They expect four of them to double in price
BloombergCoal is loaded on a vessel at a Consol Energy-owned terminal. Analysts expect Consol’s share price to rise 63% over the next 12 months.DMAMBMCMDMEMGPREVIEWZBZBRZDZDRZFZGZQZRZSZTZU
(This is the third in a three-part series on analysts’ favorite stocks for 2018. The series began with large-cap stocks and continued with mid-cap stocks.)
A year ago we listed analysts’ favorite small-cap stocks for 2017. The results are mixed. But for next year, Wall Street is even more enthusiastic about smaller companies than they were during the initial euphoria following President Trump’s election.
When we pulled the list of analysts’ favorite small-cap stocks for 2017, we started with the S&P 600 Small-Cap Index (:SML) and identified 24 companies with majority “buy” ratings among at least three analysts. They also had consensus price targets that showed the stocks were expected to rise at least 31% over the next 12 months, with gains of 50% or more expected for seven of them.
A new list based on the same criteria shows that analysts now expect gains of at least 50% for 18 stocks over the next 12 months.
Here’s how the S&P 600 Small-Cap Index has performed against the large-cap S&P 500 (^GSPC) and the S&P 400 Mid-Cap Index (ARCX:MID) over the past year:
Perhaps it shouldn’t be a surprise that large-cap stocks have fared best over the past year, considering how dominant the highest-profile tech giants, including Apple Inc. (AAPL), Amazon.com Inc. (AMZN) and Facebook Inc. (FB) have been.
But both houses of Congress have passed major tax reform bills that would lower the federal income tax rate for corporations to 20% from 35%. This would, of course, benefit most U.S. companies, but small-cap companies may have the most to gain, as their revenues tend to be concentrated domestically. That and their simpler structures mean they are likely to have fewer tax loopholes to exploit under current law than many large-cap companies have.
Mixed results for last year’s list
Before showing you how last year’s small-cap list fared, here are updates on two of the names that are no longer around:
• Cynosure Inc. had a consensus price target of $61.63, implying 38% upside over its share price of $44.55 on Dec. 7, 2016. The company was acquired by Hologic Inc. (HOLX) for $66 a share in cash on March 22.
• First NBC Bank Holding Co. had a price target of $12.90, implying 60% upside over its Dec. 7, 2016, share price of $8.05. First NBC was the worst-performing stock on the list that year, but analysts expected it to recover, despite serious problems with its main subsidiary, First NBC Bank of New Orleans. The bank was shuttered by Louisiana regulators in April. The holding company’s stock was delisted in May.
Here’s how the remaining 22 stocks from last year’s list have performed over the past year:
CompanyTickerClosing price - Dec. 7, 2016Consensus price target - Dec. 7, 2016Implied 12-month upside potential as of Dec. 7, 2016Closing price - Dec. 4, 2017Price change - Dec. 7, 2016, through Dec. 4, 2017Spectrum Pharmaceuticals Inc.(SPPI)$4.14$10.00142%$18.63350%Acorda Therapeutics Inc.(ACOR)$20.50$35.2572%$20.801%Nektar Therapeutics (NKTR)$12.33$20.3365%$50.73311%Flotek Industries Inc.(FTK)$11.10$17.3356%$4.65-58%R.R. Donnelley & Sons Co.(RRD)$16.68$26.0056%$8.92-47%Medicines Co.(MDCO)$33.37$51.4554%$28.34-15%Vasco Data Security International Inc.(VDSI)$14.05$21.0049%$12.75-9%Emergent BioSolutions Inc.(EBS)$26.52$39.6049%$43.8665%Omnicell Inc.(OMCL) $32.40$46.0042%$52.1561%LSB Industries Inc.(LXU)$8.47$11.5036%$8.844%Stamps.com Inc.(STMP)$110.20$149.3336%$169.7554%TiVo Corp.(TIVO)$21.00$28.4035%$16.50-21%Ligand Pharmaceuticals Inc.(LGND)$102.59$138.1735%$129.3026%Almost Family Inc.(AFAM)$39.85$53.0033%$58.7047%Tetra Technologies Inc.(TTI)$5.65$7.5133%$4.11-27%Comtech Telecommunications Corp.(CMTL)$12.75$16.7932%$20.6962%Contango Oil & Gas Co.(MCF)$9.34$12.3032%$3.06-67%Motorcar Parts of America Inc.(MPAA)$27.62$36.2531%$24.83-10%Cray Inc.(CRAY)$19.70$25.8031%$21.8511%Nautilus Inc.(NLS)$17.95$23.5031%$13.20-26%Lannett Co.(LCI)$23.25$30.4031%$28.5523%Natus Medical Inc.(BABY)$38.05$49.6731%$38.752%Source: FactSet
So of last year’s list of 24 small-cap stocks most favored by analysts, eight performed better than expected. That 33% success rate is better than what we saw for the large-cap list, but a bit worse than the results for last-year’s mid-cap list. And of course last year’s small-cap list featured a bank that failed. The small-cap list also featured two stocks that more than tripled — Spectrum Pharmaceuticals Inc. (SPPI) and Nektar Therapeutics (NKTR).
All of this underlines two very important themes: It’s very difficult even for professionals to select individual stocks, and even though the brokerage industry rates stocks based on 12-month price targets, one year is a very short period for what should be a much longer-term investment.
