We recently published a list of 10 Best Small-Cap Value Stocks to Buy Now. In this article, we are going to take a look at where MRC Global Inc. (NYSE:MRC) stands against other best small-cap value stocks to buy now.
Earlier on February 24, Robert Teeter of Silvercrest Asset Management shared his perspective on small-cap stocks and highlighted their link to economic conditions and sensitivity to financing activity. He noted that the Trump trade initially boosted small caps due to expectations of economic acceleration and lower interest rates, both of which are favorable for these companies. However, policy uncertainty and weaker-than-expected economic data have delayed their rally. Teeter believes that small caps will come into their own later in the year, but for now, they are facing a choppy market with significant rotation.
In advising clients, Teeter emphasized the importance of diversification within the S&P 500. He pointed out that the equal-weight benchmark has been performing well this year, and within the tech sector, the average tech stock is outperforming the tech sector as a whole. This suggests that investors are seeking diversification to protect themselves against policy risks. Teeter also highlighted healthcare as an interesting sector and noted that it has faced challenges with profit margins following the pandemic but now seems to have stabilized. He also discussed international markets and observed that they had outperformed US markets at the start of the year. He sees opportunities in these markets due to good valuations and the stabilization of the dollar, which reduces dollar strength and benefits non-US sectors.
Given Teetar’s sentiment, small-cap value stocks might be a good option right now due to their historically strong long-term performance and current undervaluation relative to large-cap stocks. According to Teeter, small caps are expected to recover later this year.
Methodology
We first used the Finviz stock screener to compile a list of small-cap value stocks that were trading between $300 million and $2 billion. We then picked 10 stocks with a forward P/E ratio under 15, that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024.
Note: All data was recorded on March 19.
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).
A technician working on a valve inside a natural gas facility.
MRC Global Inc. (NYSE:MRC)
Forward P/E Ratio as of March 19: 10.63
Market Capitalization as of March 19: $1.06 billion
Number of Hedge Fund Holders: 29
MRC Global Inc. (NYSE:MRC) distributes pipes, valves, fittings, and infrastructure products. It serves the energy, industrial, and natural gas sectors. It offers a range of products and value-added services that support the construction, maintenance, and repair of equipment operating in demanding environments.
The Gas Utilities sector at the company demonstrated notable stability and grew its revenue by 3% sequentially in Q3 2024, which amounted to $295 million. This growth was driven by heightened customer spending due to seasonal factors and a return to normal purchasing patterns as customers completed their destocking processes. Q3 marked the third consecutive period of sequential growth for the Gas Utilities sector.
Industry analysts and several of the company’s largest customers have publicly announced plans to increase capital spending on natural gas infrastructure maintenance projects in 2025. Furthermore, projected annual capital expenditure growth rates for the gas utilities served are expected to range from 4% to 6% over the next five years. This forecast reinforces the sector’s healthy growth environment and long-term viability, which will benefit MRC Global Inc. (NYSE:MRC) in the long run.
Alluvial Capital Management has been optimistic about MRC Global Inc.’s (NYSE:MRC) strong earnings guidance, debt reduction plan, and potential for positive catalysts. It stated the following regarding the company in its first quarter 2024 investor letter:
“MRC Global Inc. (NYSE:MRC), our equipment distributor to oil and gas drillers and gas utilities, also had good news for us. The company issued healthy 2024 earnings guidance and revealed a plan to pay off its term loan with a combination of cash flow and a draw on its asset-backed loan facility. The market responded positively, but shares still change hands at just five times 2024 operating cash flow. MRC has also announced it will provide activist hedge fund Engine Capital with a board seat. I welcome the additional oversight that Engine will provide. There is no word on progress toward resolving the situation with the unhappy holder of MRC Global’s convertible preferred shares, but a resolution could come at any time and would serve as a positive catalyst for MRC shares.”
Overall, MRC ranks 6th on our list of best small-cap value stocks to buy now. While we acknowledge the growth potential of MRC, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MRC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
