In this article, we discuss 5 small-cap stocks to buy during recessions. If you want to read about some more small-cap stocks to buy during recessions, go directly to 10 Small-Cap Stocks to Buy During Recessions.
5. Hanmi Financial Corporation (NASDAQ:HAFC)
Number of Hedge Fund Holders: 15
Market Cap as of May 25: $694 million
Hanmi Financial Corporation (NASDAQ:HAFC) operates as a bank holding firm. Some of the services it offers include non-interest-bearing checking accounts, interest-bearing checking and savings accounts, negotiable order of withdrawal accounts, money market accounts, and certificates of deposit. The company runs 35 full-service branches and 8 loan production offices across the United States. It was founded in 1982 and is headquartered in Los Angeles. It employs over 500 people.
Hanmi Financial Corporation (NASDAQ:HAFC) has been paying a dividend to shareholders consistently for the past eight years. On April 28, it declared a quarterly dividend of $0.22 per share, in line with previous. The forward yield was 3.71%.
At the end of the first quarter of 2022, 15 hedge funds in the database of Insider Monkey held stakes worth $30 million in Hanmi Financial Corporation (NASDAQ:HAFC), up from 14 in the previous quarter worth $24 million.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Millennium Management is a leading shareholder in Hanmi Financial Corporation (NASDAQ:HAFC), with 246,805 shares worth more than $6 million.
4. Holley Inc. (NYSE:HLLY)
Number of Hedge Fund Holders: 19
Market Cap as of May 25: $1.15 billion
Holley Inc. (NYSE:HLLY) operates as an automotive performance firm. On May 12, the firm posted earnings for the first quarter of 2022, reporting earnings per share of $0.19, beating analysts’ expectations by $0.04. The revenue over the period was $200 million, up over 24% year-on-year and beating market expectations by $7.4 million. Tom Tomlinson, the CEO of the firm, revealed during the earnings call that organic sales had increased by $21.6 million in the period.
On March 4, Jefferies analyst Anna Glaessgen assumed coverage of Holley Inc. (NYSE:HLLY) stock with a Buy rating and a price target of $20, noting that the quarterly results of the firm showed demand for the product sales.
At the end of the first quarter of 2022, 19 hedge funds in the database of Insider Monkey held stakes worth $130 million in Holley Inc. (NYSE:HLLY), up from 17 in the preceding quarter worth $110 million.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm P2 Capital Partners is a leading shareholder in Holley Inc. (NYSE:HLLY), with 3.6 million shares worth more than $50 million.
In its Q3 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Holley Inc. (NYSE:HLLY) was one of them. Here is what the fund said:
“During the quarter, we added to our position in Holley Inc. (NYSE:HLLY), which traces its roots back to 1903, but recently came public via a SPAC merger with Empower Ltd. Holley is a leading designer, marketer, and manufacturer of high-performance automotive aftermarket products for car and truck enthusiasts, selling 60 iconic brands across many categories and car models. They are the market leader in the space with around $600 million in sales, #1 or #2 market positions in all their major categories (i.e., electronic fuel injection, carburetors), and 3 times the size of their closest competitor. These scale benefits enable Holley Inc. (NYSE:HLLY) to outspend on R&D to continuously innovate with unmatched go-to market capabilities to drive above industry growth. Holley’s Direct-To-Consumer strategy is a core focus, engaging its loyal customer base and transforming the sector with a consumer-first approach driven by innovation (approximately 40% of sales from products introduced in the last five years).
Since 2001, Holley’s core market has grown at a 6.5% CAGR as more than 50 million Americans see their vehicle as more than a means of transportation, 15 million of whom are considered avid enthusiasts. These enthusiasts spend a great deal of time (on average, more than 10 hours per week) and money pursuing their vision of a perfect vehicle, often leading to heightened levels of repeat spending. (Click here to read full text)
3. Tanger Factory Outlet Centers, Inc. (NYSE:SKT)
Number of Hedge Fund Holders: 19
Market Cap as of May 25: $1.82 billion
Tanger Factory Outlet Centers, Inc. (NYSE:SKT) owns and runs open-air upscale outlet shopping centers. The firm has interests in 38 centers of this kind that are spread across 20 states in the United States. These centers host over 2,700 stores that are operated by more than 500 different brand name companies. The firm was founded in 1981 and is based in North Carolina. It employs close to 500 people. The firm also has a small presence outside the US, primarily in neighboring Canada.
