In this article, we will take a detailed look at the 10 Small-Cap Stocks Jim Cramer is Talking About.
Earlier this month Jim Cramer talked about the rally in the small-cap-heavy Russell 2000 Index, saying these kinds of rebounds show you have to “stay invested” in the market to make “big money.”
“When I say stay in I mean you have to be as invested as you possibly can be so you don’t miss monster moves.”
Cramer said the Russel 2000 index rally was led by several “oddball” stocks that many people aren’t aware of.
“The biggest winners in the Russel today are all the companies I either don’t know or I barely heard of. You know I know thousands of stocks!”
Cramer highlighted that almost half of the stocks rising in the Russel 2000 index were biotech or healthcare companies that are losing money. Cramer believes these companies might be worth something only “years from now” and called them “risky” stocks.
Jim Cramer talked about what he called “small- and medium-sized businesses” which he believes can benefit from two possible developments in the near term: a Trump win in the election and rate cuts. A Donald Trump presidency, according to Cramer, could provide a level-playing field for these small companies which often get left behind by major companies amid tough regulation. Since Trump is expected to decrease regulations if he comes to power, these small companies could thrive in this new environment. Cramer said that money is coming from the “sidelines” as investors begin to invest in stocks instead of hoarding cash to earn interest income.
Cramer has been talking about several small-cap stocks in his programs lately. In a recent program, he mentioned several small-cap stocks that were moving recently and briefly discussed their businesses. We picked these stocks and analyzed their fundamentals and growth potential. We also mentioned hedge fund sentiment around these stocks. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10. SPX Technologies Inc (NYSE:SPXC)
Number of Hedge Fund Investors: 19
SPX Technologies Inc (NYSE:SPXC) is a heating, ventilation, and air conditioning, detection and measurement, power solutions company. Cramer mentioned that the stock trades 28 times earnings and said “no thanks.” Cramer said he prefers Carrier Global instead.
Oppenheimer also downgraded the stock to Perform from Outperform citing valuation concerns. The firm believes SPX is now fairly valued.
Over the past one year, the stock has gained about 80% in value. Oppenheimer said:
“The stock’s significant trailing outperformance has driven valuation to levels that seem to fairly reflect SPX’s (SPXC) compounder trajectory. Given the recent step change in buyside expectations and corresponding impact on margin of safety, we move to the sidelines (for now) on one of our favorite long-term stories.”
What’s propelling this stock growth? HVAC is the answer. During the first quarter, SPX Technologies Inc (NYSE:SPXC) HVAC segment revenue grew 20% and backlog growth in the segment also came in at 20%. HVAC business accounts for about 69% of group revenue and has the potential for improved margins. Last year’s EBIT margin was 21%, and operational initiatives could boost this to 25% in the coming years. A key strength of the HVAC segment is the high-margin replacement revenue from spare part sales, which make up about two-thirds of segment sales. SPX Technologies Inc (NYSE:SPXC) expertise in cooling towers is crucial for data centers, where demand is expected to surge by 160% by the end of the decade due to AI. Last year, 61% of the $1.1 billion HVAC sales were from cooling products. As data centers will need a lot of cooling, the company is positioned well to benefit from this demand. However, the stock’s valuation is now too high and it’d make sense to let the stock cool down itself before piling into it.
9. Ensign Group Inc (NASDAQ:ENSG)
Number of Hedge Fund Investors: 20
Nursing and rehab services company Ensign Group Inc (NASDAQ:ENSG) is one of the top small-cap stocks Jim Cramer is talking about. Cramer said in a latest program that the stock sells for 25 times earnings.
“This one works, too.”
Ensign Group Inc (NASDAQ:ENSG) expects a 13% year-over-year revenue growth in 2024. The company also owns Standard Bearer Healthcare REIT, Inc., which is a captive real estate investment trust that invests in healthcare properties. The REIT has 115 owned properties which are subject to triple net long-term leases.
Ensign Group Inc (NASDAQ:ENSG) is expected to continue growing amid an aging population and demand for skilled nursing and rehab services. During Q2 earnings call the company talked about its expansion and growth in skilled nursing:
“As our operators continue to build on a solid foundation of strong clinical results, cultural excellence and sustainable real estate expenses, we are confident that our partners will continue to capitalize on the occupancy and skilled mix growth inherent in our portfolio, which will allow us to consistently achieve the results that we have delivered over time. Also, as you saw in our press release yesterday, we have been busy acquiring new operations, and our transitioning and recently acquired buckets now represent 27% of our total operational beds. Again, we want to emphasize that this represents massive organic growth potential within those existing growth buckets. To give some perspective, our occupancy and skilled mix days for the skilled nursing operations in the transitioning bucket were 75.7% and 21.7% respectively, while our same-store occupancy and skilled mix days were 80.8% and 31.5% respectively.”