The new small-cap list
Here are the 18 S&P Small-Cap 600 stocks with majority “buy” ratings, among at least three analysts, that are expected rise at least 50% over the next 12 months based on consensus price targets supplied by FactSet:
CompanyTickerIndustryClosing price - Dec. 4Consensus price targetImplied 12-month upside potentialProgenics Pharmaceuticals Inc.(PGNX)Biotechnology$5.66$13.40137%R.R. Donnelley & Sons Co.(RRD)Commercial Printing/ Forms$8.92$21.00135%Xperi Corp.(XPER)Electronic Production Equipment$18.85$42.50125%Contango Oil & Gas Co.(MCF)Oil & GS Production$3.06$6.21103%Medicines Co.(MDCO)Pharmaceuticals$28.34$53.6389%Cytokinetics Inc.(CYTK)Biotechnology$8.15$14.7581%MiMedx Group Inc.(MDXG)Biotechnology$11.60$19.0064%TiVo Corp.(TIVO)Software$16.50$27.0064%Consol Energy Inc.(CEIX)Coal$19.61$32.0063%LivePerson Inc.(LPSN)Internet Software/ Services$11.05$17.9262%BioTelemetry Inc.(BEAT)Medical Specialties$26.85$43.5062%Superior Industries International Inc.(SUP)Auto Parts: OEM$16.50$26.0058%Green Plains Inc.(GPRE)Chemicals$16.60$26.1157%Spectrum Pharmaceuticals Inc.(SPPI)Biotechnology$18.63$28.6754%Lumentum Holdings Inc.(LITE)Biotechnology$47.15$71.5352%Brooks Automation Inc.(BRKS)Electronic Production Equipment$22.54$34.0051%Blucora Inc.(BCOR)Internet Software/ Services$19.95$30.0050%Veeco Instruments Inc.(VECO)Electronic Production Equipment$15.35$23.0050%Source: FactSet
You can click on the tickers for more information about each company, including charts, price ratios, financials and filings.
Five of the companies were on last year’s list — Contango Oil & Gas Co. (MCF), Medicines Co. (MDCO), R.R Donnelley & Sons Co. (RRD), Spectrum Pharmaceuticals Inc. (SPPI) and TiVo Corp. (TIVO). This again underscores how long it can take for some investment decisions to play out, and how volatile stocks can be over any 12-month period.
Here are 2017 total returns for the group and summaries of analysts’ ratings:
CompanyTickerTotal return - 2017 through Dec. 4Share ‘buy’ ratingsShare neutral ratingsShare ‘sell’ ratingsProgenics Pharmaceuticals Inc.(PGNX)-34%100%0%0%R.R. Donnelley & Sons Co.(RRD)-42%67%33%0%Xperi Corp.(XPER)-56%75%25%0%Contango Oil & Gas Co.(MCF)-67%62%38%0%Medicines Co.(MDCO)-16%100%0%0%Cytokinetics Inc.(CYTK)-33%87%13%0%MiMedx Group Inc.(MDXG)31%100%0%0%TiVo Corp.(TIVO)-19%100%0%0%Consol Energy Inc.(CEIX)N/A100%0%0%LivePerson Inc.(LPSN)46%86%14%0%BioTelemetry Inc.(BEAT)20%100%0%0%Superior Industries International Inc.(SUP)-36%60%40%0%Green Plains Inc.(GPRE)-39%100%0%0%Spectrum Pharmaceuticals Inc.(SPPI)321%100%0%0%Lumentum Holdings Inc.(LITE)22%63%31%0%Brooks Automation Inc.(BRKS)34%57%43%0%Blucora Inc.(BCOR)35%100%0%0%Veeco Instruments Inc.(VECO)-47%56%44%0%Source: FactSet
Here’s how the companies’ sales per share have changed over the past 12 months:
CompanyTickerSales per share - past 12 reported monthsSales per share - year-earlier 12-month periodChange in sales per shareProgenics Pharmaceuticals Inc.(PGNX)$0.18$1.00-82%R.R. Donnelley & Sons Co.(RRD)$98.88$158.20-37%Xperi Corp.(XPER)$6.45$5.0129%Contango Oil & Gas Co.(MCF)$3.25$3.92-17%Medicines Co.(MDCO)$1.19$2.99-60%Cytokinetics Inc.(CYTK)$1.04$1.97-48%MiMedx Group Inc.(MDXG)$2.65$2.0331%TiVo Corp.(TIVO)$7.22$6.4911%Consol Energy Inc.(CEIX)N/AN/AN/ALivePerson Inc.(LPSN)$3.88$4.02-3%BioTelemetry Inc.(BEAT)$7.90$6.7617%Superior Industries International Inc.(SUP)$37.30$28.6730%Green Plains Inc.(GPRE)$86.38$83.094%Spectrum Pharmaceuticals Inc.(SPPI)$1.69$2.35-28%Lumentum Holdings Inc.(LITE)$15.91$15.801%Brooks Automation Inc.(BRKS)$9.86$8.1321%Blucora Inc.(BCOR)$11.04$8.8924%Veeco Instruments Inc.(VECO)$10.24$8.7917%Source: FactSet
There’s tremendous volatility in sales per share for this group, giving further evidence of how important it is for you to do your own research if you are considering any individual stocks. Do you have a clear understanding of a company’s strategy and an opinion about its long-term viability? If not, you haven’t done your homework. If you are a believer, then you need to look in the mirror and figure out whether you really can stomach a long-term commitment.
Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.
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