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10 Small-Cap Value Stocks Analysts Love the Most

Dan Burrows, Contributing Writer, Kiplinger.com

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Small-cap value stocks can be a long-term investor's best friend. Indeed, research shows that historically, value stocks with small market capitalizations - or market values between roughly $300 million and $3 billion - are the best-performing asset class.

That's why it's always interesting to see which small-cap value stocks analysts like best at any given time.

To do so, we screened the small-cap benchmark S&P SmallCap 600 Value Index for stocks with the highest average analyst ratings. We limited ourselves to companies with market caps of at least $1 billion. Furthermore, these stock picks had to have a minimum of five "Strong Buy" analyst recommendations.

S&P Global Market Intelligence surveys analysts' ratings on stocks and scores them on a five-point scale, where 1.0 equals a "Strong Buy" and 5.0 means a "Strong Sell." Any score lower than 3.0 means that analysts, on average, rate the stock as being buy-worthy. The closer the score gets to 1.0, the better.

Based on those criteria, here's a look at the 10 best-rated small-cap value stocks in the S&P SmallCap 600 Value Index.

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10. Vonage

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Market value: $2.8 billion

Dividend yield: N/A

Analysts' average recommendation: 1.55

Analysts are high on Vonage Holdings (VG, $11.62) as the internet-based telecommunications provider pivots toward business customers and away from individual consumers.

For the quarter ended March 31, Vonage posted a 31% increase in revenue from its segment serving small-, medium- and large-sized businesses. Consumer revenues declined 15% year-over-year, as planned. Enterprise customers accounted for almost two-thirds of Vonage's revenue in the first three months of the year.

"The company's focus on larger customers appears to be paying off, with revenue from midmarket and enterprise customers accelerating on a sequential basis," say analysts at William Blair, who rate shares at "Outperform" (equivalent of "Buy").

Those analysts go on to lay out part of the forward growth case, saying, "In 2018, Vonage invested in product innovation and executed the acquisitions of TokBox and NewVoiceMedia as part of its continued investment in its OneVonage strategy. With the acquisitions, Vonage has a robust set of offerings to continue to gain share in the over $50 billion cloud communications-as-a-service market (CCaaS), in our view."

Of the 11 analysts covering VG tracked by S&P Global Market Intelligence, seven rate it at "Strong Buy," two say it's a "Buy" and two have it a "Hold," elevating it to this list of small value stocks.

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9. Chart Industries

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Market value: $2.9 billion

Dividend yield: N/A

Analysts' average recommendation: 1.5

Analysts are hot on Chart Industries' (GTLS, $91.03) profit prospects. The company, which manufactures cryogenic equipment that converts natural gas into liquefied natural gas, is forecast to generate average annual earnings growth of 25% over the next five years, according to data from Refinitiv.

Craig-Hallum analyst Eric Stine, who rates shares at "Buy," raised his target price on GTLS to $117 from $107 in late March, telling investors he expects the company to be "a major participant" amid accelerating demand for liquefied natural gas.

Of the eight analysts tracked by S&P Global Market Intelligence, six call GTLS a "Strong Buy," while two rate shares at "Hold." Analysts' average price target of $110.67 gives this small-cap value stock implied upside of about 18% in the next 12 months or so.

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8. Axos Financial

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Market value: $1.8 billion

Dividend yield: N/A

Analysts' average recommendation: 1.5

Shares in Axos Financial (AX, $30.03) were up 19% for the year-to-date through May 10, beating the Standard & Poor's 500-stock index by more than four percentage points, and analysts think they have more room to run.

Just don't be surprised if AX, like many small-cap stocks, is volatile along the way. The company, known as BofI Holding until a name change in late 2018, was dogged by a two-year Securities and Exchange Commission investigation into its lending practices that ended in June 2017. More recently, Axos disclosed in March that its securities clearing business was hit by a $15 million fraudulent trading scheme.

Despite these issues, analysts are upbeat about the prospects for the holding company for Axos Bank, which provides consumer and business banking products.

AX is expected to deliver average earnings growth of 10% a year for the next five years, according to Refinitiv data. And six out of eight analysts surveyed by S&P Global Market Intelligence rate the stock at "Buy," while two say shares are a "Hold." Their average target price of $36.25 gives AX stock an implied upside of more than 20% in the next 12 months or so.

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7. MarineMax

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Market value: $454.1 million

Dividend yield: N/A

Analysts' average recommendation: 1.44

Shares in MarineMax (HZO, $16.62) were down 9% for the year-to-date through May 10, but analysts hardly think the nation's largest recreational boat and yacht retailer is sunk. And with the stock trading at just 8 times projected earnings, HZO at least looks like a bargain.

HZO stock became waterlogged in late April after the company reported quarterly earnings that missed Wall Street's forecast and cut its full-year outlook. However, analysts at IFS Securities note that revenue growth was better-than-expected, boat-buying season is upon us and the stock looks cheap.

"With the boating market continuing to grow, we believe now would be an excellent time to build or add to positions of MarineMax," says IFS, which rates shares at "Strong Buy."

Analysts' average price target of $21.38 gives HZO implied upside of 29% over the next 12 months. That's in line with analysts' projections for future earnings growth - the boat dealer is forecast to expand its earnings by 30% annually on average over the next half-decade.

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6. Boot Barn

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Market value: $831.2 million

Dividend yield: N/A

Analysts' average recommendation: 1.44

Analysts are bullish on Boot Barn (BOOT, $29.34), thanks partly to what William Blair analysts summarize as "strong underlying fundamental momentum in the business." Blair rates shares in the cowboy boots and Western apparel chain at "Outperform."

