The massive run of the major indexes has been stunning over the past 18 months, and the wealth generated by it has been a huge positive for many Americans. However, the reality is that the stock market, especially the large-cap market leaders, is very overbought and trading at multiples that are way above the normal levels. In addition, investors are duplicating their portfolio and in many cases not even realizing it.
Microsoft, Apple, Amazon, Tesla, Alphabet, Meta (Facebook) and Nvidia are at 26.41% of the SPY fund and those same stocks are 50.76% of the QQQ fund. If you own both of these popular equity funds, you have the same position over and over. Small-cap stocks can help you diversify, and they are the cheapest when compared to their large-cap brethren as they have been in years.
A small-cap stock is typically one from a company with a market capitalization of less than $2 billion, However, larger companies in the group often have a market cap as high as $6 billion. Combined with other investment strategies, small-cap stocks can help diversify a portfolio and also help investors stop duplicating their holdings.
We screened our 24/7 Wall St. research universe looking for well-known small caps that are rated Buy. The following five that look like great buys now. It is still important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Citi Trends
This top small-cap is loved across Wall Street and hedge funds own a pile of it. Citi Trends Inc. (NASDAQ: CTRN) operates as a value-priced retailer of fashion apparel, accessories and home goods primarily to African American and Latinx families in the United States. As of January 30, 2021, the company operated 585 stores in urban and rural markets in 33 states.
The company offers apparel, such as fashion sportswear and footwear for men, ladies and kids, including newborns, infants, toddlers, boys and girls, as well as sleepwear, lingerie, scrubs and kids uniforms. It offers undergarments and outerwear for men and women.
Its accessories include handbags, luggage, hats, belts, sunglasses, jewelry and watches. The company offers home and lifestyle products for the bedroom, bathroom and kitchen, including decorative accessories; food, tech, team sports and health products; and seasonal items, books and toys. It
Craig Hallum has a huge $165 price target on Citi Trends stock. The consensus target is much lower at $131.25, and the shares closed Wednesday at $84.14, after a pop of almost 4% for the day.
Civitas Resources
This company is way off the radar and was recently part of a merger, but its stock offers solid upside potential. Civitas Resources Inc. Inc. (NYSE: CIVI) engages in the extraction of oil and associated liquids-rich natural gas. It is focused on the Niobrara and Codell formations in the Denver-Julesburg (DJ) Basin, and its primary oil and liquids-weighted assets are located in the Wattenberg Field in Colorado. As of December 31, 2020, the company had proved reserves of 118.2 million barrels of oil equivalent.
Bonanza Creek Energy announced in May that it had entered a definitive agreement with Extraction Oil & Gas to merge in an all-stock deal of equals, wherein shareholders of both companies would have equal percentage shareholdings in the combined entity. The merged entity, renamed as Civitas Resources, is regarded as the largest pure-play oil and gas company in the DJ Basin. In fact, most of the companies’ operations are based are spread across the Front Range and parts of Wyoming and Nebraska.
Investors in Civitas Resources stock receive a 2.50% dividend. The Truist Securities $65 price target is less than the consensus target of $66.17. The shares closed on Wednesday at $56.10.
CNX Resources
This company is a major beneficiary of the spike in natural gas prices, and things can only get better with winter right around the corner. CNX Resources Corp. (NYSE: CNX), an independent oil and natural gas company, acquires, explores for, develops and produces natural gas properties primarily in the Appalachian Basin.
The company produces and sells pipeline quality natural gas primarily to gas wholesalers. This division owns rights to extract natural gas in Pennsylvania, West Virginia and Ohio from approximately 524,000 net Marcellus Shale acres and 610,000 net acres of Utica Shale, as well as rights to extract natural gas from other shale and shallow oil and gas positions in Illinois, Indiana, New York, Ohio, Pennsylvania, Virginia and West Virginia.
CNX Resources also owns rights to extract coalbed methane (CBM) in Virginia from approximately 283,000 net CBM acres, as well as 1,896,000 net CBM acres in West Virginia, Pennsylvania, Ohio, Illinois, Indiana and New Mexico. The company also owns, operates and develops natural gas gathering and other midstream energy assets in the Marcellus Shale and Utica Shale in Pennsylvania and West Virginia. In addition, it offers gas gathering and water delivery solutions to third parties.
The $20 Wells Fargo price target compares with a $19.17 consensus target. CNX Resources stock closed on Wednesday at $14.48 a share.
Cowen
This boutique brokerage firm is also well liked by portfolio managers. Cowen Inc. (NASDAQ: COWN) provides investment banking, research, sales and trading, prime brokerage, global clearing, securities financing, commission management and investment management services in the United States and internationally.
The company offers public and private capital raising and strategic advisory services for public and private companies. It also trades common stocks, listed options, equity-linked securities and other financial instruments on behalf of institutional investor clients. In addition, the company offers investment products and solutions in the liquidity spectrum to institutional and private clients, as well as provides investment research services. Further, it is involved in private investment, private real estate investment and other legacy investment activities.
Shareholders receive a 1.01% dividend. JMP Securities has set a huge $60 price target. The $54 consensus target on Cowen stock is a bit closer to Wednesday’s closing print of $39.28.
PubMatic
This company’s IPO blew up out of the gate, traded higher and has come way back in, offering stellar entry points. PubMatic Inc. (NASDAQ: PUBM) provides a cloud infrastructure platform that enables real-time programmatic advertising transactions worldwide. The company’s solutions include PubMatic Cloud, which offers a customizable platform as a service to deliver a proprietary solution; openwrap and openwrap OTT, the Prebid-powered header bidding solution; openwrap SDK, which is an in-app header bidding technology; and media buyer console.
PubMatic also provides RTB advertising technologies, digital advertising inventory and real-time creative scanning for ads. Furthermore, the company offers audience encore for audience data transaction, and cross-platform video for multi-integration support for video bidding. Its platform supports an array of ad formats and digital device types, including mobile app, mobile web, desktop, display, video, over-the-top, connected television and media.
Top analysts see PubMatic as an ad-tech winner with multiple drivers, including the shift to programmatic advertising, buyers consolidating spend around fewer supply-side players and growth in new verticals like Connected TV. Some across Wall Street believe 20% or more revenue growth over the next two years is achievable and could be conservative.
Berenberg recently started coverage on PubMatic stock and has a $37 price target. The consensus target is up at $44.80. The share price rose over 3% on Tuesday to close at $29.67.
These five stocks have tremendous upside potential and also offer investors a way to help diversify portfolios while remaining actively involved in equities. Though they are better suited for aggressive growth investors, the companies are proven leaders in their respective silos and their stocks make good sense now.
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