Should You Buy Small Cap Stocks Right Now?
(1:15) - Is 2024 The Year For Small Cap Stocks?
(11:30) - Are Biotech Stocks A Good Way To Gain Exposure To Small Caps?
(22:15) - How To Find Strong Small Cap Stocks For Your Portfolio?
(37:30) - Episode Roundup: IWM, IBB, XBI, BALY, MODG, FNKO, IIPR, DFIN
Podcast@Zacks.com
Welcome to Episode #386 of the Zacks Market Edge Podcast.
Every week, host and Zacks stock strategist, Tracey Ryniec, will be joined by guests to discuss the hottest investing topics in stocks, bonds, and ETFs and how it impacts your life.
This week, Tracey is joined by Andrew Rocco, Zacks Stock Strategist and the Editor of the Technology Innovators portfolio. Andrew has been tweeting out that he believes small caps are due for a rebound on top of the 2-month rally to end 2023. Will he be right?
The Russell 2000 has been trading in a narrow range for over a year. Andrew believes it’s going to break out eventually. Investors can play it by buying the Russell 2000 Index ETF, the IWM.
How to Find Small Cap Stocks
But what if you want to own individual small caps?
Investing in small cap stocks is difficult. There is less information about the companies. There are fewer, or sometimes no, analysts covering the company. The companies aren’t talked about on CNBC and the CEOs aren’t giving interviews.
One tool investors can use is the power of the Zacks Rank. The Strong Buy and Buy recommendations provide a list of stocks with rising earnings estimates which is a good place to start the screen.
Buy What You Know?
But another way to find small caps is to stumble across them. There is the “buy what you know” method. Maybe you eat at a restaurant chain that you love, and it’s a publicly traded small cap company?
Tracey has also been exposed to many top small caps while running the Insider Trader portfolio because small cap insiders are usually active buyers.
Here are five small cap stocks stocks Tracey has stumbled across over the years when managing her two Zacks portfolios, the Insider Trader and the Value Investor.
5 Small Cap Stocks
1. Topgolf Callaway Brands Corp. (MODG)
Topgolf Callaway Brands is a small cap apparel, entertainment and hospitality company with a market cap of $2.59 billion. In 2023, Tracey bought shares for her Insider Trader portfolio.
Shares of Topgolf Callaway Brands have fallen 40.3% over the last year. Earnings aren’t looking that great with a decline of 11.7% expected in 2024.
Topgolf Callaway Brands is a Zacks Rank #4 (Sell) stock.
Should investors look to retail and restaurants like Topgolf Callaway Brands to find small cap stocks?
2. Bally’s Corp. (BALY)
Bally’s is a gaming and hospitality company with a market cap of $471 million. Tracey owned it in her Insider Trader portfolio in 2023 when the insiders jumped in to buy as shares traded near new lows.
Shares of Bally’s rallied to end 2023, which is when Tracey sold, but over the last year are still down 48.9%. Earnings are expected to fall 147% in 2024 to a loss of $0.50.
Bally’s is a Zacks Rank #3 (Hold).
Should a gaming company like Bally’s be on your small cap stock watch list?
3. Funko, Inc. (FNKO)
Funko is a pop culture lifestyle brand with a market cap of $367 million. Tracey used to own it in her personal portfolio.
Shares of Funko have fallen 42.3% over the last year. Even with the small cap rally to end the year, Funko shares struggled over the last 3 months, losing 10.6%. Earnings are expected to rebound in 2024, however, gaining 84.6% to a loss of $0.14 from a loss of $0.92 in 2023.
Funko is a Zacks #4 (Sell).
Will Funko be a buy on the turnaround in earnings?
4. Innovative Industrial Properties, Inc. (IIPR)
Innovative Industrial Properties is a REIT which owns properties in the cannabis industry. It has a market cap of $2.57 billion which puts it at the higher end of the small caps.
Shares of Innovative Industrial Properties are up 18.3% in the last 3 months but remain down 16% over the last year. As a REIT, Innovative Industrial Properties pays a dividend, currently yielding 7.7%.
Tracey has owned Innovative Industrial Properties in the Value Investor portfolio and currently owns it in her own personal portfolio. It’s a Zacks Rank #3 (Hold).
Should investors be looking at small cap REITs like Innovative Industrial Properties in 2024?
5. Donnelley Financial Solutions, Inc. (DFIN)
Donnelley Financial Solutions operates a risk and compliance solutions company, including software. It has a market cap of $1.8 billion. Tracey has previously owned Donnelley Financial in the Value Investor portfolio.
Shares of Donnelley rallied 11.3% in the last 3 months and are also up over the last year, gaining 44.1% during that time. Donnelley Financial is still cheap, with a forward P/E of just 16.4.
It’s a Zacks Rank #3 (Hold).
Should a small cap tech company like Donnelley Financial Solutions be on your watch list?
What Else do you Need to Know About Small Cap Stocks?
Tune into this week’s podcast to find out.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Innovative Industrial Properties, Inc. (IIPR) : Free Stock Analysis Report
Funko, Inc. (FNKO) : Free Stock Analysis Report
Donnelley Financial Solutions (DFIN) : Free Stock Analysis Report
Bally's Corporation (BALY) : Free Stock Analysis Report
Topgolf Callaway Brands Corp. (MODG) : Free Stock Analysis Report
