We recently compiled a list of the 10 Cash-Rich Small Cap Stocks To Invest In According To Analysts. In this article, we are going to take a look at where Hillman Solutions Corp. (NASDAQ:HLMN) stands against the other cash-rich small cap stocks.
Small-cap stocks in the US have been under pressure, with the Russell small cap index falling 10% from its November highs as of January 2025. In contrast, the S&P index, which tracks large-cap stocks, declined by less than 3% during the same period. President Trump’s focus on domestic economic growth could make small-cap stocks more attractive. However, the prospect of higher interest rates has become a major hurdle. Rising borrowing costs tend to impact smaller companies more than larger ones. Keith Lerner, co-chief investment officer at Truist Advisory Services, described this as a “tug of war” – where strong economic growth could benefit small caps, but higher rates work against them.
Market sentiment toward small caps has weakened due to expectations of fewer interest rate cuts, especially after the Federal Reserve raised its inflation forecast for 2025. Despite this, some experts believe small businesses could benefit from Trump’s policies, particularly reduced regulations and support for domestic industries. Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, pointed out that small companies are more US-focused than multinational corporations. However, Trump’s approach to tariffs could create challenges by disrupting supply chains, which may hurt smaller businesses too.
After years of trailing behind large-cap stocks, small caps finally seem ready for a comeback, according to RBC Wealth Management. Over the past five years, major economic and global events, such as pandemic-led lockdowns, economic rebounds, government stimulus, inflation, rising interest rates, and the rapid rise of AI, have widened the gap between small and large-cap stock performance. Large-cap stocks have delivered solid returns in four of the last five years, leaving small caps struggling to keep up. Historically, factors such as mergers and acquisitions and initial public offerings have played a key role in small-cap growth, but IPO activity in the small-cap space has been weak.
Although 2024 saw some improvement, with an average of 31 IPOs per quarter and $7 billion in total value, these numbers are still below pre-pandemic levels. That said, signs of a recovery started to emerge toward the end of 2024. Looking ahead, 2025 may be a turning point for small caps, as per RBC’s report. The Federal Reserve’s move toward lower interest rates could encourage businesses to take more risks, boosting M&A and IPO activity. As conditions improve, small caps could start closing the gap with large caps. Lower rates, increased corporate expansion, stronger market activity, and a more supportive regulatory environment could fuel small-cap growth. In addition, with large caps becoming expensive and investor expectations rising, more investors may look toward undervalued small-cap stocks for better opportunities.
Our Methodology
For this article, we used the Finviz stock screener to find small-cap stocks with strong cash reserves. We filtered for companies with market caps between $300 million and $2 billion and a current ratio (CR) above 2, which indicates they have more assets than liabilities, due to high cash reserves, receivables, or inventory. After that, we manually looked for companies with a trailing twelve-month (TTM) operating cash flow of over $50 million as of December 31, 2024. From there, we picked 10 stocks with the highest cash reserves. These stocks also had an average upside potential of more than 20% based on Wall Street analyst estimates as of March 4. We included hedge fund sentiment as of Q4 2024 as well. Below, we have ranked the list in ascending order of upside potential.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Workers in protective clothing assembling hardware products on a production line.
Hillman Solutions Corp. (NASDAQ:HLMN)
TTM Operating Cash Flow as of December 31, 2024: $183,336,000
Number of Hedge Fund Holders: 24
Average Upside Potential: 41.96%
Hillman Solutions Corp. (NASDAQ:HLMN) supplies hardware products and merchandising services across the United States, Latin America, Mexico, Canada, and the Caribbean. Its product range includes anchor shackles, eye bolts, door hinges, chains, garage doors, safety hasps, gate hooks, latches, magnets, and storage hooks, among other hardware essentials. On January 15, Hillman Solutions lowered the interest rate on its $643 million loan, which is due in 2028. This change reduces borrowing costs by 0.25% and is expected to save the company about $1.6 million per year, minus a one-time fee of $1 million. It is one of the best cash rich stocks to watch.
Despite a challenging market in 2024, Hillman Solutions Corp. (NASDAQ:HLMN)’s net sales reached $1.473 billion, slightly below 2023 levels but above the midpoint of the company’s latest guidance. The decline in foot traffic and retail customers, down nearly 6% from the previous year, contributed to the fall. However, in the fourth quarter, adjusted EBITDA rose 3.5% to $56.3 million, aligning with expectations. This growth was backed by improved operational efficiency, lower costs of goods sold, and a shift toward higher-margin products. In 2024, the company generated $183 million in cash from operating activities, down from $283 million in the previous year. In 2023, cash flow benefited from a $100 million inventory reduction as supply levels normalized when Asian supply chain disruptions were resolved.
As per Insider Monkey’s fourth quarter database, 24 hedge funds were bullish on Hillman Solutions Corp. (NASDAQ:HLMN), up from 18 funds in the prior quarter. Leucadia National was the largest position holder in the firm, with approximately 8.5 million shares valued at $82.8 million.
Overall HLMN ranks 3rd on our list of the best cash-rich small cap stocks to buy. While we acknowledge the potential of HLMN as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than HLMN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.
