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Are Small-Caps Next in Line? 2 Undervalued Stocks to Ride the Bull Market

By Investing.com (Francesco Casarella)Stock MarketsJun 13, 2023 05:08AM ET
www.investing.com/analysis/are-smallcaps-next-in-line-2-undervalued-stocks-to-ride-the-bull-market-200638961
Are Small-Caps Next in Line? 2 Undervalued Stocks to Ride the Bull Market
By Investing.com (Francesco Casarella)   |  Jun 13, 2023 05:08AM ET
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MCFT
+1.83%
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HCC
+1.96%
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DVAX
+1.47%
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GBUSS
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  • Mega-cap stocks have led market rally, while small-caps have lagged behind
  • Some see this as a risk, I see it as a buying opportunity
  • Here are 2 undervalued small-cap stocks found by our InvestingPro stock scanner

In the uptrend from the mid-October low, we have seen a market recovery driven mainly by the mega-cap stocks, including Apple (NASDAQ:AAPL), NVIDIA Corporation (NASDAQ:NVDA), Meta Platforms (NASDAQ:META), Alphabet (NASDAQ:GOOGL).

Many see this as a risk, but one must also see the other side of the story, which is the possibility that small-caps could rally too. I recently bought an ETF on small caps because of the discounted valuations.

So, let's see if we can identify small-cap plays using the InvestingPro stock scanner.

The filters used are as follows:

  • Return on Asset > 12%
  • Return on Equity > 15%
  • Return on Invested Capital > 15%
  • Current Ratio > 1
  • P/E less than 15
  • Market Cap less than 2 Billion
  • InvestingPro Overall Score > 4
  • Debt/Equity ratio less than 0.6

And here are the results:

InvestingPro Stock Screener Results
InvestingPro Stock Screener Results

Source: InvestingPro

Only four companies meet these stringent requirements. However, it is crucial not to stop here. Instead, we should delve into the details of each stock.

We should consider factors such as profit and revenue growth trends, free cash flow returns, potential upside relative to fair value, competitive advantage within the industry, quality of management, and more.

And excessively positive values in these metrics should raise caution, as they prompt the question of whether such numbers can be sustained in the future.

Out of the 4 selected companies, only 2 show a discount to InvestingPro Fair Value exceeding 30%:

  • MasterCraft Boat Holdings (NASDAQ:MCFT) presents a discount of 49.6%.
  • Warrior Met Coal (NYSE:HCC) shows a discount of 35.8%.

MasterCraft Fair Value
MasterCraft Fair Value

Source: InvestingPro

Warrior Met Coal Fair Value
Warrior Met Coal Fair Value

Source: InvestingPro

A deeper analysis is always recommended after shortlisting stocks. You can subscribe and try out the InvestingPro premium tool, which provides comprehensive tools for conducting in-depth analyses.

The InvestingPro tools assist savvy investors in analyzing stocks. By combining Wall Street analyst insights with comprehensive valuation models, investors can make informed decisions while maximizing their returns.

You can conveniently access a single-page view of complete and comprehensive information about different companies all in one place, saving you time and effort.

Start your InvestingPro free 7-day trial now!

***

Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counseling, or investment recommendation. As such, it is not intended to incentivize the purchase of assets in any way. As a reminder, any type of asset is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remain with the investor. The author does not own the stocks mentioned in the analysis.

Are Small-Caps Next in Line? 2 Undervalued Stocks to Ride the Bull Market
 

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Are Small-Caps Next in Line? 2 Undervalued Stocks to Ride the Bull Market

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Comments (5)
LUIS PINTO
LUIS PINTO Jun 13, 2023 2:29PM ET
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Let see 2 and 3rh quater results if earnings go strong we will have nice end of the year. But most important is 10 years for now if same companies or others will upfront
Bob Bob
Bob Bob Jun 13, 2023 12:15PM ET
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People are getting way ahead of themselves without the economy supporting this market. Economic indicators are showing economy slowing.
Jouni Trading
Jouni Jun 13, 2023 11:06AM ET
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You're talking about bull market yet in reality it's just a bull run on bear market. Agenda is strong in Wall Street.
Nicholas Conger
NWC147 Jun 13, 2023 11:03AM ET
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Nice stock screener, Francisco. BTW, Both stocks mentioned (MCFT and HCC), have good/favorable chart patterns (RSI and MACD), indicating good chance of at least a return to recent highs (if the market remains bullish).
Thomas Kahl
Thomas Kahl Jun 13, 2023 6:54AM ET
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With higher interest rates, it‘s not an option for me.
Justin Youngblood
Justin37 Jun 13, 2023 6:54AM ET
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my thoughts as well.
 
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