- (0:15) - Small Cap Stock Sell Off: Are There Any Deals?
- (2:10) - Stock Screener Criteria
- (5:25) - Tracey’s Top Stock Picks
- (17:15) - Takeaways On Small Cap Stocks: SGRY, TLYS, RDNT, UIS, KEYW
Welcome to Episode #113 of the Value Investor Podcast
Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio service, shares some of her top value investing tips and stock picks.
We’re in the midst of another stock market correction. The small cap stocks are getting hit hard, as they are the riskiest of the equities so they are usually the first to be sold off.
But these sell offs also create buying opportunities.
Screening for Cheap Small Cap Stocks with Growth
Why not screen for small cap companies with strong growth but low valuations?
Small caps can mean different things to different investors. For this screen, Tracey used a market cap of $1 billion and under. Some investors may want to use $1.5 or even $2 billion.
For the value fundamental, Tracey used the Price-to-Sales ratio (P/S) of under 1.0. This means that an investor is paying less than $1 for every dollar’s worth of sales. You’re getting the sales at a discount.
For growth, the screen included earnings growth of 20% or more. Why 20%? Because that’s going to get those that are really growing their earnings. In this hot economy, why not go for companies that are also hot?
To get rising earnings estimates, the screen included the Zacks Ranks of #1 (Strong Buy) and #2 (Buy) along with stocks over $5.
This screen returned just 12 stocks.
Cheap Small Cap Stocks with Big Earnings Growth
1. Surgery Partners, Inc. (SGRY - Free Report) operates surgical services such as surgical hospitals and diagnostic labs at 180 locations in 32 states. It has a price-to-sales ratio of just 0.5 and is expected to grow earnings by 76% in 2018.
2. Tilly’s (TLYS - Free Report) is a fast-growing specialty retailer of West Coast-inspired apparel, footwear and accessories for teens and young adults. In the second quarter it saw its strongest same-store-sales comparables in 2 years. It has a P/S ratio of just 0.8 and the recent sell off has made it even cheaper.
3. RadNet, Inc. (RDNT - Free Report) provides outpatient diagnostic imaging services across a network of 304 centers in multiple states such as New York, New Jersey and California. Earnings are expected to rise 20.7% this year and another 71% in 2019. It’s P/S ratio is just 0.8.
4. Unisys (UIS - Free Report) is a global information tech company with a $988 million market cap. With a forward P/E of 10 and a P/S ratio of just 0.4, it has solid value fundamentals.
5. KeyW Holding Corp (KEYW - Free Report) is a pure play national security solutions provider for Intelligence, Cyber and Counterterrorism. Earnings are expected to be up 37.8% in 2018 and 114% in 2019 yet it has a P/S ratio of just 0.9. Shares have fallen 3.8% in the past month, making the shares even cheaper.
What else do you need to know about cheap small cap stocks?
Listen to this week’s podcast to find out.
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