look at a value focused investing book called “The Case for Long-Term Value Investing” by Jim Cullen which was published just last year. Cullen has over 60 years of experience on Wall Street and leads Schafer Cullen Capital Management which manages more than $20 billion in assets.
It’s a book where you could read any of the 38 chapters, in no particular order. Tracey immediately leapt to Chapter 23: Small Cap Value as small cap value stocks have historically been the best performing asset class, beating even small cap growth.
In the book, Cullen mentions a 2005 Morningstar study that investing $1 in small cap growth and $1 in small cap value in 1927. 78 years later, by 2005, the small cap growth investment had grown to $1,723 but the small cap value investment had soared to $20,920.
Small Cap Value v Small Cap Growth
One of the most popular small cap value ETFs is the Vanguard Small Cap Value ETF (VBR - Free Report) .
For years, small cap growth was easily beating small cap value’s performance. But in 2022, Vanguard’s Small Cap Growth ETF (VBK) fell 28.4% while the value fund (VBR - Free Report) fell “only” 9.3%. It was enough to propel the small cap value fund to a 10-year win.
Over the last 10 years, Vanguard Small Cap Value (VBR - Free Report) now has an annualized return of 10.27% versus just 9.26% for the growth fund.
Is this a sign that the tide is turning for value?
Screening for Small Cap Value Stocks
While it’s easy to buy a basket of small cap value stocks through ETFs, some investors still want to buy individual stocks.
Cullen’s book considers small cap size to be under $3 billion so Tracey started there with the screen.
For value, she used a P/S ratio under 1.0 and a PEG ratio under 1.0 to also get some growth.
And then she added the secret sauce of the Zacks Rank, screening for Zacks #1 Rank (Strong Buy) and #2 (Buy) stocks. These are the top Zacks Ranks. There are currently 970 of those.
Hopefully, the high Zacks Rank should mean rising earnings estimates for those companies as the analysts are raising their earnings estimates.
Running this screen, it returned just 8 stocks.
4 Top Ranked Small Cap Value Stocks
1. a.k.a. Brands Holding (AKA - Free Report)
a.k.a. Brands is a brand accelerator. It grows next generation fashion brands. Currently, those include Princess Polly, Culture Kings, Petal + Pup, Rebdolls and MNML. It is a direct-to-consumer business but in Nov 2022, Culture Kings opened its first US flagship store in Las Vegas.
a.k.a. Brands went public in Oct 2021. Shares have plunged since and are down 78% in the last year to around $1.50 per share. But while a.k.a. Brands’ earnings are expected to be $0.00 this year, analysts believe the company will make $0.11 in 2023.
It’s now cheap, with a P/S ratio of just 0.3 and a P/E of 14.2. It’s a Zacks Rank #2 (Buy).
With a market cap of just $192 million, is a.k.a. Brands a hidden value?
2. Veritiv
Veritiv is a full-service provider of packaging, JanSan and hygiene products, services and solutions, and has a logistics and supply chain management business. It has distribution centers thru-out the United States and Mexico.
Veritiv has a market cap of $1.7 billion and saw record earnings in the third quarter of 2022. In Nov 2022, Veritiv raised full year guidance.
The company had a $200 million share repurchase program which it completed in 2022. Going forward, it will pay a quarterly dividend, currently yielding 2%. It’s rare for small cap companies to pay dividends.
Veritiv is cheap with a forward P/E of just 7.4. It’s a Zacks Rank #1 (Strong Buy).
Should Veritiv be on your short list?
3. Sterling Infrastructure, Inc. (STRL - Free Report)
Sterling Infrastructure has three business segments: E-Infrastructure which is large scale site development for data centers, e-commerce distribution centers, warehousing, and others; Building Solutions which includes residential and commercial concrete foundations for single family and multi-family homes, parking structures and elevated slabs; and Transportation Solutions which is heavy civil infrastructure and rehab projects including highways, roads, bridges, airports and others.
Sterling has a market cap of $981 million. In Oct 2022, it had record third quarter results and raised full year guidance as E-Infrastructure saw strong demand. Revenue was up 20% year-over-year.
Shares of Sterling are up 15.4% over the last year, and are up 32% over the last 3 months. But even with the rally, Sterling is cheap, with a PEG ratio of just 0.5. Earnings are expected to rise 9.9% in 2023.
Sterling is a Zacks Rank #2 (Buy).
With a trillion-dollar infrastructure plan moving forward in the United States, should Sterling be on your short list?
4. Urban Outfitters, Inc. (URBN - Free Report)
Urban Outfitters is a specialty retailer that operates Urban Outfitters, Anthropologie and Free People. It has also expanded into restaurants and hospitality.
Urban Outfitters was the largest market cap company in the 8 stocks in the screen, with a market cap of $2.5 billion.
Over the last year, shares have been volatile. Shares are down just 3.1% over the last year but that is because they have rallied 18% in the last 3 months.
This Zacks Rank #2 (Buy) has a PEG ratio of 0.88.
Should a retailer like Urban Outfitters be on your watch list?
What Else Should You Know About Small Cap Value Stocks?
Listen to this week’s podcast to find out.