Some of the best investments come in small packages.
Historically, small-cap stocks tend to outperform large-cap stocks during the early stages of a new bull market. The 2020 March bottom in the S&P 500 marked the beginning of a new bull market. Vaccine rollouts, pent-up consumer demand and unprecedented government stimulus have many analysts anticipating the next several years will be an excellent period for earnings growth and investing upside. There are plenty of excellent buying opportunities among small-cap stocks that have the potential for significant growth in 2021 and beyond. Here are seven of CFRA’s top small-cap stock picks with growth potential.
Carpenter Technology (ticker: CRS)
Carpenter Technology produces and distributes specialty metals, such as stainless steel. Analyst Matthew Miller says Carpenter is highly exposed to secular growth markets in aerospace and health care, and it has just a $2 billion market cap. The global health crisis created near-term headwinds, but the company is a major material supplier to virtually the entire airline industry, which should bounce back in 2021. Miller also says Carpenter’s 2020 divestment of Amega West has left it only 3% exposed to the oil and gas industry. CFRA has a “strong-buy” rating and a $50 price target for CRS stock.
Meredith publishes magazines and websites focused on food, family and women, and the company also owns 17 local U.S. TV stations. The magazine and TV businesses face major challenges, but analyst Tuna Amobi says Meredith’s impressive fourth-quarter earnings report highlighted the strides the company is making in its digital and consumer businesses. Amobi says Meredith demonstrated strong digital engagement across multiple online platforms. Meredith also hit a major milestone last quarter when its digital advertising business surpassed its magazine advertising for the first time. CFRA has a “buy” rating and a $27 price target for MDP stock.
BJ’s Restaurants (BJRI)
Casual dining restaurants took a major hit in a socially distanced world, and BJ’s Restaurants is no exception. However, Amobi says business trends are improving in the first quarter of 2021, and BJ’s is demonstrating continued traction in digital channels, including its mobile app. BJ’s is also having early success with its customer loyalty program. Amobi says easy year-over-year comparisons will drive 28% revenue growth this year. He projects the rebound momentum will carry over into 22% sales growth in 2022 as well. CFRA has a “buy” rating and a $58 price target for BJRI stock.
Patterson-UTI Energy (PTEN)
Patterson-UTI Energy is an oil and gas services company that specializes in U.S. land drilling. Oil prices recently hit their highest level since before the health crisis as investors anticipate pent-up demand and commodity inflation. Analyst Andrzej Tomczyk says the outlook for Patterson-UTI has improved dramatically in recent months as margins have expanded, rig counts have risen and the vaccine rollout has progressed. Tomczyk says Patterson-UTI is positioned to be far more profitable during the coming oil market recovery than it was during the 2016-17 recovery. CFRA has a “buy” rating and an $8 price target for PTEN stock.
Neenah produces premium fine papers used in filtration, abrasives and other applications. Besides its healthy growth outlook, Miller says the stock has an attractive valuation and pays a 3.3% dividend. He projects 20% earnings-per-share growth in 2021. In the long term, Miller says Neenah should benefit from a rise in automotive filtration, a market in which the company has been gaining traction. He says new product launches and international expansion could be significant growth opportunities as well. CFRA has a “buy” rating and a $61 price target for NP stock.
Clearwater Paper (CLW)
Clearwater Paper produces consumer tissue and paperboard used for packaging. Miller says the tissue market has been extremely resilient throughout the economic downturn. He also says the company is well-positioned to benefit from automated warehouses. Along with that opportunity, its new continuous digester has helped the company produce more pulp internally rather than relying on outside sources. Finally, Miller says Clearwater could potentially unlock tremendous long-term shareholder value in the coming years by reducing the company’s debt, which he says could lead to a higher earnings multiple for the stock. CFRA has a “strong-buy” rating and a $58 price target for CLW stock.
Glatfelter produces engineered materials such as tea and coffee filters, personal hygiene products and packaging supplies. Miller says Glatfelter has several bullish catalysts that could drive upside for the stock, including the company’s strategic shift toward high-growth, air-laid products. He says Glatfelter has improved its balance sheet and stabilized its earnings outlook by divesting its specialty paper business. Glatfelter also recently started up production at its new Fort Smith facility, and its acquisition of Georgia-Pacific’s nonwovens business could be another growth driver, Miller says. CFRA has a “buy” rating and an $18 price target for GLT stock.
Seven small-cap stocks with growth potential:
— Carpenter Technology (CRS)
— Meredith (MDP)
— BJ’s Restaurants (BJRI)
— Patterson-UTI Energy (PTEN)
— Neenah (NP)
— Clearwater Paper (CLW)
— Glatfelter (GLT)
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