8. Installed Building Products Inc (NYSE:IBP)
Number of Hedge Fund Investors: 22
Installed Building Products Inc (NYSE:IBP) provides waterproofing, fire-stopping, fireproofing, garage doors, rain gutters, window blinds, shower doors, closet shelving solutions. Cramer mentioned that the stock trades about 21 times earnings.
“I still like it.”
Installed Building Products Inc (NYSE:IBP) which also pays a dividend, has grown its revenue at 17% per year on average against a 38% compounding growth in earnings from 2019 through 2023. Some secular growth catalysts for the stock include possible rate cuts which could spark a new activity cycle in the construction industry. The U.S. residential construction market is expected to grow at a 3% annual rate through 2029. The company saw a whopping 27% year-on-year increase in single-family starts in Q1 2024, driven by low existing home inventory.
Installed Building Products Inc (NYSE:IBP) has been able to post strong operating margins when compared with peers. It has a gross profit margin of 26.3% and on average it generated $1.73 in revenue per $1 of capital. This efficiency has become the company’s advantage.
Barclays recently published a list of small-cap stocks with quality and growth characteristics amid the latest market rotation. Installed Building Products Inc (NYSE:IBP) is part of the list.
Baron Real Estate Fund stated the following regarding Installed Building Products, Inc. (NYSE:IBP) in its first quarter 2024 investor letter:
“For example, the shares of Installed Building Products, Inc. (NYSE:IBP), one of the nation’s largest installers of insulation and complementary building products, appreciated by 45.0% during the recent quarter, in part owing to signs that industry conditions in the new single-family residential construction market continue to improve (new single-family residential construction drives approximately 60% of IBP’s revenues).
In addition, IBP is executing superbly across various strategic initiatives to drive growth from other construction end-markets (new multi-family construction, light and heavy commercial construction, remodel construction), improve pricing and profitability, and identify attractive tuck-in acquisition targets…
7. Insight Enterprises, Inc. (NASDAQ:NSIT)
Number of Hedge Fund Investors: 26
Jim Cramer in a latest program explained Insight Enterprises, Inc. (NASDAQ:NSIT) as a company working with information technology and assembly devices including AI devices. Cramer said that the stock trades 20 times earnings and said because it has already jumped significantly, “I can’t play it.”
Insight Enterprises, Inc. (NASDAQ:NSIT) offers hardware, software, and service solutions, including cloud services. Last year, hardware product sales accounted for about 67% of its revenue and the rest came from software.
Value-added resellers (VARs) like Insight Enterprises, Inc. (NASDAQ:NSIT) are expected to see demand as companies scramble to implement AI solutions in their back offices, call centers, services and customer support centers. VARs specialize in procurement, integration, and implementation and have strong OEM connections and expertise to identify the best products for organizational needs.
Another growth catalyst for the company is the upcoming AI PC upgrade cycle. Canalys estimates that worldwide AI PCs will account for around 70% of total PC shipments. Since Insight Enterprises, Inc. (NASDAQ:NSIT) is positioned well in the market due to its hardware business, the company can benefit from this cycle.
6. Mueller Industries Inc (NYSE:MLI)
Number of Hedge Fund Investors: 27
Mueller Industries Inc (NYSE:MLI) is an industry leader in copper and brass extrusion and forming. It makes HVACR products, including insulated duct systems and refrigeration valves. Mueller Industries Inc (NYSE:MLI) makes pipes, tubes and valves for residential and commercial construction markets. About 50% of the company’s sales come from construction plumbing, a third from construction HVAC, with refrigeration, manufacturing, and transportation making up the rest. Jim Cramer in a latest program called Mueller Industries Inc (NYSE:MLI) “cheap” and said that the stock trades 14 times earnings.
“I like it a lot,” Cramer said.
Analysts believe an expected rebound in construction activity and interest rate cuts are upcoming growth catalysts for Mueller Industries Inc (NYSE:MLI) in the short term.
Another solid reason to own Mueller Industries Inc (NYSE:MLI) is its dividend. The company announced a 33% dividend increase earlier this year. It’s been paying regular dividends over the past 20 years.
5. SPS Commerce Inc (NASDAQ:SPSC)
Number of Hedge Fund Investors: 28
Supply chain management software company SPS Commerce Inc (NASDAQ:SPSC) is one of the notable small-cap stocks Jim Cramer talked about recently.
Amid rising e-commerce sales all over the world, SPS Commerce Inc (NASDAQ:SPSC) has growth prospects because its solutions connect retailers, suppliers and carriers. SPS Commerce Inc (NASDAQ:SPSC) has 120,000 customers and 12,000 drop-ship connections. The company posted about 18% revenue growth in the second quarter year over year. For the full year, it expects revenue growth of 16% to 17% over last year. SPS Commerce Inc (NASDAQ:SPSC) is also expanding via acquisitions. It recently announced to buy Traverse Systems, an SaaS platform provider offering retailers and suppliers a unified view of their supply chain performance, for about $29.3 million. Traverse Systems is expected to contribute $5 million in revenue by 2025.