Tanger Factory Outlet Centers, Inc. (NYSE:SKT) has an impressive dividend history stretching back over 27 years. On April 11, the company declared a quarterly dividend of $0.20 per share, a 10% increase from the previous dividend of $0.1825 per share. The forward yield was 4.69%.
At the end of the first quarter of 2022, 19 hedge funds in the database of Insider Monkey held stakes worth $121 million in Tanger Factory Outlet Centers, Inc. (NYSE:SKT), up from 18 the preceding quarter worth $89 million.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Capital Growth Management is a leading shareholder in Tanger Factory Outlet Centers, Inc. (NYSE:SKT), with 1.3 million shares worth more than $23 million.
In its Q4 2021 investor letter, Altron Capital Management, an asset management firm, highlighted a few stocks and Tanger Factory Outlet Centers, Inc. (NYSE:SKT) was one of them. Here is what Factory Outlet Centers, Inc. t the fund said:
“SKT’s business has recovered nicely from its pandemic lows, although the effect of the Omicron variant is yet to be determined. Otherwise, it appears that Tanger Factory Outlet Centers, Inc. (NYSE:SKT) still sees strong demand from consumers with foot traffic having largely returned to pre-pandemic levels. Rent spreads have finally started ticking upward, increasing 240 basis points in the third quarter. Occupancy has also rebounded to 94.3%. While most metrics are up, it seems that retailers’ willingness to expand and open new stores remains muted due to uncertainty surrounding COVID and the broader economy. In the meantime, management is making some strategic shifts to better position the company’s outlets in this type of environment. One such change in direction involves increasing the presence of food & beverage services across its outlets. We think this is a positive strategic decision that allows Tanger Factory Outlet Centers, Inc. (NYSE:SKT) more options in bringing in strong, long-term tenants to replace short-term popups and tenants lost to the pandemic. We remain bullish on SKT’s recovery and management’s ability to execute.”
2. Genworth Financial, Inc. (NYSE:GNW)
Number of Hedge Fund Holders: 21
Market Cap as of May 25: $2 billion
Genworth Financial, Inc. (NYSE:GNW) provides insurance products. The company posted earnings for the first quarter of 2022 on May 3, reporting earnings per share of $0.25, beating analyst expectations by $0.01. The revenue over the period was $1.89 billion. The firm also announced a $350 million share repurchase program a day prior to releasing the earnings. The firm said it expected to fund the repurchase through holding company capital and future cash flow generation, as well as dividends from Enact ownership.
Genworth Financial, Inc. (NYSE:GNW) offers products through in-house sales representatives and digital marketing programs. Some of the products offered include variable annuity, variable life insurance, and corporate-owned life insurance.
Among the hedge funds being tracked by Insider Monkey, North Carolina-based investment firm Shah Capital Management is a leading shareholder in Genworth Financial, Inc. (NYSE:GNW), with 11.5 million shares worth more than $43 million.
At the end of the first quarter of 2022, 21 hedge funds in the database of Insider Monkey held stakes worth $129 million in Genworth Financial, Inc. (NYSE:GNW), compared to 19 in the preceding quarter worth $128 million.
In its Q4 2021 investor letter, Gator Capital Management, an asset management firm, highlighted a few stocks and Genworth Financial, Inc. (NYSE:GNW) was one of them. Here is what the fund said:
“We own positions in both Enact Holdings and its parent company, Genworth Financial, Inc. (NYSE:GNW). Enact is one of six mortgage insurance companies. Mortgage insurance is purchased by borrowers to protect lenders if the borrower defaults on their mortgage. The government mortgage agencies (“GSEs”) require mortgage insurance when the borrower has a down payment of less than 20% of the home’s purchase price. Usually, first-time homeowners are the largest users of mortgage insurance since they often have the most difficult time accumulating enough savings for a 20% down payment. We believe the demand for mortgage insurance will be strong, but the mortgage insurance companies’ stocks are priced as though future earnings will not grow.
