After more than a decade of leading the market higher, mega-cap tech stocks like Apple (AAPL), Amazon.com (AMZN) and others are finding it increasingly difficult to maintain their impressive growth numbers. Many of these stocks have market caps at or approaching $1 trillion dollars, and it’s understandable for investors to question just how much bigger they can get. At the same time the big tech stocks dominate headlines, there are plenty of small-cap stocks that are flying under the radar. Here’s a look at nine top-rated S&P 600 small-cap stocks to buy, according to CFRA.
Acadia Realty Trust
Acadia Realty Trust (AKR) is a real estate investment trust, or REIT, focused on retail properties, such as community shopping centers. Nearly 90% of Acadia’s properties are in major metropolitan areas like New York City and Chicago. Analyst Chris Kuiper says Acadia management’s strategy of focusing on urban retail properties with high barriers to entry is a winning approach. While Acadia is exposed to ongoing retail headwinds, Kuiper says its balance sheet is solid and it has sufficient financial flexibility. The REIT also pays a 4.6% dividend. CFRA has a “buy” rating and $31 price target for AKR stock.
AMN Healthcare Services
AMN Healthcare Services (AMN) provides health care worker and staffing services. Analyst Colin Scarola says the aging baby boomer generation should help drive health care workforce growth over the long term, and AMN’s stock is currently attractively valued relative to its historic earnings multiple. Physician staffing revenue improved in the third quarter and Scarola says the segment will return to growth in 2020. Scarola projects 8% revenue growth this year and says AMN will have additional buyout opportunities following its Advanced Medical acquisition in May 2019. CFRA has a “buy” rating and $64 price target for AMN stock.
ArcBest (ARCB) is a North American transportation holding company that provides national less-than-truckload freight services. Analyst Jim Corridore says rising labor costs due to an industry-wide driver shortage has been a headwind for ArcBest, but the company has done a good job focusing on the highest-yielding freight. Corridore says investors can expect ArcBest to return to low single-digit revenue growth in 2020. ArcBest shares currently trade at about 10.5 times forward earnings, which Corridore says is low relative to peers and could help support the stock. CFRA has a “buy” rating and $35 price target for ARCB stock.
Diodes (DIOD) manufactures a range of semiconductor components. Analyst Angelo Zino says Diodes is exposed to a number of attractive secular growth markets, including connected cars, high-end servers, 5G networks and the internet of things. Zino is most optimistic about the potential in the auto industry. Diodes currently has about $85 in content per car, which represents about 10% of the company’s total revenue. Zino says Diode could significantly grow that per-car content in the future. He is also bullish on Diode’s pending buyout of Lite-On. CFRA has a “buy” rating and $53 price target for DIOD stock.
Chart Industries (GTLS) is an industrial gas, energy and biomedical equipment manufacturer. Analyst Elizabeth Vermillion says her long-term bull thesis for Chart Industries is centered on growth in liquid natural gas projects. CFRA is calling for 17% revenue growth in 2020, and Vermillon says earnings before interest, taxes, depreciation and amortization margins will expand from 15.3% to 20.5% this year. Orders placed in the second half of 2019 and changes to emission standards in Europe could also be growth drivers in 2020. CFRA has a “buy” rating and $70 price target for GTLS stock.
Helix Energy Solutions Group
Helix Energy Services (HLX) is a niche oil and gas services company primarily focused on offshore operations. Analyst Paige Marcus says a neutral outlook for oil prices coupled with a rise in offshore rig counts in 2019 is a winning formula for Helix investors. In addition, any escalation in Middle East geopolitical tensions that triggers higher oil prices could also create demand for Helix’s services. Marcus is projecting 9% revenue growth in 2020 and says offshore rig counts should continue to steadily rise. CFRA has a “buy” rating and $11 price target for HLX stock.
Kite Realty Group Trust
Kite Realty Group (KRG) is a REIT that owns and manages neighborhood, community and lifestyle centers. Its properties are focused primarily in Florida, Indiana and Texas. Like many other REITs, Kite’s 6.8% yield is appealing to income investors. Kuiper says Kite has completed its asset disposition process after selling at least eight noncore properties in the second half of 2019. Now that the program is complete, he says shares could get a boost from the REIT’s improved operating metrics and its valuation discount relative to peers. CFRA has a “buy” rating and $21 price target for KRG stock.
Meritage Homes Corp.
Meritage Homes (MTH) is one of the 10 biggest U.S. homebuilders. Analyst Kenneth Leon upgraded Meritage in early January and says the 20% drop in the stock in the closing months of 2019 has created a long-term buying opportunity. Leon says Meritage is one of the best-positioned builders to address soaring demand for entry-level U.S. housing. Leon says millennials are finally starting to shift from renting to home ownership, a trend that could drive a major surge in buying. CFRA has a “strong buy” rating and $75 price target for MTH stock.
Watts Water Technologies
Watts Water Technologies (WTS) manufactures water conservation, safety and flow control products. Vermillion says Watts' best selling point is the company’s emphasis on smart and connected water system technology, which should be in high demand as the world upgrades its water infrastructure in coming years. CFRA is projecting at least 2.5% revenue growth in 2020. Vermillion says Watts generates impressive cash flow, which comes back to shareholders via dividends and buybacks. In addition, improving product mix, price increases and cost cutting should help boost margins, Vermillion says. CFRA has a “buy” rating and $104 price target for WTS stock.
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