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Screening for Hidden Gem Small Cap Stocks

Tracey Ryniec
  • (0:45) - Small Cap Value Stock Screener
  • (8:35) - Tracey’s Top Stock Picks
  • (21:50) - Episode Roundup: EXTR, GFF, NX
  •             Podcast@Zacks.com

Welcome to Episode #159 of the Value Investor Podcast

Every week, Tracey Ryniec, the editor of Zacks Value Investor portfolio, shares some of her top value investing tips and stock picks.

Once again, in 2019, small caps are trailing the returns of large caps.

The Russell 2000 is up 14.2% year-to-date compared to 18.5% for the S&P 500 and 20.6% for the NASDAQ.

Value stocks also continue to underperform growth.

But that also means that this is a buying opportunity in small cap value stocks. They have lagged and Wall Street is ignoring them.

Screening for Small Cap Value Stocks

How do you find the best small cap value stocks?

You start with the Zacks Rank of #1 (Strong Buy) and #2 (Buy) so that you, hopefully, get rising earnings estimates.

Then you add double digit earnings growth over the last year to get growth.

For value, you can use several metrics, but the P/S ratio under 1.0 will give you companies trading at a discount.

Running this screen, it returned 21 stocks.

Not too shabby for what is otherwise a pretty narrow screen.

3 Hidden Gem Small Cap Stocks with the Magic Combination

1.       Extreme Networks, Inc. EXTR provides software-driven, end to end networking solutions for enterprise customers worldwide. It has doubled in size over the last 5 years, and closed on the Aerohive Networks acquisition in August. It is trading with a P/S ratio of just 0.9 and is expected to have big earnings growth this year.

2.       Griffon Corporation GFF has two segments: Home Building Products and Defense Electronics. In the third quarter, both segments saw strong growth and total revenue was up 11%. It’s cheap, with a P/S ratio of only 0.4. It also is shareholder friendly, which is rare for a small company, with a share buyback program and dividend.

3.       Quanex Building Products Corporation NX manufactures building products including fenestration products and kitchen and baths components. Earnings are expected to be up 46% in fiscal 2019 and another 12.6% in fiscal 2020. It also pays a dividend, currently yielding 1.8%. NX has a P/S ratio of just 0.7.

What else should you know about small cap stocks that are both value and growth stocks?

Find out on this week’s podcast.

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Extreme Networks, Inc. (EXTR) : Free Stock Analysis Report
 
Quanex Building Products Corporation (NX) : Free Stock Analysis Report
 
Griffon Corporation (GFF) : Free Stock Analysis Report
 
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