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Below are 10 small cap stocks with a positive earnings trend and priced reasonably based on price to earnings growth. I use stockscreen123 as the tool for this particular screen. Last month I featured Kadant (KAI) and it remains on this month's list. This month one stock which caught my eye is Standard Motor Products (SMP). The company manufactures and distributes replacement parts for motor vehicles in the automotive aftermarket industry. The company reported better than expected earnings in May, with 1st quarter revenue up 23% from last year and earnings of $.31, 72% higher than the consensus estimate. The company is trading at a forward P/E of 9.25 and PEG ratio of .50. The company also has no long-term debt and a total debt/equity ratio of .33. The stock has retreated along with the rest of the market in recent weeks. There appears to be several opportunities for support between $11 and $13.
Chart courtesy of Finviz
I define value as a stock with a projected current year PE of under 20 and a Price to Earnings growth ratio under 1. Small cap is defined as having a market capitalization under $1 billion. The earnings surprises are defined as stocks which have beaten estimates the past 2 quarters and have an average earnings surprise of 20% or more for the past 4 quarters. I also require stocks to be trading above their 200 day simple moving average.
Last month's portfolio of 10 stocks can be seen here or on the right hand side of Scott's Investments. Last month the list performed returned -8.36% (excluding any dividends and commissions/taxes).
Why do I use this screen? I find PEG an effective ratio for identifying growth stocks at a reasonable value. In addition, a recent history of earnings increases could, in theory, help identify companies with the ability to continue to surprise. Backtesting this screen with a rebalance period of every 4 weeks and a maximum position size of 10% (in instances where less than 10 companies qualify) has produced solid 5, 3, and 1 year returns (see December's list for a backtest). A quick visual inspection shows this screen has done well as a high beta play - outperforming in positive market environments and struggling in down markets. Also, a 4 week rebalance period can lead to high turnover and transaction costs.
I exclude OTC stocks and I further narrow the list based on additional stockscreen123 fundamental factors ("Quality-Value-Growth") to 10 stocks or less. The list, as always, is not a specific portfolio but a recommendation for further research. Since this is a purely mechanical screen, I play no discretion in the results (other than establishing the original screen criteria).
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Chart courtesy of Finviz
Last month's portfolio of 10 stocks can be seen here or on the right hand side of Scott's Investments. Last month the list performed returned -8.36% (excluding any dividends and commissions/taxes).
Why do I use this screen? I find PEG an effective ratio for identifying growth stocks at a reasonable value. In addition, a recent history of earnings increases could, in theory, help identify companies with the ability to continue to surprise. Backtesting this screen with a rebalance period of every 4 weeks and a maximum position size of 10% (in instances where less than 10 companies qualify) has produced solid 5, 3, and 1 year returns (see December's list for a backtest). A quick visual inspection shows this screen has done well as a high beta play - outperforming in positive market environments and struggling in down markets. Also, a 4 week rebalance period can lead to high turnover and transaction costs.
I exclude OTC stocks and I further narrow the list based on additional stockscreen123 fundamental factors ("Quality-Value-Growth") to 10 stocks or less. The list, as always, is not a specific portfolio but a recommendation for further research. Since this is a purely mechanical screen, I play no discretion in the results (other than establishing the original screen criteria).
| Ticker | Name | Rank | MktCap | ProjPECurFY | PEGLT |
| KEM | KEMET Corporation | 98.72 | 593.77 | 6.38 | 0.46 |
| HITK | Hi-Tech Pharmacal Co. | 97.36 | 337.15 | 9.12 | 0.67 |
| KAI | Kadant Inc. | 97.07 | 325.93 | 12.55 | 0.6 |
| CRDN | Ceradyne, Inc. | 96.61 | 931.5 | 11.23 | 0.8 |
| TITN | Titan Machinery Inc. | 96.11 | 604.73 | 18.64 | 0.84 |
| LAD | Lithia Motors, Inc. | 95.28 | 452.67 | 12.01 | 0.41 |
| SMP | Standard Motor Products, Inc. | 94.69 | 312.59 | 10.89 | 0.51 |
| CRD.B | Crawford & Company | 93.63 | 301.82 | 10.31 | 0.69 |
| LTXC | LTX-Credence Corporation | 93 | 425.94 | 7.75 | 0.48 |
| TPCG | TPC Group, Inc. | 92.2 | 580.77 | 13.96 | 0.54 |
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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