In this piece, we will take a look at the 13 cash rich small cap stocks to invest in. If you want to skip our introduction to small cap investing and the latest stock market news, then you can take a look at the 5 Cash-Rich Small Cap Stocks To Invest In.
Small cap stocks are among those that sit right at the top of the stock market when it comes to potential returns. As opposed to their mega and large cap peers such as Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT), their shares are often priced lower. When this is combined with other investing indicators such as accurate average analyst share price targets and share momentum and movement indicators, investment in the right small cap stock can mean that an investor enjoys a doubling or even tripling of their investment.
Yet, even though the lucrative potential that the right small cap stocks offer is unmatched, like the broader market, their performance is also constrained by the economy. Small cap stock performance as a whole is more sensitive to negative economic indicators during times that larger companies are often thought of as a buffer against potential market downswings. Small cap stocks do well when the economy is expected to grow in the future. This is because since they are, well, small, their potential to gain market share is also higher. This market share is best captured when it is easy to raise capital through either debt or equity and consumers and businesses have adequate spending power that is not being burnt away by inflation.
On the flip side, if the economic clouds are dark and analysts and investors are uncertain whether the economy has enough juice to grow comfortably, then small caps also suffer. This has also been the case in 2023, as throughout the years investors battled with the Fed and themselves in trying to figure out when interest rates would start dropping. In fact, had it not been for strong U.S. economic growth that has put claims of a recession in 2023 to rest, then it’s likely that the stock market and small cap stocks would be quite lower than where they are right now.
Taking a look at the S&P 600, the premier small cap stock index in America, the index is up by 14.21% year to date. Before this makes you think that perhaps the tight monetary and economic conditions that have prevailed through 2023 have somewhat spared small cap stocks, consider a breakdown of these modest YTD gains. From January 2023 to October 27, 2023, the S&P 600 lost 7.51%, in the clearest example of the impact of dark economic clouds on small cap stocks. However, the tail end of October and the start of November marked a shift in investor sentiment about the Federal Reserve’s future course of action. Investors became convinced that rate cuts were on the horizon in November, and from October 27th to market close before Christmas, the S&P 600 has gained a cool 23% in a nice Christmas surprise to those investors that timed the bottom in October.
This, in essence, is what small cap investing is all about. Simply put, these stocks are quite responsive to the changes in the broader economic environment and can reward prudent decision making accordingly. At the same time, since the shares are affordable when it comes to individual stocks, the potential risks of falling for pump and dump scams and/or low liquidity are also present.
With these details in mind, let’s take a look at some cash rich small cap stocks to invest in. The top three cash rich small cap stocks are SM Energy Company (NYSE:SM), Mr. Cooper Group Inc. (NASDAQ:COOP), and Meritage Homes Corporation (NYSE:MTH).
Our Methodology
To make our list of the best cash rich small cap stocks to invest in, we ranked the top thirty stocks of the Vanguard S&P Small-Cap 600 ETF by their latest cash and related holdings. Then, the top 20 were further re ranked through the number of hedge funds that had bought the shares during Q3 2023 and the top cash rich small cap stocks were chosen.
For these stocks we have also mentioned hedge fund sentiment. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
13 Cash-Rich Small Cap Stocks To Invest In
13. Insight Enterprises, Inc. (NASDAQ:NSIT)
Number of Hedge Fund Investors During Q3 2023: 21
Cash & Equivalents: $163 million
Insight Enterprises, Inc. (NASDAQ:NSIT) is an American technology company headquartered in Chandler, Arizona. It helps businesses with meeting their information technology needs by working with technologies such as artificial intelligence and cloud computing. The shares are rated Buy on average but the average share price target is lower than the current price.
As of Q3 2023 end, 21 out of the 910 hedge funds covered by Insider Monkey’s database had held a stake in Insight Enterprises, Inc. (NASDAQ:NSIT). Jeffrey Ubben’s ValueAct Capital was the firm’s largest shareholder since it owned $656 million worth of shares.
Along with Mr. Cooper Group Inc. (NASDAQ:COOP), SM Energy Company (NYSE:SM), and Meritage Homes Corporation (NYSE:MTH), Insight Enterprises, Inc. (NASDAQ:NSIT) is a cash rich small cap stock to buy.
12. Mueller Industries, Inc. (NYSE:MLI)
Number of Hedge Fund Investors During Q3 2023: 21
Cash & Equivalents: $678 million
Mueller Industries, Inc. (NYSE:MLI) is an industrial products manufacturer that sells plumbing goods and other items. The firm has been doing well on the financial front as of late since it has beaten analyst EPS estimates in all four of its latest quarters.
