In this article, we discuss 10 undervalued small cap stocks to buy now. If you want to skip our comprehensive analysis of these stocks, go directly to 5 Undervalued Small-Cap Stocks to Buy Now.
A small-cap publicly traded company is defined by its market capitalization, which usually lies between $300 million and $2 billion. These companies are usually up-and-coming and although small-cap stocks have historically outperformed their large-cap counterparts, these securities carry more risk and are prone to higher volatility.
Outlook For Small-Cap Stocks
In December last year, Lori Calvasina of RBC Capital Markets said that small-cap stocks underperformed amid the COVID-19 pandemic, but according to surveys, investors are not worried about the omicron variant. The analyst said that the outlook for small-caps is very positive in 2022, once the economy is back on track.
Francis Gannon, the co-chief investment officer of Royce Investment Partners, stated that although small-cap stocks tend to have higher beta, they have proved to be good bets against inflation. In the last three years, small-cap returns have been in double digits, but in 2022, the returns will be somewhat muted. However, investors should focus on earnings, since they are likely to exceed expectations. To counter inflationary pressure, he leans towards small-caps that benefit from the energy crisis, enjoy pricing power, and offer reliable dividend yields. Some of his top picks included BOK Financial Corporation (NASDAQ:BOKF), Element Solutions Inc (NYSE:ESI), and Barrett Business Services, Inc. (NASDAQ:BBSI).
JP Morgan’s global head of research, Joyce Chang, joined CNBC to discuss the macro landscape and its impact on the equity markets on February 1. She said that value is emerging in the markets currently and some small-caps have 20-year low valuations. Despite inflation, omicron, and rising rates, investors should look out for small-caps and commodities, since upside pricing pressure will help these stocks, according to Chang. Brent Schutte, Northwestern Mutual chief investment strategist, said that investors should focus on the S&P 600 stocks, which are set to trade at 14-times earnings in 2022.
Some of the most notable small-cap stocks to invest in include Jack in the Box Inc. (NASDAQ:JACK), Bed Bath & Beyond Inc. (NASDAQ:BBBY), and The Cheesecake Factory Incorporated (NASDAQ:CAKE), in addition to value plays discussed below.
Our Methodology
We selected small-cap stocks with a price to earnings ratio of under 15, positive hedge fund sentiment, and market capitalization of between $300 million and $2 billion. Data from around 924 elite hedge funds tracked by Insider Monkey in the fourth quarter of 2021 was used to assess the hedge fund sentiment around the holdings.
Undervalued Small-Cap Stocks to Buy Now
10. American National Bankshares Inc. (NASDAQ:AMNB)
Number of Hedge Fund Holders: 2
P/E Ratio as of March 7: 9.34
Market Capitalization as of March 7: $402.85 million
American National Bankshares Inc. (NASDAQ:AMNB) is a Virginia-based bank holding company for the American National Bank and Trust Company, offering deposit products, including checking, money market, savings, consumer and commercial time deposits, and certificates of deposit. American National Bankshares Inc. (NASDAQ:AMNB) serves customers across Virginia and North Carolina.
On February 15, American National Bankshares Inc. (NASDAQ:AMNB) declared a quarterly dividend of $0.28 per share, in line with previous. The dividend is payable on March 18, to shareholders of record on March 4.
American National Bankshares Inc. (NASDAQ:AMNB) on January 20 authorized the repurchase of up to $13 million common stock through December 31, 2022. The company posted earnings per share of $1.05 and a revenue of $27.95 million, smashing the market consensus.
Among the hedge funds tracked by Insider Monkey, Renaissance Technologies and Millennium Management held long positions in American National Bankshares Inc. (NASDAQ:AMNB) as of Q4 2021, with combined stakes amounting to over $5 million.
Like Jack in the Box Inc. (NASDAQ:JACK), Bed Bath & Beyond Inc. (NASDAQ:BBBY), and The Cheesecake Factory Incorporated (NASDAQ:CAKE), American National Bankshares Inc. (NASDAQ:AMNB) is a notable small-cap stock to purchase for value investors.
9. Allegiance Bancshares, Inc. (NASDAQ:ABTX)
Number of Hedge Fund Holders: 7
P/E Ratio as of March 7: 10.76
Market Capitalization as of March 7: $878.15 million
Founded in 2007 and is headquartered in Houston, Texas, Allegiance Bancshares, Inc. (NASDAQ:ABTX) is the bank holding company for Allegiance Bank, providing a wide range of commercial banking services to small and medium-sized businesses, professionals, and individual customers.
Allegiance Bancshares, Inc. (NASDAQ:ABTX) on January 28 reported its fourth quarter results, posting earnings per share of $1.06, topping estimates by $0.11. The $61.29 million surpassed market consensus by $1.87 million.
On February 24, Allegiance Bancshares, Inc. (NASDAQ:ABTX) declared $0.14 per share quarterly dividend, a 16.7% increase from its prior dividend of $0.12. The dividend is payable on March 15, for shareholders of record on February 28.
Allegiance Bancshares, Inc. (NASDAQ:ABTX) and CBTX, Inc. (NASDAQ:CBTX) jointly announced on November 8 that they entered into a definitive merger agreement pursuant to which the companies will combine in an all-stock merger to create a combined company. The parties anticipate closing in the second quarter of 2022. The combined franchise will have over $11 billion in assets and be well-positioned to support future growth and performance.
