In this article, we discuss the top 5 small company stocks you should own now. If you want to see more stocks in this selection, check out Top 10 Small Company Stocks You Should Own Now.
5. Starwood Property Trust, Inc. (NYSE:STWD)
Number of Hedge Fund Holders: 13
Starwood Property Trust, Inc. (NYSE:STWD) is a Connecticut-based real estate investment trust operating in the United States, Europe, and Australia. The REIT has four segments – Commercial and Residential Lending, Infrastructure Lending, Property, and Investing and Servicing segments.
On August 4, the firm posted a Q2 non-GAAP EPS of $0.51, beating market estimates by $0.01. The revenue of $333.2 million jumped 14.6% year over year, but fell short of analysts’ predictions by $0.71 million. Starwood Property Trust, Inc. (NYSE:STWD) reported $3.8 billion of investment activity, including $2.2 billion in commercial lending. The undepreciated book value also increased 26% year-over-year to $21.51.
According to Insider Monkey’s data, Starwood Property Trust, Inc. (NYSE:STWD) was part of 13 hedge fund portfolios at the end of the second quarter of 2022, compared to 15 funds in the last quarter. Amy Minella’s Cardinal Capital is the leading position holder in the company, with more than 5 million shares worth $104.70 million.
4. Diana Shipping Inc. (NYSE:DSX)
Number of Hedge Fund Holders: 15
Diana Shipping Inc. (NYSE:DSX) was incorporated in 1999 and is based in Athens, Greece. The company offers shipping transportation services, moving dry bulk cargoes such as iron ore, coal, and grain, among other materials through shipping routes worldwide. The company posted a Q2 GAAP EPS of $0.42, beating estimates by $0.06. The revenue of $74.52 million gained 58.5% year over year and outperformed Wall Street consensus by $2.68 million. The fleet utilization in Q2 2022 was 99.7% versus 99.6% in the same period a year ago. Diana Shipping Inc. (NYSE:DSX)’s latest quarterly dividend, paid on August 19, increased by 10% to $0.275 per share from its prior dividend of $0.250.
On August 11, Diana Shipping Inc. (NYSE:DSX) agreed to purchase nine modern ultramax dry bulk vessels built between 2015 and 2018. The vessels will be delivered by Q4 2022 and will be paid for in terms of cash and issuance of common shares. The company will acquire the nine vessels for a purchase price of $330 million.
Among the hedge funds tracked by Insider Monkey, Jeremy Hosking’s Hosking Partners is the largest stakeholder of Diana Shipping Inc. (NYSE:DSX) as of Q2 2022, with 4.30 million shares worth $20.6 million. Overall, 15 hedge funds were bullish on Diana Shipping Inc. (NYSE:DSX) at the end of June, up from 12 funds in the prior quarter.
3. Star Bulk Carriers Corp. (NASDAQ:SBLK)
Number of Hedge Fund Holders: 18
Star Bulk Carriers Corp. (NASDAQ:SBLK) was incorporated in 2006 and is based in Marousi, Greece. The company specializes in the ocean transportation of dry bulk cargoes worldwide. On August 4, Star Bulk Carriers Corp. (NASDAQ:SBLK) reported a Q2 non-GAAP EPS of $2.00, beating market estimates by $0.15. The revenue of $417.33 million gained 34% year over year, topping analysts’ predictions by $94.1 million. The company also declared a $1.65 per share quarterly dividend, in line with previous. The dividend is distributable on September 8, to shareholders of record as of August 25. On September 2, Star Bulk Carriers Corp. (NASDAQ:SBLK) delivered a dividend yield of 33.18%.
Jefferies analyst Omar Nokta initiated coverage of Star Bulk Carriers Corp. (NASDAQ:SBLK) on July 20 with a Buy rating and a $30 price target. The analyst assumed coverage of the maritime shipping sector and views companies with modern fleets as positioned competitively to achieve “higher, out-sized earnings going forward”. Star Bulk Carriers Corp. (NASDAQ:SBLK) has become a huge dividend payer given its exposure to rising rates, and its dividends should remain high over the next multiple quarters, the analyst told investors.
Among the hedge funds tracked by Insider Monkey, 18 funds reported owning stakes in Star Bulk Carriers Corp. (NASDAQ:SBLK) at the end of June 2022, compared to 21 funds in the last quarter.
Here is what Massif Capital has to say about Star Bulk Carriers Corp. (NASDAQ:SBLK) in its Q3 2021 investor letter:
“We initiated one long position, one short position and exited one position during the third quarter. Our new long position was in Star Bulk Carriers (SBLK), a pure-play dry bulk operator with roughly 120 controlled vessels and 14 million tons of combined cargo capacity globally.
SBLK has one of the better management teams in the maritime shipping industry and the lowest cost structure among all dry bulk names. After announcing their new dividend policy in May, SBLK now has one of the best payout structures in shipping. The firm has paid out $0.3 and $0.7 per share in dividends for the first and second quarters of 2021. SBLK will most likely announce a dividend for the third quarter somewhere in the $1.15-$1.25 per share range, depending on movement in net working capital.
We believe the best way to look at this business is through cash generation potential and how much is returned to investors. The current equity valuation does not reflect current rates for shipping (earnings), partly because of the velocity of the move in rates and because shipping cycles turn, and it’s not clear whether this is a local top or the early innings of a multi-year cycle. Our belief is the latter. Part of our catalyst is the market re-rating the stock higher once the length of the increased earnings power becomes understood. It is a relatively strong catalyst in the sense that with a strong dividend policy, we can be patient for the market to underwrite this story as the cash is either returned to us via a high dividend yield if the market is either slow or chooses not to join our side of the trade.
