The S&P 500 index (.SPX) hit a new all-time high in April, but not all sectors of the market have been along for the ride.
Bank of America analyst Jill Carey Hall says improving macroeconomic data and profit outlooks in the U.S. over the next three quarters could lead small-cap value stocks to shine.
Small-cap value stocks lagged the overall market in the first quarter, but they have historically outperformed during economic recovery phases of the business cycle.
Here are nine small cap value stocks.
Helen of Troy
Helen of Troy is a worldwide consumer products company with leading brands including Braun, Pur and Vick’s. Analyst Christopher Carey says Helen of Troy has improved its execution and laid the foundation for long-term earnings and revenue growth. The company’s low debt load and cash flow also create financial flexibility for the company to return capital to shareholders or look for potential buyout targets. A trade deal with China could also be a bullish catalyst for the stock in the near term. Bank of America has a “buy” rating and $160 price target for HELE stock.
Hancock Whitney Corp.
Hancock Whitney is a U.S. regional bank that operates in states along the Gulf Coast. On May 1, Hancock announced a $213 million all-stock buyout of MidSouth Bancorp, an acquisition that will add $1.7 billion in assets, $900 million in loans and $1.4 billion in deposits to Hancock Whitney’s holdings. The deal will boost Hancock Whitney’s deposit base by about 6%, and analyst Ebrahim Poonawala says the low-risk deal should be well-received by investors given potential for immediate earnings accretion. Bank of America has a “buy” rating and $46 price target for HWC stock.
Iberiabank is a financial service holding company with 278 office locations, including 180 bank branches in states including Louisiana, Arkansas and Tennessee. Bank of America analyst Ebrahim Poonawala says Iberiabank is positioned to grow both earnings and loans at a stronger pace than its peer group, improving value for investors over the long term. He says Iberiabank is gaining market share in its key regions, improving its returns on tangible equity and reducing the volatility of its earnings. Iberiabank also has a forward earnings multiple of just 10.7. Bank of America has a “buy” rating and $88 price target for IBKC stock.
Houlihan Lokey is an independent investment bank headquartered in Los Angeles. Analyst Michael Needham says Houlihan’s corporate finance segment is a market leader in advising middle market firms. Its financial restructuring segment is also the gold standard among its peer group. Finally, Needham says Houlihan’s impressive growth outlook should generate upside for investors over time. Needham says financing advisory may be the company’s highest-growth business, and the company is also expanding into new geographies as well. Bank of America has a “buy” rating and $53 price target for HLI stock.
Radian Group is a mortgage insurance and risk management company. Analyst Mihir Bhatia says Radian has been aggressively updating its portfolio since the 2008 crisis, and a strong U.S. housing market has helped drive impressive credit performance. While price competition has weighed on margins, Bhatia says there is room for improvement in the company’s services segment. Radian has bought back 5.7 million shares through the first four months of 2019, and a recent $572 million insurance-linked note transaction freed up additional capital. Bank of America has a “buy” rating and $27 price target for RDN stock.
Generac Holdings is North America’s leading producer of residential standby power generators, with an estimated 70% market share. Analyst Ross Gilardi says Generac is off to a hot start to 2019 given a first-quarter earnings beat, slight guidance hike and 18% revenue growth. Gilardi says the residential generator market is a long-term secular growth opportunity. After devoting several years to expanding outside of the residential business, Gilardi says Generac has shifted focus to organic growth and balance sheet deleveraging. Bank of America has a “buy” rating and $64 price target for GNRC stock.
Cousins Properties is an office real estate investment trust with properties in markets such as Atlanta, Charlotte, North Carolina and Austin, Texas. Analyst James Feldman says Cousins has one of the strongest balance sheets among office REITs. Cousins reported a strong first quarter, including an earnings beat and a guidance hike for same-store net operating income. However, Feldman says the bull case for Cousins in the near-term rests on its merger with Tier REIT (TIER), which is expected to close in the second half of 2019. Bank of America has a “buy” rating and $10.75 price target for CUZ stock.
Pebblebrook Hotel Trust
Pebblebrook is a hotel REIT that owns 61 hotels primarily in the coastal regions of the U.S. Pebblebrook’s San Francisco properties have been red hot, with revenue per available room in San Francisco up 24% in the first quarter. Analyst Shaun Kelley says Pebblebrook is executing its disposition and reinvestment strategy flawlessly, including the recent sale of the Onyx Hotel for $58.3 million. In addition to being an excellent value play, Pebblebrook pays a generous 4.6% dividend yield. Bank of America has a “buy” rating and $34 price target for PEB stock.
Rexford Industrial Realty
Rexford is an industrial warehouse REIT that owns properties primarily in Southern California. In the first quarter, Rexford reported core funds from operation per share of 30 cents, beating consensus expectations of 28 cents. Analyst Jamie Feldman says Rexford has numerous opportunities for both internal and external growth given the hot southern California infill market. In the first quarter, Rexford completed five acquisitions totaling more than $146 million. In the month of April alone, management completed another seven acquisitions totalling $251 million. Bank of America has a “buy” rating and $40 price target for REXR stock.