Here is our investment thesis on Genworth Financial, Inc. (NYSE:GNW):
Genworth Financial
We also own shares of Enact’s parent company Genworth Financial. We think Genworth is more attractive than Enact. Here is our investment thesis on Genworth:
- Leveraged return on Enact – Genworth’s main asset is the 132 million shares of Enact it still holds. Genworth also has about $1 billion of net debt at its holding company, so it is a leveraged version of Enact. If Enact stock increases in value, Genworth should increase a greater percentage due to the leverage at Genworth’s holding company.
- Two other assets held – Genworth has two other assets that we believe are not reflected in Genworth’s stock price. Currently, Genworth trades for approximately the value of its stake in Enact less its net debt. The two other assets Genworth owns are:
- Tax-sharing arrangement – Genworth Financial, Inc. (NYSE:GNW) has a tax-sharing arrangement with its subsidiaries. Since Genworth has past losses, it does not pay federal income taxes. Regulators allow Genworth’s subsidiaries to send tax payments to the holding company for liabilities created by the subsidiaries’ current income. However, the holding company can retain these cash tax payments because it has the tax shield from past losses. This tax-sharing arrangement allows Genworth to get cash out of the subsidiaries without asking regulators to allow dividend payments. In 2021, Genworth received $375 million in tax-sharing payments from its subsidiaries. We conservatively estimate Genworth could receive $200 million per year for the next five years. This amount would equal $2 per share, which is significant considering Genworth’s stock is only priced at $4.
- Life insurance subsidiary – Genworth also owns a life insurance subsidiary. The life insurance subsidiary is a large company on its own, but we assign zero value to this subsidiary because of potential losses in its long-term care insurance business. However, we observe that Genworth’s management team has done a very good job raising rates on its long-term care policies to counteract increasing policy costs. There is some possibility that 10 years from now, management’s actions could salvage some value from this subsidiary. If this subsidiary has any value, it could be so large that it would be meaningful to the stock price. For example, if the subsidiary is eventually worth half of its current $11 billion of book value (or $5.5 billion) then this subsidiary could be worth almost $11 per share. This potential scenario is far down the road, so currently we conservatively assign zero value to this asset in our valuation of Genworth…” (Click here to see the full text)
1. Vista Outdoor Inc. (NYSE:VSTO)
Number of Hedge Fund Holders: 21
Market Cap as of May 25: $2.1 billion
Vista Outdoor Inc. (NYSE:VSTO) markets consumer products in the sports and recreation sector. In early May, the company announced that the board of directors had agreed to a plan to seperate the outdoors and sports units into two separate entities. The tax-free spinoff is expected to be complete by 2023 and will have advantages like enhanced strategic focus, expanded strategic opportunities, and tailored capital allocation priorities, according to a statement made by the company.
In early February, Roth Capital analyst Matt Koranda maintained a Buy rating on Vista Outdoor Inc. (NYSE:VSTO) stock and lowered the price target to $57 from $61, backing the firm to “continue to benefit from a sustained ammo up-cycle for the next few quarters”.
At the end of the first quarter of 2022, 21 hedge funds in the database of Insider Monkey held stakes worth $326 million in Vista Outdoor Inc. (NYSE:VSTO), compared to 25 in the preceding quarter worth $460 million.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Gates Capital Management is a leading shareholder in Vista Outdoor Inc. (NYSE:VSTO), with 5.4 million shares worth more than $195 million.
In its Q2 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Vista Outdoor Inc. (NYSE:VSTO) was one of them. Here is what the fund said:
“Our Strategy outperformed with strong results from consumer discretionary stocks like Vista Outdoor Inc. (NYSE:VSTO). Vista Outdoor Inc. (NYSE:VSTO), a manufacturer of a wide range of products serving the outdoor sports and recreation markets, also performed well in the period on continued demand and growing margins.”
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