5 Small-Cap Growth Stocks From An Overlooked Corner Of The Market
Where do you go to find the very best growth stories?
Clearly, some of the best innovators come from the tech and the health-care industries. And so, almost by default, most of my Fast-Track Millionaire portfolio stocks belong to those two major growth sectors.
But what about the rest of the economy? Does it not generate any innovation or significant profit opportunities?
Of course, it does. And that’s what today’s piece is all about…
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To illustrate my point, look no further than a company like Tesla (Nasdaq: TSLA). Believe it or not, Tesla is an industrial company by any official classification. And regardless what you may think of the recent, well-publicized missteps of CEO Elon Musk, is indeed an innovator. And what’s more, it’s made a pretty penny for its earliest investors. (While over the past five-year period, Tesla only went up by less than 20%, its shares are up a whopping 1,050% from its June 2010 initial public offering.)
While there is only one Tesla, there are more than one — many, many more — creative and promising small-cap industrial companies. The challenge is to find them early enough to capitalize on their promise and later success. That’s our task with each and every issue of Fast-Track Millionaire — and it’s also the plan with today’s stock screen.
Let’s Screen For Tomorrow’s Industrial Titans
In this screen, I searched among all companies trading on major U.S. exchanges that are members of the Russell 2000 small-cap index and have coverage from at least five analysts. I further required that they be classified as “industrials” that have been performing well lately (trading within 5% of their 52-week highs).
Why did I include an “analyst” component? Because for the next step of my screening process, I wanted to consider the average ratings for each of these stocks (in this case, the lower, the better, with “1” meaning “buy” and 5 meaning “sell.”).
Here are the top five.
Data as of 3/15/19
Out of eight analysts that follow energy equipment-maker Chart Industries (Nasdaq: GTLS), six rate it a “Buy” and two rate it a “Hold.”
It’s quite possible that GTLS’ recent strong run to a 52-week and five-year high is related to the recent rally in the price of oil, with Brent up some 25% just in 2019. In addition to the strength in energy markets, GTLS is rallying because of a recent restructuring. In 2018, the company sold its oxygen-related business and has refocused its efforts on the cryogenic markets, with the purchases of two businesses, Italy-based VRV and U.S.-based Skaff Cryogenics. With these two purchases, GTLS is further benefitting from the growth in the liquefied natural gas (LNG) market, too.
Poised to become less cyclical than it has been for many years, GTLS is fast becoming more interesting and attractive.
Plug Power (Nasdaq: PLUG), the smallest company from our top five, is rated by six analysts as a “Buy” and by two analysts as a “Hold.” It’s probably the most speculative stock in the group, too — it’s working on a new hydrogen fuel cell technology that can potentially replace conventional batteries in equipment and vehicles powered by electricity. This technology is new, expensive and far from a “sure thing” at this stage. Pure speculation at this time — but one to keep an eye on.
Like GTLS, Enphase Energy (Nasdaq: ENPH) is trading near its 52-week high. Unlike GTLS, however, the stock of this energy converter and battery manufacturer, at its current levels of about $9 per share, still trades well below its five-year high of $16.98 set in 2014.
This leaves more room for potential improvement, if and when this company’s technology (which converts energy from the individual solar module) is adopted by more households. This is likely why five analysts currently rate this stock as a “Buy” or “Outperform.” Only one analyst rates it a “Hold” and none rate it a “Sell.” Let’s keep an eye on this company as well.
Exponent (Nasdaq: EXPO), an engineering company founded in 1967 and formerly known as The Failure Group, is on the rise. (Failure Analysis Associates was founded in Palo Alto, California, where three professors from Stanford University and two engineers from Stanford Research Institute decided to pioneer a new field — investigating how and why failures and accidents occur. The name was changed in 1998.)
With three “Buys” and two “Holds,” Exponent (which, according to the company, means “one who expounds or interprets”) is not the highest-rated firm on the list, but it’s been the strongest in terms of price performance over the last decade or so: in the past five years, the stock has tripled in price, and over the past decade, shares are up nearly 800%.
Finally, I don’t see anything too special about Advanced Disposal Systems (NYSE: ADSW), a small-cap waste disposal company. Of course, I might be overlooking something — out of 10 analysts rating this company, only two rate it a “Hold” and one — a “Sell,” with the rest giving it a “Buy” or “Outperform” rating. Still, out of this group of five, it’s probably the least technologically advanced (despite the “advanced” in the company name). If you are looking for a steady business, this might be it, but the next Tesla it isn’t.
Action To Take
Don’t be surprised if one or more of these stocks find their way into the Fast-Track Millionaire portfolio at some point down the road. But you should remember that the investing ideas presented here are intended to provide a starting point for further research, not a final recommendation. As with any quantitative tool, this stock screen should not be used in isolation. Please be sure to evaluate the fundamental characteristics of every potential investment opportunity to determine if it is the right fit for your portfolio.
And while the socks in this screen might turn out to be winners, there’s a group of stocks I’m even more excited about…
For the past couple months, I’ve been telling my readers about a revolution that’s taking place in the world of advanced medicine. You see, in the not too distant future, formerly fatal diseases could become a thing of the past, while the average American lifespan grows longer than ever before. There are a few key companies working on the stuff that will make it possible, and investors who get in on this early could make a killing. You can learn all about it right here.