Among the hedge funds tracked by Insider Monkey, 7 funds were bullish on Allegiance Bancshares, Inc. (NASDAQ:ABTX) at the end of December 2021, as compared to 9 funds in the quarter earlier. Forest Hill Capital is the leading shareholder of Allegiance Bancshares, Inc. (NASDAQ:ABTX), with 134,711 shares worth $5.6 million.
8. Argan, Inc. (NYSE:AGX)
Number of Hedge Fund Holders: 10
P/E Ratio as of March 7: 14.32
Market Capitalization as of March 7: $642.70 million
Headquartered in Rockville, Maryland, Argan, Inc. (NYSE:AGX) is a construction engineering company that provides its services to the power generation and renewable energy markets. Argan, Inc. (NYSE:AGX) operates through three segments, namely Power Industry Services, Industrial Fabrication and Field Services, and Telecommunications Infrastructure Services.
Argan, Inc. (NYSE:AGX) on December 14 declared a $0.25 per share quarterly dividend, in line with previous. The dividend was paid on January 31, to shareholders of record on January 21. Argan, Inc. (NYSE:AGX) is one of the most undervalued small-cap stocks to invest in, offering a market capitalization of $642.70 million and a price to earnings ratio of 14.32.
On January 24, Argan, Inc. (NYSE:AGX) announced that its board of directors approved an increase in the company’s existing share repurchase program, from $25 million to $50 million, to acquire shares of the company’s common stock. Argan, Inc. (NYSE:AGX) has repurchased shares at a cost of approximately $18 million under the authorization to date.
According to Insider Monkey’s Q4 data, 10 hedge funds were long Argan, Inc. (NYSE:AGX), with collective stakes exceeding $59 million. AltraVue Capital is a significant shareholder of the company, with 431,086 shares worth $16.6 million.
Here is what Third Avenue Management has to say about Argan, Inc. (NYSE:AGX) in their Q4 2020 investor letter:
“Argan was a satisfactory investment for Fund shareholders. We became concerned though that parts of the thesis were not playing out, and proactively decided to exit the position and redeploy the proceeds into companies where we had higher conviction.”
7. First Busey Corporation (NASDAQ:BUSE)
Number of Hedge Fund Holders: 11
P/E Ratio as of March 7: 11.92
Market Capitalization as of March 7: $1.455 billion
First Busey Corporation (NASDAQ:BUSE) is a bank holding company for Busey Bank, headquartered in Champaign, Illinois. The company is focused on providing retail and commercial banking products to individual, corporate, institutional, and governmental customers in the United States.
On January 19, First Busey Corporation (NASDAQ:BUSE) declared a quarterly dividend of $0.23 per share, in line with previous. The dividend was paid on January 28, to shareholders of record on January 20. The company also beat market expectations for earnings and revenue for the December quarter.
Raymond James analyst Daniel Tamayo upgraded First Busey Corporation (NASDAQ:BUSE) to Outperform from Market Perform with a $31 price target. According to the analyst, First Busey Corporation (NASDAQ:BUSE) had another “solid” quarter of core loan growth and strong credit quality, which is expected to continue. In addition to that, net interest margin should be nearing a bottom, and the fee income is poised to see solid growth, as per Tamayo.
Among the hedge funds tracked by Insider Monkey, 11 funds were long First Busey Corporation (NASDAQ:BUSE), holding collective stakes of $83 million. Basswood Capital is the largest shareholder of the company, owning 1.74 million shares worth $47.3 million.
6. Meta Financial Group, Inc. (NASDAQ:CASH)
Number of Hedge Fund Holders: 14
P/E Ratio as of March 7: 9.20
Market Capitalization as of March 7: $1.522 billion
Meta Financial Group, Inc. (NASDAQ:CASH) is the holding company for MetaBank that offers consumer, commercial, and corporate banking services to customers across the United States. Meta Financial Group, Inc. (NASDAQ:CASH)’s market cap equals $1.522 billion and the company offers a price to earnings ratio of 9.20, making it a notable undervalued small-cap stock to purchase.
On February 24, Meta Financial Group, Inc. (NASDAQ:CASH) declared a $0.05 per share quarterly dividend, in line with previous. The dividend will be paid on April 1, for shareholders of record on March 10. The company beat earnings consensus for the fourth quarter, with the EPS clocking in at $0.78.
Riley analyst Steve Moss on January 12 raised the price target on Meta Financial Group, Inc. (NASDAQ:CASH) to $70 from $68 and kept a Buy rating on the shares. According to the analyst, bank earnings are likely to improve in Q4 as loan demand increases, deposits continue to grow, and credit remains strong. He believes select names are “attractively priced and well-positioned to benefit from interest rate hikes.”
According to the fourth quarter database of Insider Monkey, 14 hedge funds were bullish on Meta Financial Group, Inc. (NASDAQ:CASH), compared to 19 funds in the preceding quarter. Nantahala Capital Management is the biggest shareholder of the company, with 895,792 shares worth $53.4 million.
Meta Financial Group, Inc. (NASDAQ:CASH) is increasingly gaining traction among institutional investors, just like Jack in the Box Inc. (NASDAQ:JACK), Bed Bath & Beyond Inc. (NASDAQ:BBBY), and The Cheesecake Factory Incorporated (NASDAQ:CAKE).
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Disclosure: None. 10 Undervalued Small-Cap Stocks to Buy Now is originally published on Insider Monkey.
