3 Beaten Down Small-Cap Stocks to Scoop Up Right Now
While small-cap stocks are usually more volatile than their mid-cap and large-cap brethren, the solid growth opportunities they often deliver make them attractive to many investors. And given the continuing...
While small-cap stocks are usually more volatile than their mid-cap and large-cap brethren, the solid growth opportunities they often deliver make them attractive to many investors. And given the continuing low-interest-rate environment, which is beneficial for small-cap stocks, we think it could be wise to bet on fundamentally sound small-cap stocks CTS Corporation (CTS), Universal Electronics (UEIC), and Travelzoo (TZOO), which have suffered price declines over the past few months. Let’s discuss.
Last week was the best week in months for the major stock indexes, thanks to a stronger-than-expected start to the third-quarter earnings season. However, the stock market is expected to remain volatile on concerns over rising Treasury yields, inflation, and disappointing Chinese economic data. While small-cap stocks typically experience more volatility than mid-cap and large-cap stocks when the market is volatile, the current low-interest-rate environment is beneficial for small-cap stocks.
Small-cap stocks usually offer higher growth potential. Over the long run, small-cap value index funds outperform the S&P 500. Investors’ interest in small-cap stocks is evidenced by the Dow Jones U.S. small-cap total stock market index’s 39% returns over the past year.
Therefore, given the current market volatility, we think it could be wise to scoop up the shares of beaten-down small-cap stocks CTS Corporation (CTS), Universal Electronics Inc. (UEIC), and Travelzoo (TZOO), which are fundamentally sound.
CTS Corporation (CTS)
With a market capitalization of $979.93 million, CTS in Elkhart, Ind., designs, manufactures, and sells sensors, connectivity components, and actuators to original equipment manufacturers (OEMs). The company’s products are used in telecommunications infrastructure, information technology, and other high-speed applications, and it serves North America, Europe, and Asia.
CTS’ net sales increased 53.9% year-over-year to $129.59 million in the second quarter, ended June 30, 2021. The company’s gross margin grew 79.5% from its year-ago value to $47.7 million. Its operating earnings rose 229.7% from the prior-year quarter to $20.58 million. Also, the company’s net earnings came in at $875,000during the same period.
Analysts expect CTS’ revenue for its fiscal year 2021 to be $496.15 million, representing17% growth year-over-year. The company has an impressive earnings surprise history; it beat the consensus EPS in each of the trailing four quarters. Its EPS is expected to grow 57.1% in the current year. Its stock has declined 14.3% in price over the past nine months, closing Friday’s trading session at $30.22.
CTS has gained 19.3% over the past year but is currently trading below its 50-day and 200-day moving averages of $33.2 and $33.74, respectively.
CTS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an A grade for Quality. We’ve also graded CTS for Stability, Sentiment, Momentum, Value, and Growth. Click here to access all of CTS’ ratings.
CTS is ranked #11 of 45 stocks in the B-rated Technology – Electronics industry.
Universal Electronics Inc. (UEIC)
UEIC is a global provider of wireless universal control solutions for home entertainment and smart home devices. The Santa Ana, Calif.-based concern designs, develops, and manufactures innovative products that are used in electronics, subscription broadcast, security, home automation, hospitality, and climate control markets. It has a market capitalization of $615.53 million.
Last month, UEIC commenced providing voice-enabled remote controls for its Ultra set-top box to Malaysia’s content and consumer company Astro. According to the company, the remote provides automatic setup and global control of the Ultra set-top box and connected television, making self-installation easier and will also help improve users’ control and search experience on their new platform.
During the second quarter, ended June 30, 2021, UEIC’s gross profit increased 17.3% year-over-year to $44.66 million. The company’s operating income grew 39.6% from its year-ago value to $9.02 million. Its net income came in at $5.59 million, while its EPS amounted to $0.40 over this period.
UEIC’s revenue is expected to increase 9.2% year-over-year to $683.97 million in its fiscal year 2022. The company has an impressive earnings surprise history; it surpassed consensus EPS estimates in each of the four trailing quarters. Its EPS is expected to increase 20% next year. Over the past nine months, the stock has lost 19.6% in price to close Friday’s trading session at $45.65. The stock has surged 18.5% over the past year but is currently trading below its 50-day and 200-day moving averages of $49.54 and $52.4, respectively.
UEIC’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. Also, the stock has an A grade for Sentiment, and a B grade for Growth and Quality.
TZOO is a New York City-based media commerce company with a market capitalization of $132.89 million. The company operates through three segments—Asia Pacific; Europe; and North America. It provides information about exclusive offers and reviews on travel, entertainment, and lifestyle experiences. TZOO’s publications and products include the Travelzoo Websites, email newsletter, the SuperSearch travel search tool, and other networks.
TZOO’s revenues increased 172.4% year-over-year to $19.08 million for the second quarter, ended June 30, 2021. The company’s gross profit grew 240.5% from its year-ago value to $16.56 million. Its operating income came in at $3.48 million, versus a $6.63 million operating loss in the second quarter of 2020. Also, the company’s net income was $3.05 million, compared to a $6.3 million net loss in the prior-year quarter.
Analysts expect TZOO’s revenue for its fiscal year 2021 to be $75.19 million, representing 40.3% growth year-over-year. The company surpassed consensus EPS estimates in three of the trailing four quarters. Its EPS is expected to grow 480% in the current year. The stock has declined 28.3% over the past six months. However, TZOO recovered slightly to gain 2.5% in price over the past month to close Friday’s trading session at $11.41. The stock is currently trading below its 50-day and 200-day moving averages of $11.94 and $13.8, respectively.
It’s no surprise that TZOO has an overall A rating, which equates to a Strong Buy in our POWR Rating system. Also, the stock has an A grade for Growth, Sentiment, and Quality.
CTS shares were trading at $30.25 per share on Monday morning, up $0.03 (+0.10%). Year-to-date, CTS has declined -11.57%, versus a 20.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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