We recently published a list of 7 Best Nano Cap Stocks To Invest In. In this article, we are going to take a look at where James River Group Holdings, Ltd. (NASDAQ:JRVR) stands against other best nano cap stocks to invest in.
What Are the Small Cap Bulls Saying?
In one of our recent articles about 8 Most Undervalued Penny Stocks To Buy According To Analysts, we talked about how many analysts are expecting small caps to perform well in a slowing economy. Here’s an excerpt from the article:
“To talk about what the stock market looks like today and in the near future. Tom Lee, co-founder of Fundstrat Global Advisors joined CNBC in a recent interview. He has been one of the strong proponents and supporters of small-cap stocks. Lee says that we are in a volatile environment currently, due to a few reasons, one being the elections in less than 30 days, the second being the Middle Eastern crisis which is scaring investors, and lastly the port strike that has the potential to cripple the economy. However, he still expressed his optimism that the year-end has a lot of tailwinds and investors shouldn’t be afraid to buy the dip. Moreover, Lee also highlighted that these current events are all short-term headwinds in a buying cycle and are expected to die down quickly.
Lee thinks that bottoms are tough and processed, and small caps are in the process of what could be a multi-year bottom. Therefore the conviction is that some people might want to buy the big names on NASDAQ and the AI market, however, with small caps trading at lower multiples of P/E less than 10, the risk and reward lie in small caps. Lee further mentioned that interest rate cuts and better earnings growth make the path for small-cap growth more visible.”
A few weeks ago, Richard Bernstein, Richard Bernstein Advisors CEO, joined CNBC for an interview to discuss the future of small caps. He mentioned that the reason why he is bullish on mid-caps and small-caps is because he sees earnings growth to be within these segments of the market. The forecasts are showing that small caps are going to grow at a multiple similar to the Magnificent Seven.
Bernstein explained that this is not unusual. When profit cycles take a dip companies have greater sensitivity to upturn and profitability. He mentioned that what’s extraordinary is that the Fed is easing into this accelerating environment, whereas normally, they would be tightening the policy rate. As the profits are expected to go up, the economy is naturally expected to follow, thereby supporting small-cap stocks. On top of that, the interest rates easing adds more fuel for the markets to rally.
Bernstein acknowledged that many investment managers are betting high stakes on the mega-cap stocks. He mentioned that if you are a momentum investor it makes sense to put all your stakes in the Magnificent Seven because that’s where the momentum is currently. However, if you are a fundamental investor it might not make total sense to invest in mega-cap stocks as they are on a slower growth trajectory with expensive prices. Whereas other parts of the market are cheaper and faster growing. Bernstein mentioned, historically speaking, a combination of cheaper and faster-growing stocks, which is how fundamental investors think is a good combination and a viable investment strategy.
Lastly, Bernstein showed his concern regarding speculative behavior, particularly in cryptocurrencies, which may signal potential risks for the economy. Bernstein warned that excessive financial asset inflation can be as damaging as inflation in real assets, leading to misallocation of capital within the economy. For context, asset inflation is what analysts normally refer to as bull markets, meaning that if bull markets continue to persist for an excessive period they create a bubble which leads to speculation and misallocation of cash.
Our Methodology
To compile the list of the 7 best nano cap stocks to invest in, we used the Finviz stock screener. We define nano-cap stocks to be those with a market capitalization of $50 million to $250 million. Therefore, we used the screener to find stocks that fit our criteria and then arranged them by market capitalization. Lastly, we ranked these stocks as per the number of hedge fund holders in Q2 2024 according to Insider Monkey’s database. Please note that the market caps were recorded on October 15, 2024. The list is ranked in ascending order of the number of hedge fund holders.
Why do we care about what hedge funds do? 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An insurance specialist consulting with a couple in their living room, discussing their policy options.
James River Group Holdings, Ltd. (NASDAQ:JRVR)
Market Cap: $244.76 Million
Number of Hedge Funds: 19
James River Group Holdings, Ltd. (NASDAQ:JRVR) is an insurance company based in Bermuda that primarily focuses on specialty insurance. The company owns and manages several specialized insurance companies, through which it engages in underwriting and investment returns. They specialize in providing tailored insurance solutions for unique risks that typical insurance companies might not cover adequately.
The second quarter of 2024 came in with significant highlights for this $244.76 million nano-cap company. James River Group Holdings, Ltd. (NASDAQ:JRVR) net income for the quarter improved 24.7% year-over-year to reach $11.85 million. The growth was driven by the casualty underwriting division which improved 5.3% when compared to the same quarter last year. Moreover, the general casualty division also witnessed a 14.6% growth.
The E&S Segment experienced an average renewal rate increase of 9.1%, indicating that existing clients are paying more to renew their policies. Due to increasing competition and more available insurance capacity, the company has become more selective in its excess property insurance offerings, resulting in a 27.9% decline in gross written premiums for this line. However, despite the decline, the overall gross written premium for the E&S segment increased by 2.3%, supported by stable growth rates in most casualty divisions and strong submission flows.
The second quarter results indicated that James River Group Holdings, Ltd. (NASDAQ:JRVR) is strategically adjusting as per the market conditions while aiming to maintain profitability across its insurance segments.
Bernzott Capital Advisors US Small Cap Value Fund stated the following regarding James River Group Holdings, Ltd. (NASDAQ:JRVR) in its fourth quarter 2023 investor letter:
“Our position in James River Group Holdings, Ltd. (NASDAQ:JRVR) also hurt performance as the stock declined by over 40% following their earnings release, which highlighted adverse reserve developments. They also announced a dilutive sale of their casualty reinsurance segment. We exited the position.”
Overall, JRVR ranks 3rd on our list of best nano cap stocks to invest in. While we acknowledge the potential of JRVR as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock 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.