5 Small-Cap Stocks with High Potential

1. Algoma Steel Group Inc. (NASDAQ:ASTL)

Number of hedge funds: 39

Algoma Steel Group Inc. is one of the most popular small-cap stocks among the 920 hedge funds tracked by Insider Monkey as of the end of the third quarter. Despite being a small company, 39 funds had stakes in Algoma Steel Group Inc. (NASDAQ:ASTL) at the end of the September quarter, compared to 45 funds in the previous quarter. Earlier this month, Algoma Steel Group Inc. (NASDAQ:ASTL) posted an update for the third quarter. Algoma Steel Group Inc. (NASDAQ:ASTL) said it expects its adjusted EBITDA loss in the period to come in between C$35 million to C$45 million. Algoma Steel Group Inc. (NASDAQ:ASTL) said that the sequential decrease in steel shipments was primarily due to lower than expected plate shipments, decline in steel prices and seasonable maintenance activities due to winter.

Here is what Nordstern Capital has to say about Algoma Steel Group Inc. (NASDAQ:ASTL) in its Q3 2022 investor letter:

“The world is short on raw materials and energy. Nordstern Capital has increased its exposure to raw materials and energy. Recession fears may temporarily suppress demand and prices. The fundamental issue, however, is a sustainable lack of supply, caused by decade-long underinvestment. The shortages cannot be resolved in the short to medium term.

Currently suppressed stock prices offer a wonderful opportunity for our commodity businesses to buy back their own shares. For instance, Algoma Steel Group (NASDAQ:ASTL) reduced its diluted share count this year from 177 million to 111 million. Nonetheless, ASTL’s share price has come down 50%, because US HRC steel prices per ton declined in the past year from $2,000 to currently $713. Today, ASTL has $500m in net cash and a market capitalization of about $700m. The company is profitable even in the current recessionary environment. The CFO expects annual mid-cycle free cash flow generation greater than the current ASTL enterprise value. This is one illustrative example. ASTL is not alone. Many present-day commodity businesses are cash and earnings rich and can use weak stock prices for aggressive buybacks.”

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