One thing's for sure: While BOOT belongs among small-cap value stocks, it sure looks like a growth play in 2019. Shares were up 73% for the year-to-date through May 10. Whether that continues (in the shorter-term, at least) will depend on what the company has to say when it reports quarterly results on May 16.

Analysts' average price target of $30.88 gives BOOT implied upside of only about 5% over the next 12 months. Thus, the next quarterly report could be a pivotal one that sees analysts either raise their targets or lower them (along with their ratings). For now, six analysts rate the stock at "Strong Buy," two say it's a "Buy" and one calls BOOT a "Hold."

Over the longer haul, analysts currently expect the retailer to deliver average annual earnings growth of 25% for the next five years, according to Refinitiv data.

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5. TopBuild

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Market value: $2.9 billion

Dividend yield: N/A

Analysts' average recommendation: 1.38

TopBuild's (BLD, $83.56) stock is on fire so far in 2019, and analysts see more momentum ahead. Shares in the installer and distributor of insulation and other building products were up a scorching 86% for the year-to-date as of May 10.

Of the nine analysts covering BLD tracked by S&P Global Market Intelligence, six say it's a "Strong Buy," one has it at "Buy" and two rate shares at "Hold." Although TopBuild reported better-than-expected earnings and revenue in the most recent quarter, and raised its outlook, SunTrust Robinson Humphrey analysts have a "Hold" rating on the stock, citing recent weakness in housing starts.

Whether that plays out remains to be seen, but not everyone is so skeptical. KeyBanc analyst Kenneth Zener, who has a "Buy" rating on the stock, recently lifted his price target from $67 per share to $91, and Nomura's Michael Wood raised his from $71 to $90.

As a group, analysts forecast BLD's earnings per share to rise almost 20% this year and another 13% next year. It also bears mentioning that even after BLD's torrid 2019 run, this value stock doesn't appear particularly pricey. The stock currently trades at less than 15 times projected earnings.

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4. LivePerson

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Market value: $1.9 billion

Dividend yield: N/A

Analysts' average recommendation: 1.31

Shares in LivePerson (LPSN, $29.07) are up 54% so far in 2019, and analysts don't think it's even close to topping out. Their average price target of $35.27 gives LPSN implied upside of 21% over the next 12 months or so.

What's all the excitement about? LivePerson competes in the business of providing live-chat customer support on web pages and in mobile apps. Piper Jaffray analysts, who rate LPSN at "Overweight," think those little pop-up windows that lets users chat with a sales rep or someone on the help desk will benefit from a massive, long-term shift away from voice calls to messaging and artificial intelligence. Thanks to its early-mover positioning, LPSN has a leg up on the competition, Jaffray analysts say.

Analysts expect LivePerson to generate average annual earnings growth of 30% over the next five years, according to Refinitiv. Of the 13 analysts covering LPSN tracked by S&P Global Market Intelligence, nine rate LPSN at "Strong Buy" and four call it a "Buy."

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3. SkyWest

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Market value: $3.1 billion

Dividend yield: 0.8%

Analysts' average recommendation: 1.25

Analysts expect SkyWest's (SKYW, $60.67) stock to maintain its high-flying ways in 2019 despite a soft start to May. Shares in the nation's largest regional airline were still up about 36% for the year-to-date ended May 10.

Analysts like SkyWest in part because of the way in which it contracts to carry passengers for larger industry players such as United Continental (UAL), American Airlines (AAL) and Delta Air Lines (DAL).

"SkyWest has a diverse base of contracts that provide relatively strong visibility into future revenue and cash flow with no outsized reliance on any one contract," say analysts at Stifel, who rate shares at "Buy." Analysts also applaud SkyWest's efforts to modernize its fleet and cut costs.

Of the eight analysts tracked by S&P Global Market Intelligence that cover the stock, seven rate SKYW at "Strong Buy." The lone dissenter has it at "Hold."

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2. The Medicines Company

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Market value: $2.4 billion

Dividend yield: N/A

Analysts' average recommendation: 1.21

Shares biopharmaceutical firm The Medicines Company (MDCO, $32.44) were up nearly 70% for the year-to-date through May 10. The company is devoted to the development of inclisiran, a drug intended to lower levels of bad cholesterol.

Analysts are unanimously bullish on the biopharma's chances for success, with no "Hold" ratings, making it a rarity among small-cap value stocks. Of the 14 analysts covering MDCO tracked by S&P Global Market Intelligence, 11 rate it at "Strong Buy" and three have it at "Buy." In April, B. Riley FBR analyst Mayank Mamtani said "we continue to like the setup going into Ph. III ORION-9/10/11 program readout in (the third quarter of 2019)," referring to the Phase III testing of inclisiran.

Analysts' average target price of $54.92 gives MDCO implied upside of almost 70% in the next 12 months or so. Analysts expect to company to generate average annual earnings growth of 37% over the next three to five years, according to S&P Global Market Intelligence.

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1. Conn's

Courtesy Matthew Rutledge via Flickr


Market value: $773.8 million

Dividend yield: N/A

Analysts' average recommendation: 1.00

So much for the retail apocalypse.

When it comes to analysts' recommendations, Conn's (CONN, $24.77) gets a perfect score. All six analysts covering the regional furniture, electronics and appliance retail chain rate it at "Strong Buy," according to S&P Global Market Intelligence, making it tops among small-cap value stocks in the S&P SmallCap 600 Value Index.

Analysts expect the company to deliver average annual earnings growth of 23% over the next five years, according to Refinitiv data.

Conn's is benefitting from improvements in its credit business -- it provides financing to customers to fund their purchases -- and its core retail business is projected to get a boost from expansion plans.

"The retail business remains quite profitable and should be able to accelerate revenue growth as the new store opening pace increases in coming years," say Stifel analysts.

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