When compiling my small-cap stock picks, I tried to choose names that seemed to be benefiting from this new, more “risk-on” environment.
Among the encouraging features of the August Consumer Price Index report were the 0.1% month-over-month increase in the headline number and the deceleration of the year-over-year CPI to 8.3% from 8.5% in July, Additionally, the increase in the labor participation rate last month should put downward pressure on wages.
Professor Jeremy Siegel along with a growing list of experts, expects inflation to naturally ease in the longer term which is good news for peeople seeking the best small-cap stock picks.
Finally, the Russell 2000, an index of small-cap stocks, surged from 1,791 on Sept. 6 to 1,906 on Sept. 12. These small-cap stock picks take into account much of the breaking news and assume investors don’t mind some risk.
| MTBC | CareCloud | $4.67 |
| CAAP | Corporación América Airports | $7.07 |
| DHT | DHT | $8.84 |
| VLDR | Velodyne Lidar | $1.22 |
| LOCO | El Pollo Loco | $9.00 |
| EMBK | Embark | $10.71 |
| SDGR | Schrodinger | $28.96 |
Carecloud (MTBC)
CareCloud (NASDAQ:MTBC) markets a variety of software to healthcare companies. Physicians use advanced electronic health records and patient management tools and, according to a recent report there’s been a surge in demand for these products in the last few years.
Of course, telehealth, boosted by the pandemic, has become much more prevalent. In the last few years, I’ve been bearish on Teladoc (NYSE:TDOC) because of the huge competition and low barriers to entry in the space.
However, by selling software for telehealth to many firms, CareCloud is well-positioned to benefit making it one of the small-cap stock picks to benefit from the proliferation of the service.
As of the afternoon of Sept. 13, MTBC had jumped 28% in the last month and 46% in the last three months. The forward price-earnings ratio of MTBC stock is a very attractive 12.5.
Corporación América Airports (CAAP)
The surge in travel around the world should be a positive catalyst for Corporación América Airports (NYSE:CAAP).
The company operates airport concessions in 53 airports in Latin America, Europe, and Eurasia. With many airports filled to the brim with hungry, thirsty and bored travelers looking to eat, drink, and buy various products, the company is one of the small-cap stock picks that will benefit from renewed interest in travel.
In Q2, the company generated revenue of $332.7 million, way p from $81.7 million during the same period of 2021 And the firm generated operating income of $73.4 million in Q2, and OI of $54.2 million in Q1.
CAAP stock has gained 21% this year and 25% in the last month.
DHT Holdings (DHT)
DHT (NYSE:DHT) is benefiting from elevated oil prices in Europe and elsewhere in the wake of the Russian invasion of Ukraine.
Specifically, the macro environment has resulted in elevated production and “healthy [oil] tanker rates,” Omar Nokta, an analyst at Jefferies reported. As a result, he expects the sector’s stocks to climb “in the coming months.”
Nokta has a “buy” rating on DHT stock.
For Q2, DHT reported that its revenue climbed nearly 20% year over year to $54 million, versus analysts’ average estimate of $50.5 million. On the bottom line, its earnings per share came in at 6 cents, versus analysts’ average estimate of a loss per share of 2 cents. It generated a net profit of $10 million.
As of yesterday’s close, DHT stock was up 50% in the last three months and 6.6% in the last month.
Velodyne Lidar (VLDR)
The glory days of Velodyne Lidar (NASDAQ:VLDR) are in the rearview mirror at this point, but I believe that the company’s longer-term future is brighter than many believe.
A maker of lidar for autonomous vehicles and advanced driver assistance systems, VLDR stock was a high-flyer during the pandemic, with its shares peaking around $23 in December 2020.
A combination of tech stocks’ woes and quarrels among the company’s founder and its board, along with sales growth that has been slower than many had projected, have pushed VLDR stock way down. In fact, shares are trading at around $1.20
Encouragingly, its top line jumped to $11.5 million in Q2 from just $6.2 million in Q1, while its billings increased to $12.5 million from $11.5 million quarter-over-quarter. Its gross loss, excluding certain items, improved to $4.2 million in Q2 from $8.8 million in the previous quarter.
VLDR has been hurt by supply constraints, but with those issues starting to ease within the tech sector, investors are likely starting to look past that challenge.
Also worth noting is that Amazon (NASDAQ:AMZN) bought a $200 million stake in VLDR, validating its technology, while VLDR has more than 220 deals in the works according to Seeking Alpha.
The forward price-sales ratio, based on analysts’ average 2023 revenue estimate for the company, is a reasonable 3.9.
El Pollo Loco (LOCO)
A restaurant owner and franchiser that specializes in Mexican-style grilled chicken, El Pollo Loco (NASDAQ:LOCO) has several positive attributes.
Grilled chicken is healthier than fried chicken, which appears to be much more prevalent in the American fast food sector these days. So with many Americans becoming more health-conscious during the pandemic, El Pollo Loco has a good opportunity to gain market share and boost its financial results.
On its Q2 earnings conference call, LOCO CEO Larry Roberts noted that the company had launched a highly successful promotion of its Shredded Beef Birria dish.
The promotion worked exceptionally well partly because the company used a social media marketing approach, Roberts said. After LOCO found a new marketing approach that appears to be more effective than its previous efforts, I’m more bullish on the outlook of LOCO stock.
Encouragingly, between Sept. 6 and Sept. 12, the shares rocketed 13.6% higher. [from 8.29 to 9.42].
Embark (EMBK)
Embark (NASDAQ:EMBK) sells self-driving software for trucks called Embark Driver, charging trucking companies a per-mile subscription fee. Embark Driver uses maps that can be quickly updated, and the software is compatible with any truck.
EMBK is partnering with five of the top 25 truckload carriers in the country on the development of its autonomous software, CEO Alex Rodrigues reported last month. Of course, that indicates that all of these firms are interested in potentially using Embark’s software.
It appears that Embark is working most closely at this point with Knight-Swift (NYSE:KNX), one of the nation’s largest trucking companies with a market capitalization of nearly $8 billion. EMBK expects to deliver its first autonomous-enabled truck to Knight-Swift in December.
Schrodinger (SDGR)
Schrodinger (NASDAQ:SDGR) provides an AI-based system that enables companies to create drugs much more affordably and quickly.
Among Schrodinger’s partners are Sanofi and Bristol-Myers Squibb (NYSE:BMY).
As InvestorPlace’s Tezcan Gecgil reported in June, SDGR “presented new pre-clinical data showing that its Wee1 inhibitor displayed anti-tumor properties,” indicating that the drug could eventually be approved.
Importantly, many anti-cancer drugs, such as Merck’s (NYSE:MRK) Keytruda and Squibb’s Opdivo, generated billions of dollars of revenue annually.
Last quarter, SDGR’s revenue jumped 29% yer over year $38.5 million, and it expects its sales to surge 17%-31% this year.
Schrodinger intends to begin a Phase 1 study of its potential blood cancer treatment, SGR-1505,m in Q4 of this year.
As of June 29, the Bill & Melinda Gates Foundation Trust had an 11% stake in SDGR that was worth nearly $200 million.
On the date of publication, Larry Ramer was long SDGR stock, and his wife was long LOCO stock.