Jun 01 2021 (Tue)
Enjoy the guest post by undervaluedsmallcaps as he outlines 10 great small-cap stocks you should consider adding to your portfolio.
I created a portfolio of small cap stocks that are undervalued, and that I believe have the underlying conditions necessary for long term success. This portfolio was created to be well rounded, and many of these stocks counterbalance each other in order to reduce risk and reap the benefits of dividends. I believe that each of these stocks can generate high returns, while remaining as “safe investments” due to their undervalued nature. To see this whole portfolio, and how it is performing click here.
Many people think that this red-hot real estate market is too good to be true, and that we are in a “bubble” that is set to burst and send us all back to the stone age. However, with the high levels of savings due to the pandemic, and the low interest rates on mortgages, more people are able to afford real estate now, then let us say 2 years ago. Professionals say that there is no end to this madness in the near future.
This presents a rare opportunity for construction companies, namely residential construction companies such as $MHO. We have already seen the effect that this phenomenon has caused on their balance sheet with their revenues up 21.8% YoY, their interest expense cut in half, and their margins increasing.
According to my analyses (DCF and comparable), there is an implied upside to this investment of 59.53%, which translates into a share price of $108.27 (currently $67.87).
The full analysis of why $MHO is a great undervalued small-cap stock can be found here
Sixth Street Specialty Lending is a business development company based out of San Francisco, who invests in both debt and equity instruments. All of Sixth Street Specialty Lending’s debt investments are at a “fixed rate” meaning that if the financial markets are performing well, Sixth Street will earn more interest on their debt investments. Alternatively, if the market is performing poorly, they will not make as much income off of interest.
If you are overall bullish on the performance and expected performance of the financial markets, then Sixth Street is the stock for you. Currently, Sixth Street is undervalued and presents a good buying opportunity for investors. Furthermore, Sixth Street has a net asset value per share of $16.47 which should serve as a bottom for the stock, helping to limit risk. Lastly, if all of that is not good enough fo you Sixth street also offers a 7.36% dividend.
Based on the valuation techniques used in my analysis, Sixth Street has the potential to reach $28.03, which would yield an upside of 25.36% (based off of the current price of $22.36).
My full analysis of the unique opportunity that Sixth Street Specialty Lending presents can be found here
Kinross is a gold acquisition, exploration, and processing company that has operations in the USA, Brazil, Russia, Chile, Ghana, and Mauritania. Kinross has recently undergone a capital re-investment plan which will allow them to increase their gold production by over 20%. Even with the additional spending on this plan, Kinross is expecting to decrease their capital expenditures over the 3-year timeframe. Their increased productivity in accordance with their decreased expenditures will help them to increase their profit margins and perform better on their upcoming earnings reports.
An investment into Kinross Gold can help to counterbalance an investment into Sixth Street Specialty Lending ($TSLX) as Kinross’ share price is heavily related to gold, which is an inflationary hedge if the dollar (and overall market) is performing poorly. Furthermore, Kinross also offers a dividend of 1.47%.
Based off of the valuation techniques used in my analysis, Kinross is grossly undervalued and has the potential to reach anywhere between $12.71-13.15, which will generate returns of between 55.38-60.76% (based off of the current share price of $8.18).
If you are interested In reading more about the potential of Kinross, you can read my full analysis found here
As a result of the pandemic, global supply chains are currently being pushed to their limits and there are seemingly more shortages being reported everyday. These shortages have been caused by an increased demand for inventory and have led to more demand for all kinds of shipping methods (planes, ships, trucks etc.), however there are not many marine shipping companies that have been able to keep up with this increased demand. This is where Global Ship Lease comes in, Global Ship Lease is a company that leases cargo ships out to marine shipping companies.
Global Ship Lease has profited greatly off of the increased demand for marine shipping due to the effects of the pandemic. However, even GSL was not able to meet their increased demand to lease out ships, and as a result Global Ship Lease was able to acquire 7 new cargo ships this year, which are expected to increase EBITDA by $29M annually. These ships are set to break even in 5 year (out of their 20-year useful lives) and have a scrap value of $69M. Although Global Ship Lease had to take on the debt to buy these ships, they are a great investment and will generate positive returns in the future.
Based off of the valuation techniques that I used when analyzing Global Ship Lease, it has a very high possibility of reaching the $20.66/share level (22.10% increase) and has a possibility of even reaching $32.62/share (92.79% increase).
This is just the tip of the iceberg when looking at the overall potential of Global Ship Lease, if you want to continue reading my full analysis can be found here
As stated in the Global Ship Lease stock information, the demand for shipping has increased due to increased levels of inventory, and in order to ship these products, these shipping companies demand oil. Furthermore, the IEA has stated publicly that they are no longer going to invest in oil projects after 2021. Both of these factors will contribute to higher prices of oil, this is because on one side you have an increased demand for oil (for shipping, and people returning to their normal lives post-covid), and on the other side you have a stagnant/decreasing level of supply of oil (less investments into oil). This increased demand and stagnant/reduced supply will cause supply and demand to fall out of equilibrium, and one of the only ways to fix this is to increase oil prices.
PBF can capitalize on the heightened demand for oil as they have been increasing the capacity of their refineries through acquisitions. Furthermore, the increased prices of oil will help PBF Logistics to attain better margins on their refining services, which should help their share price.
Based off of the valuation techniques that I used in my analysis, $PBFX has the potential to reach between $19.40-19.80, which would yield a return between 17.93-20.36% (based off of current share prices).
