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Finance

3 Great Small-Cap Stocks Poised for Explosive Growth

It was widely predicted that 2021 would be a year of recovery. Meeting that expectation, the U.S. economy appears to be on the path of recovery with easing of COVID-19 related restrictions thanks to a widespread and, so far, successful vaccination drive. Industrial and manufacturing activities are on the rise, which is driving a job market recovery. Small-cap stocks have been making a solid comeback in this scenario thanks in part to the government support to small- and medium-sized businesses (SMBs).

Small-cap companies usually perform well during an economic recovery due to their easy access to funds, which helps them invest in business growth. Given the current low interest rate environment, the growth for small-cap companies should continue in the near term. Investors’ increasing interest in the small-cap stocks is evident in the SPDR S&P 600 Small Cap ETF’s (SLY) 31.9% returns over the past six months compared to the large-cap focused SPDR S&P 500 ETF Trust’s (SPY) 15.6% gains.

So, for investors who can tolerate some risk and want to invest in stocks with immense growth potential,  Group 1 Automotive, Inc. (GPI), SPX FLOW, Inc. (FLOW), and Kulicke and Soffa Industries, Inc. (KLIC) could be the ticket. These three top-rated stocks possess solid upside potential.

Group 1 Automotive, Inc. (GPI)

Automotive retailer GPI, through its dealerships, sells new and used cars and light trucks, arranges related vehicle financing, and sells service and insurance contracts, among others. It is one of the largest dealership groups in the United States and has also expanded into the United Kingdom and Brazil. It has a $3.04 billion market capitalization. The company’s revenue for the first quarter, ended March 31,  increased 11.9% year-over-year to $3.01 billion. GPI’s gross profit for the quarter was  $490.70 million, which represents a 17.8% increase from the prior-year quarter. The company’s net income was  $101.90 million, up 242.3% year-over-year. Also, its EPS increased 242.5% from the same period last year to $5.52. GPI’s EBITDA grew at a 16.7% CAGR over the past three years, while its EBIT increased at an 18%  CAGR. This reflects the company’s stable growth over the past few years.

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For the current quarter, ending June 30,  analysts expect GPI’s EPS to increase 35% from the prior-year quarter to $5.09. Its revenue is expected to increase 39.6% year-over-year to $2.98 billion in the current quarter. GPI also surpassed consensus EPS estimates in three of the trailing four quarters.

GPI has expanded its presence in the Massachusetts market with the acquisition of two of Toyota Motor Corporation’s (TM) dealerships, located in Hyannis and Orleans on Cape Cod. These stores are expected to generate roughly $120 million in annualized revenues. The stock has rallied 204.4% over the past year to close yesterday’s trading session at $167.30.

It’s no surprise that GPI has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock has an A grade for Growth and Value, and a B grade for Momentum and Quality. Click here to see GPI’s ratings for Stability and Sentiment as well.

GPI is ranked #3 of 26 stocks in the B-rated Auto Dealers & Rentals industry.

SPX FLOW, Inc. (FLOW)

With a $2.87 billion market cap, FLOW designs, delivers, and services process technology solutions that perform mixing, blending, fluid handling, separation, and thermal heat transfer, among other activities. The company operates through two segments: Food and Beverage, and Industrial.

For fiscal first quarter, ended April 3, 2021, the company’s revenues increased 25.5% year-over-year to $364 million. FLOW’s adjusted operating income came in at $41 million, which represents a 141.2% rise from the prior-year quarter. Its EBITDA increased 118.2% year-over-year to $48 million. Also, its adjusted EPS came in at $0.61, up 454.5% from the same period last year. The company’s levered free cash flow has increased at a 32.6% CAGR over the past three years, reflecting its solid performance over the past few years.

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Analysts expect FLOW’s EPS to increase 168.2% year-over-year to $0.59 for the current quarter, ending June 30. Its revenue is expected to increase 8.9% from the prior-year quarter to $388.52 million for the quarter ending September 30. FLOW surpassed the Street’s EPS estimates in each of the trailing four quarters.

On May 12, FLOW completed the acquisition of Philadelphia Mixing Solutions, Ltd. from Thunder Basin Corporation, an affiliate of Wind River Holdings, L.P. This transaction should allow the company to expand its sales network and offer broader capability and expertise to  its customers. The stock has gained 116.2% over the past year to close yesterday’s trading session at $67.95.

FLOW’s POWR Ratings reflects this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Growth, and a B grade for Value. Click here to see the additional ratings for FLOW (Stability, Quality, Momentum and Sentiment).

FLOW is ranked #13 of 45 stocks in the A-rated Industrial- Manufacturing industry.

Click here to check out our Industrial Sector Report for 2021

Kulicke and Soffa Industries, Inc. (KLIC)

Headquartered in Singapore, KLIC designs, manufactures, and sells capital equipment and tools to assemble semiconductor devices. The company operates through two segments: Capital Equipment, and Aftermarket Products and Services (APS). It has a $2.99 billion market capitalization.

The company’s revenue for its fiscal second quarter, ended April 3,  increased 125.6% year-over-year to $340.20 million. KLIC’s gross profit for the quarter came in at $148.50 million, up 114.3% year-over-year. The company’s net income came in at $71.32 million, which represents a 499.9% year-over-year rise. Also, its EPS increased 505.3% from the same period last year to $1.20. Its revenue grew at an 11.3% CAGR over the past five years, while its EPS increased at a 57.1% CAGR over the past three years. This reflects the company’s steady growth over the past few years.

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KLIC’s EPS is expected to increase 547.6% year-over-year to $1.36 for the current quarter, ending June 30, 2021. Its revenue is expected to increase 101.6% from the prior-year quarter to $358.15 million for the quarter ending September 30. And it  surpassed  consensus EPS estimates in three of the trailing four quarters.

In February, the company completed the acquisition of Uniqarta, Inc. , which includes Uniqarta’s patent portfolio and other intellectual property rights. KLIC’s overall mini and micro-LED technology portfolio is expected to be strengthened because of this acquisition. The stock rallied 116.9% over the past year to close yesterday’s trading session at $47.72.

KLIC’s POWR Ratings reflects this promising outlook. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Growth, and a B grade for Value and Quality. Click here to see the additional ratings for KLIC (Stability, Momentum and Sentiment).

KLIC is ranked #9 of 98 stocks in the B-rated Semiconductor & Wireless Chip industry.

Note that KLIC is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.

Click here to checkout our Semiconductor Industry Report for 2021


GPI shares were trading at $162.59 per share on Wednesday morning, down $4.71 (-2.82%). Year-to-date, GPI has gained 24.24%, versus a 9.45% rise in the benchmark S&P 500 index during the same period.

About the Author: Ananyo Guha Niyogi

Ananyo’s ardent interest in capital markets, wealth management, and financial regulatory issues, led him to a career as an investment analyst. His goal is to educate individual investors by making complex financial issues easy to understand. More…

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