Our estimates suggest a time-charter equivalent rate (net profit or loss of operating a vessel daily) of at least $30,000 for SBLK in Q4, with the firm earning a potential annual average of $26,000. Our base case is that this is a strong floor going into next year, with little need to articulate much more upside. If rates hold, which we expect them to do, we could see a 20+% annual dividend next year for SBLK. If the market priced the equity such that the dividend yield was 8%, that implies a $62 stock. Today our base case target for the firm is $37 per share. This is likely conservative as we know that third-quarter rates are higher than the second quarter, and third-quarter dividends will most likely reflect that. We are cautious about diving too deep into the sensitivities to the upside with this position as we are arriving at some pretty remunerative torque using current contracted values and seemingly conservative forecasts…” (Click here to see the full text)
2. Global Ship Lease, Inc. (NYSE:GSL)
Number of Hedge Fund Holders: 20
Global Ship Lease, Inc. (NYSE:GSL) is a London-based company that owns and charters containerships to container shipping companies. On August 30, Global Ship Lease, Inc. (NYSE:GSL) announced a new multi-year charter with Hapag-Lloyd for six ECO 6,900 TEU ships. The charters are expected to generate an average adjusted EBITDA of roughly $13.1 million per ship annually and total adjusted EBITDA of around $393 million for the six ships over the charter period. Jefferies analyst Omar Nokta on July 20 initiated coverage of Global Ship Lease, Inc. (NYSE:GSL) with a Buy rating and a $22 price target, saying he finds the shares “very compelling” at current levels.
On August 4, the company reported a Q2 non-GAAP EPS of $1.85 and a revenue of $154.5 million, gaining 86.4% year-over-year. The adjusted EBITDA was $95.3 million for the second quarter 2022, up from $49.5 million in the second quarter of 2021. Global Ship Lease, Inc. (NYSE:GSL) also declared a $0.375 per share quarterly dividend, in line with previous. The dividend was paid to shareholders on September 2. The company delivered a dividend yield of 8.05% on September 2.
According to Insider Monkey’s Q2 data, 20 hedge funds were bullish on Global Ship Lease, Inc. (NYSE:GSL), compared to 22 funds in the last quarter. Israel Englander’s Millennium Management is the biggest position holder in the company, with 1.3 million shares worth $21.8 million.
Here is what Massif Capital has to say about Global Ship Lease, Inc. (NYSE:GSL) in its Q4 2021 investor letter:
“We initiated a 6% position in GSL, bringing total maritime transit exposure up to ~9% of the portfolio when combined with our 3% SBLK position. GSL is a containership owner, leasing ships to container companies (such as a Maersk) at fixed rates. As owners, they own and manage the vessels (responsible for crews, maintenance, insurance) but do not have fuel costs. GSL focuses on mid-size to smaller containerships, which serve the faster-growing inter-regional trade routes that represent ~70% of global containerized trade volume.
As they own its containers, their business is both pro-cyclical (chartered tonnages used as growth platform by liner shipping companies) and counter-cyclical (with the sale and lease-back structures used by liner companies as a balance sheet management tool). GSL has a track record that includes both organic acquisitions and a strategic combination in Q4 2018 that doubled the size of the fleet.
We like GSL because they do not have as much operational leverage as a company like ZIM (which leases on both sides of the trade), and they sign 2–5-year contracts. Liners have been eager to secure that capacity for extended durations spanning multiple years, significantly longer than has been the case historically and well-aligned with GSL’s strategic preference to lock in value over time and provide forward visibility on cash flows…” (Click here to see the full text)
1. MP Materials Corp. (NYSE:MP)
Number of Hedge Fund Holders: 26
MP Materials Corp. (NYSE:MP) is a Las Vegas-based company that owns and operates rare earth mining and processing facilities. On August 4, the company posted a Q2 non-GAAP EPS of $0.43 and a revenue of $143.56 million, beating Wall Street estimates by $0.08 and $14.81 million, respectively. The revenue gained 96.4% on a year over year basis. The Q2 net income nearly tripled to $73.3 million from $27.2 million in the year-earlier quarter. The Q2 beat was supported by demand and prices rising for rare earth materials.
On August 5, Baird analyst Ben Kallo raised the price target on MP Materials Corp. (NYSE:MP) to $55 from $45 and kept an Outperform rating on the shares. The analyst said the company exceeded market consensus on Q2 results, and more importantly, reiterated the timeline for both its Stage 2 and Stage 3 expansions. Operationally, the company continues to execute well and production volumes were the highest in the mine’s long history. Cash flow was robust and paired with cash from operations, it will continue to drive growth and additional expansion this year.
According to Insider Monkey’s data, 26 hedge funds were long MP Materials Corp. (NYSE:MP) at the end of Q2 2022, compared to 25 funds in the preceding quarter. JHL Capital Group is the leading position holder in the company, with more than 38 million shares worth $1.2 billion.
Here is what Bernzott Capital US Small Cap Value Fund has to say about MP Materials Corp. (NYSE:MP) in its Q1 2022 investor letter:
“MP Materials (NYSE:MP): This rare earth specialty materials company reported solid earnings driven by higher production and selling prices of neodymium-praseodymium (NdPr), a vital component for the development of magnets used in EV production, wind turbines, drones, robotics, and other industrial applications. Also contributing were offtake agreements with General Motors for magnets and expansion plans for domestic production of magnets making MP the only domestic producer. The balance sheet and cash flow generation remain strong, supportive of expansion plans in the current NdPr pricing environment.”
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