Analysts love these relatively cheap small-cap stocks.
The large-capitalization S&P 500 index is down 16.9% so far this year, as of July 22, while the Russell 2000 small-cap index is down 19.5%. Small-cap stocks have historically outperformed large-cap stocks during periods of economic expansion and dovish monetary policies. Unfortunately, U.S. gross domestic product growth dropped into negative territory in the first quarter, and the Federal Reserve is expected to continue aggressively raising interest rates in coming months. These conditions make small-cap stock selection even more critical. Here are eight of the best small-cap growth stocks to buy in 2022, according to Bank of America analysts.
KAR Auction Services Inc. (ticker: KAR)
KAR Auction Services provides used-car auction and salvage auction services in the U.S., Canada, Mexico and the U.K. Analyst John Murphy says KAR’s first-quarter earnings report was noisy due to the discontinuation of its Adesa physical auction business, which it sold to Carvana Co. (CVNA). Murphy remains bullish on the new management team’s turnaround plan for the company, specifically its transition from physical auctions to digital sales. Murphy says recent pressures on the auction business are cyclical and should abate in 2023 and beyond. Bank of America has a “buy” rating and $28 price target for KAR stock, which closed at $16.91 on July 22.
Urban Outfitters Inc. (URBN)
Urban Outfitters is a specialty retailer that operates stores under brands such as Urban Outfitters, Anthropologie and Free People. Analyst Lorraine Hutchinson says Urban Outfitters is benefiting from a rebound in occasion-wear sales in 2022, as event demand returns following the pandemic. Hutchinson says Urban Outfitters will continue to face cost pressures in the near term, but those pressures should start to ease in the second half of the year. Urban Outfitters shares are down nearly 29% year to date as of July 22, the worst performance of any stock on this list. But Bank of America has a “buy” rating and $26 price target for URBN stock, which closed at $20.86 on July 22.
Green Plains Inc. (GPRE)
Green Plains is one of the largest U.S. corn processors. Analyst Steve Byrne says negative consolidated ethanol crush margins led to a surprise earnings before interest, taxes, depreciation and amortization loss in the first quarter, but he remains bullish on the company’s long-term transformation plan. Byrne says the company’s protein earnings should improve as it deploys its patented Maximized Stillage Co. products technology at additional mills. He predicts investors will witness a profitability inflection for Green Plains when the company reports second-quarter numbers in early August. Bank of America has a “buy” rating and $40 price target for GPRE stock, which closed at $30.72 on July 22.
Allscripts Healthcare Solutions Inc. (MDRX)
Allscripts Healthcare Solutions provides information technology and services to health care organizations, including hospitals and physicians. Analyst Michael Cherny says Allscripts has undergone a complete overhaul in the past couple of years, which included streamlining operations, cleaning up its portfolio and divesting its electronic health records business. Cherny says the company isn’t getting enough credit for its transition to a mid-single-digit growth entity with margin upside. He says the Allscripts provider business is large and stable, while its payer and life sciences business provides significant growth opportunities. Bank of America has a “buy” rating and $23 price target for MDRX stock, which closed at $14.99 on July 22.
Veritiv Corp. (VRTV)
Veritiv provides packaging, print and facility management products. Analyst John Babcock says investors were somewhat skeptical of Veritiv’s first-quarter earnings beat and guidance hike, given much of the surprise upside came from the company’s noncore print solutions business. However, Babcock says Veritiv reported double-digit revenue growth across each end-use sector and product category in its packaging business in the first quarter, and its free cash flow is relatively resistant to a macroeconomic downturn. In addition, he says price increases should help support packaging and print solutions margins. Bank of America has a “buy” rating and $131 price target for VRTV stock, which closed at $120.18 on July 22.
Sonic Automotive Inc. (SAH)
Sonic Automotive is one of the largest U.S. automotive retailers. Murphy says supply disruptions have made life difficult for auto dealerships. Sonic’s EchoPark used-vehicle retail unit has grown to account for a larger percentage of Sonic’s total business, which Murphy says could help the company gain market share and improve earnings over time. However, he says EchoPark’s performance is extremely volatile on a quarter-to-quarter basis. EchoPark produced 23% revenue growth in the first quarter, but it also generated a $35 million pretax loss. Bank of America has a “buy” rating and $84 price target for SAH stock, which closed at $38.98 on July 22.
Addus HomeCare Corp. (ADUS)
Addus HomeCare provides home care services to the elderly, the chronically ill, the disabled and other people at risk of hospitalization or institutionalization. Analyst Joanna Gajuk says personal care hiring trends are improving, and demand remains strong. In fact, Gajuk says Addus could increase its revenue growth by at least 1% if there were more labor available. Addus shares are up 0.4% year to date as of July 22, making it the only stock on this list other than KAR Auction Services that has generated a positive return in 2022. Bank of America has a “buy” rating and $110 price target for ADUS stock, which closed at $93.90 on July 22.
World Fuel Services Corp. (INT)
World Fuel sells marine, aviation and land fuel products and services. Analyst Ken Hoexter says World Fuel benefits from global transportation demand, which has rebounded significantly in 2022. Despite higher fuel prices negatively impacting working capital in the first quarter, World Fuel still surprised Hoexter by repurchasing $14 million worth of stock in the quarter. He says the company is well positioned to ramp up profits as fuel volumes continue to rise, and he projects World Fuel will report a record $50 billion in revenue this year. Bank of America has a “buy” rating and $32 price target for INT stock, which closed at $22.02 on July 22.
8 of the best small-cap stocks to buy now:
— KAR Auction Services Inc. (KAR)
— Urban Outfitters Inc. (URBN)
— Green Plains Inc. (GPRE)
— Allscripts Healthcare Solutions Inc. (MDRX)
— Veritiv Corp. (VRTV)
— Sonic Automotive Inc. (SAH)
— Addus HomeCare Corp. (ADUS)
— World Fuel Services Corp. (INT)
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Update 07/25/22: This story was previously published at an earlier date and has been updated with new information.