Mega Corporations Risky Now, Explore Smaller-Caps Instead

All the drama around a trade war with China has thrown one thing into focus: U.S. companies are hugely dependent on exports to other countries, particularly on some emerging markets where there is the lure of a large and rapidly-growing population to buy goods and services.

So perhaps it’s time to take a breath, step back from the whole thing and rethink the way we view our markets, society and income streams. For the last few decades, we have seen mega corporations come to life, giving America the lead in things like technology even as it started slipping in some other areas.

Mega corporations basically concentrate the ownership and control of resources. When they are driven solely by the profit motive, they will procure and sell things in a way that may not always use those national resources in the best national interest. Or they may use them in a way that serves the national interest in the relative short term only.

Equally strong partners generally make for strong relationships while growing dependence creates stress, strain and needless competition. This is exactly the situation in the markets today.

Economic self-sufficiency and sustainable development isn’t just about having the resources to feed/clothe/entertain/etc ourselves today, but the ability to create and support the kind of society that won’t fall apart in the long term when relations with any other society sour.

So it’s important to decentralize resources and support individual innovation and entrepreneurship (the mom n pop kind or maybe a bit bigger). This will ensure that a large number of small communities are in control of smaller pockets of resources. So when something big happens globally, a smaller number of people are affected by it. When we are dependent on China for something as mundane as shoes for example, we definitely aren’t doing something right.

To cut a long story short, global turmoil is likely to affect the big companies with massive multinational operations much more than smaller companies, making them much riskier.

With that in mind, I’ve picked a few small cap stocks with operations in attractive industries, that are seeing earnings growth and that carry a Zacks Rank #1 - you can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Houston Wire & Cable Company (NASDAQ:HWCC)

With more than three decades of experience in the electrical industry, Houston Wire & Cable Company is one of the largest distributors of specialty wire and cable and related services in the U.S. electrical distribution market. It has sales and distribution facilities in Atlanta, Baton Rouge, Charlotte, Chicago, Denver, Houston, Los Angeles, Philadelphia, San Francisco, Seattle and Tampa.

Standard stock items available for immediate delivery include continuous and interlocked armor, instrumentation, medium voltage, high temperature, portable cord, power cables and private branded products, including LifeGuard, a low-smoke, zero-halogen cable. HWCC's comprehensive value-added services include same-day shipping, knowledgeable sales staff, inventory management programs, just-in-time delivery, logistics support, customized internet-based ordering capabilities and round-the-clock, throughout-the-year service.

The Zacks Consensus Estimate for 2018 is up 125.0% and that for 2019 is up 96.4% in the last 60 days, representing growth of 200.0% and 22.2% from the respective prior years.

Rocky Brands, Inc. (NASDAQ:RCKY)

Rocky Brands, Inc. is a leading designer, manufacturer and marketer of premium quality footwear and apparel marketed under a portfolio of well recognized brand names including Rocky Outdoor Gear, Georgia Boot, Durango, Lehigh, and the licensed brand, Dickies.

The Zacks Consensus Earnings Estimate for 2018 is up 19.6% in the last 60 days, representing a 20.7% increase from the prior year. The 2019 estimate represents a 10.7% increase from 2018.

Limbach Holdings, Inc. (NASDAQ:LMB)

Limbach Holdings, Inc. provides building systems. The Company engineers, constructs and services the mechanical, plumbing, air conditioning, heating, building automation, electrical and control systems. Limbach Holdings, Inc. is headquartered in Pittsburgh, Pennsylvania.

The Zacks Consensus Earnings Estimate for 2018 is up 12.4% in the last 60 days, representing a 395.5% increase from the prior year. The 2019 estimate represents a 45.9% increase from 2018.

Unique Fabricating, Inc. (NYSE:UFAB)

Unique Fabricating is a supplier of components like multi-material foam, rubber and plastic components for noise, vibration and harshness management, acoustical management, water and air sealing, decorative and other functional applications for the automotive and industrial appliance market. Its operations include die cutting, thermoforming, compression molding, fusion molding and assembly. Headquartered in Auburn Hills, Michigan, it operates primarily in Auburn Hills, Michigan, LaFayette, Georgia and Monterrey, Mexico.

The Zacks Consensus Earnings Estimate for 2018 is up 5.1% and that for 2019 is up 17.6%, representing 20.3% and 19.5% growth from the respective prior years.

ePlus, Inc. (NASDAQ:PLUS)

ePlus enables organizations to optimize their IT infrastructure and supply chain processes by delivering world-class IT products, professional services, flexible lease financing, proprietary software and patented business methods. It has the highest certifications from top technology partners and expertise in key technologies from data center to security, cloud and collaboration.

The Zacks Consensus Earnings Estimate for 2018 is up 3.3% and that for 2019 is up 20.8%, representing 14.7% and 24.9% growth from the respective prior years.

Last Word

What this doesn’t of course mean is that big corporations don’t play a role in economic development. It just means that they need to be regulated so they can do more for the country, especially in the areas of R&D and defense. In the meantime, bet on these stocks to stay out of all the controversy.

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