- Mega-cap stocks have led market rally, while small-caps have lagged behind
- Some see this as a risk, I see it as a buying opportunity
- Here are 2 undervalued small-cap stocks found by our InvestingPro stock scanner
- Return on Asset > 12%
- Return on Equity > 15%
- Return on Invested Capital > 15%
- Current Ratio > 1
- P/E less than 15
- Market Cap less than 2 Billion
- InvestingPro Overall Score > 4
- Debt/Equity ratio less than 0.6
- MasterCraft Boat Holdings (NASDAQ:MCFT) presents a discount of 49.6%.
- Warrior Met Coal (NYSE:HCC) shows a discount of 35.8%.
In the uptrend from the mid-October low, we have seen a market recovery driven mainly by the mega-cap stocks, including Apple (NASDAQ:AAPL), NVIDIA Corporation (NASDAQ:NVDA), Meta Platforms (NASDAQ:META), Alphabet (NASDAQ:GOOGL).
Many see this as a risk, but one must also see the other side of the story, which is the possibility that small-caps could rally too. I recently bought an ETF on small caps because of the discounted valuations.
So, let's see if we can identify small-cap plays using the InvestingPro stock scanner.
The filters used are as follows:
And here are the results:
Source: InvestingPro
Only four companies meet these stringent requirements. However, it is crucial not to stop here. Instead, we should delve into the details of each stock.
We should consider factors such as profit and revenue growth trends, free cash flow returns, potential upside relative to fair value, competitive advantage within the industry, quality of management, and more.
And excessively positive values in these metrics should raise caution, as they prompt the question of whether such numbers can be sustained in the future.
Out of the 4 selected companies, only 2 show a discount to InvestingPro Fair Value exceeding 30%:
A deeper analysis is always recommended after shortlisting stocks. You can subscribe and try out the InvestingPro premium tool, which provides comprehensive tools for conducting in-depth analyses.
The InvestingPro tools assist savvy investors in analyzing stocks. By combining Wall Street analyst insights with comprehensive valuation models, investors can make informed decisions while maximizing their returns.
You can conveniently access a single-page view of complete and comprehensive information about different companies all in one place, saving you time and effort.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counseling, or investment recommendation. As such, it is not intended to incentivize the purchase of assets in any way. As a reminder, any type of asset is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remain with the investor. The author does not own the stocks mentioned in the analysis.