If you are interested in PBF Logistics, there are many more great reasons why it is a solid investment and can be found in my full analysis found here
Recently, as I am sure most of you are aware, the 10-year treasury yield was spiking and very volatile. This caused fear in many investors as they were worried about large levels of inflation due to the pandemic/stimulus packages. These worries were quickly subsided as the volatility of the 10-year yield has slowed down and the yield has remained steady. However, it is almost certain that inflation will rise back to its natural level (near 2%).
Regional banks are among the best stocks to own when inflation is expected to increase or is increasing. This is due to the fact that regional banks enjoy an increased interest spread sue to a rise in inflation, which helps to increase their profit margins and caused them to outperform. However, if we are already looking to invest in a regional bank to hedge against inflation, why not invest in one of the most undervalued regional banks, for even higher growth potential. This is precisely why I have chosen Hope Bancorp as one of my top stocks.
Based off of the valuation techniques that I used in my analysis of Hope Bancorp, it has the potential to be a $21.29 stock, which would imply a price increase of 37.89% (based off of current prices).
To get the full context of the macroeconomic trends/factors, and why Hope Bancorp is best suited to take advantage of this opportunity, it is discussed in my full analysis found here
The COVID-19 pandemic has accelerated many supply chains issues as we have seen in gas, wood pallets, semiconductors, microchips, and many more. Having a strong and reliable supply chain right now is more important than ever before. ePlus offers a suite of products designed to help businesses in all aspects of their business including their supply chain(s).
ePlus understands their customers/clients needs, and tailors their services to best design, deploy, and manage solutions according to these needs. The main goal of ePlus is to help their customers gain more control over their supply chains through this tailored approach. ePlus has a reputable [product that is trusted by Apple, as Apple is one of their largest clients, representing 12% of ePlus’ annul revenue.
Based off of the valuation techniques that I used in my analysis of $PLUS, the most compelling share price that ePlus could reach is the $102 level. If ePlus was to reach this level their share price would increase by 9.18% from current prices.
For more information on the services that ePlus provides, as well as more information on why they will be successful, I would advise you to read my full analysis, which can be found here
There is an urgent need to fix America’s roads, especially in some states like Hawaii, where between 30-50% of their roads are of “poor condition”. This need has been acknowledged by the Biden administration and has been incorporated into their proposed infrastructure plan. This is good news for many engineering and construction companies across the USA, like Sterling Construction.
One of Sterling’s construction offerings is their heavy civil segments, which consists of infrastructure and rehabilitation of highways, roads, bridges, airfields, light rails etc. These services are exactly what the government is looking for through their infrastructure plan. Sterling operates in Southern USA, the Rocky Mountain States, California, and Hawaii. This gives Sterling many opportunities to bid for the government contracts necessary for the Federal Government to make the changes as outlined in their infrastructure plan. If Sterling can win even a fraction of the contracts available in their geographies it will greatly help their revenues generated by their heavy civil segment.
Based off of the valuation techniques that I used in my analysis of Sterling Construction, Sterling can reach a low level of $25.81/share with the possibility of reaching levels upwards of $47.81/share. This would translate into share price increase of 12.66% and 108.69% respectively (based off of current share prices)
To get more information of Sterling Construction’s operations as a whole, and why they are primed to break out, read my full analysis, which can be found here
Due to the pandemic, many individuals and families were able to save more of their disposable incomes due to working at home. This allowed many people to save and to undergo large projects that they otherwise would have been able to do without their extra savings. This led increased home improvement spending, increased spending on outdoor living spaces and an increased demand for domestically manufactured products, these factors are also not expected to slow down greatly post-pandemic either as people are appreciating their importance now more than ever. These factors created the perfect storm for may companies like Home Depot ($HD), and Lowe’s ($LOW), who is share prices soared as a result to a shift in consumer behaviour due to the pandemic.
These factors also created solid opportunities for companies like Griffon Corp, who offers a wide variety of home improvement products and tools to their customers through their many subsidiaries. Since Griffon offers these products to their consumers looking to improve their houses and shop domestically, and as a result of this they are also able to capitalize on the current economic trends and have a tremendous growth opportunity that should excite existing and potential shareholders alike.
Based off of the valuation techniques that I used in my analysis of Griffon Corp, they have the potential to reach a share price of $47.35, which would result in a percentage growth of 76.75% (from their current share price).
I believe that this is the best analysis I have ever wrote, and that anyone would benefit from reading this, I would love for you to read this if you are interested and leave a comment with some feedback and your opinions, this full analysis can be found here
Currently, In America, there is a gap between in the number of jobs available for candidates who are of higher-educations and the number of candidates who are of higher-education. This is a problem that can only be fixed by increase the level of education of the American workforce. This is great news for education companies that focus on adult and continued education as they are set to grow at a CGAR of 11.96% over the next 10 years.
This is music to Perdoceo’s ears as they are an education institute that offers blended learning to their primarily adult and continued learning customer base. Furthermore, Perdoceo is a more technologically advanced education service provider and has the potential to outgrow the adult learning market as a whole. Perdoceo is focused on growing and servicing the highest number of students possible, which is made possible through acquisitions of universities such as Trident University (which they acquired in 2020).
Based off of the valuation techniques that I used in my analysis of Perdoceo, I found evidence that supports Perdoceo having a share price of $22, and even evidence that supports a price of $30/share. These estimates would yield returns of 79.01% and 144.10% respectively (based off of current share prices).
To learn more about Perdoceo as a business and how they are innovating the education services space, read more in my full analysis, found here