By the end of this year’s third quarter, 21 out of the 910 hedge funds profiled by Insider Monkey had owned the firm’s shares. Mueller Industries, Inc. (NYSE:MLI)’s biggest hedge fund investor is Mario Gabelli’s GAMCO Investors due to its $149 million stake.
11. DXC Technology Company (NYSE:DXC)
Number of Hedge Fund Investors During Q3 2023: 22
Cash & Equivalents: $1.8 billion
DXC Technology Company (NYSE:DXC) is an information technology company that provides customers with digitization and analytics products. The tail end of December 2023 is proving to be an important month for the firm as it has appointed a new interim CEO and President.
Insider Monkey scoured through 910 hedge fund portfolios for 2023’s third quarter and found that 22 had bought and owned a stake in DXC Technology Company (NYSE:DXC). Larry Robbins’s Glenview Capital was the largest shareholder among these courtesy of its $202 million stake.
10. Rambus Inc. (NASDAQ:RMBS)
Number of Hedge Fund Investors During Q3 2023: 24
Cash & Equivalents: $313 million
Rambus Inc. (NASDAQ:RMBS) is an American semiconductor firm that designs and sells memory chips. Like several other chip companies, it has beaten analyst EPS estimates in all four of its latest quarters. The shares are rated Buy on average and the average analyst share price target is $75.50.
During September 2023, 24 among the 910 hedge funds tracked by Insider Monkey were the firm’s researchers. Rambus Inc. (NASDAQ:RMBS)’s biggest hedge fund investor is Alex Sacerdote’s Whale Rock Capital Management since it owns 1.8 million shares that are worth $105 million.
9. Applied Industrial Technologies, Inc. (NYSE:AIT)
Number of Hedge Fund Investors During Q3 2023: 25
Cash & Equivalents: $344 million
Applied Industrial Technologies, Inc. (NYSE:AIT) is an American industrial equipment company that sells power control and sensing products. It’s one of the highest rated stocks on our list as the shares are rated Strong Buy on average and the average share price target is $184.
By the end of 2023’s September quarter, 25 out of the 910 hedge funds part of Insider Monkey’s database had bought Applied Industrial Technologies, Inc. (NYSE:AIT)’s shares. Richard Driehaus’s Driehaus Capital was the largest shareholder due to its $38.1 million investment.
8. Lincoln National Corporation (NYSE:LNC)
Number of Hedge Fund Investors During Q3 2023: 25
Cash & Equivalents: $3.3 billion
Lincoln National Corporation (NYSE:LNC) is an insurance and retirement products provider headquartered in Radnor, Pennsylvania. Amidst a turbulent insurance industry that has seen failures rise and costs grow due to high rates, the firm announced in December 2023 that it is selling its wealth management unit for $700 million.
After scouring through 910 hedge fund portfolios for their third quarter of 2023 shareholdings, Insider Monkey found 25 Lincoln National Corporation (NYSE:LNC) shareholders. Out of these, the biggest investor was D. E. Shaw’s D E Shaw since it held a $29.2 million stake.
7. Axcelis Technologies, Inc. (NASDAQ:ACLS)
Number of Hedge Fund Investors During Q3 2023: 29
Cash & Equivalents: $432 million
Axcelis Technologies, Inc. (NASDAQ:ACLS) is a backend semiconductor firm that makes and sells machines used in chip fabrication. The firm’s investors were in for some bad news in December 2023 as Bank of America downgraded the shares to Neutral from Buy and cut the share price target to $150 from $180.
As of September 2023, 29 out of the 910 hedge funds surveyed by Insider Monkey were the firm’s investors. Axcelis Technologies, Inc. (NASDAQ:ACLS)’s largest stakeholder in our database is Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital due to its $86.3 million investment.
6. Asbury Automotive Group, Inc. (NYSE:ABG)
Number of Hedge Fund Investors During Q3 2023: 30
Cash & Equivalents: $240 million
Asbury Automotive Group, Inc. (NYSE:ABG) is a Georgia based car retailer and maintenance services provider. The shares are rated Buy on average and analysts have set an average share price target of $253.57.
30 out of the 910 hedge funds part of Insider Monkey’s Q3 2023 research had bought Asbury Automotive Group, Inc. (NYSE:ABG)’s shares. David Abrams’s Abrams Capital Management was the biggest investor as it owned $485 million worth of shares.
SM Energy Company (NYSE:SM), Asbury Automotive Group, Inc. (NYSE:ABG), Mr. Cooper Group Inc. (NASDAQ:COOP), and Meritage Homes Corporation (NYSE:MTH) are some top cash rich small cap stocks.
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Disclosure: None. 13 Cash-Rich Small Cap Stocks To Invest In is originally published on Insider Monkey.