3 small stocks with promising growth prospects

Many investors like to buy stocks with small capitals. They offer much higher growth potential, which makes it easy to see why they are so popular.

However, there is a lot of negative sentiment around stocks, and for a few reasons – small-cap stocks are usually more volatile, may never get out of ‘ground floor’, and many believe that fraudulent activity is widespread.

However, the negative sentiment appears to have been exaggerated – a lot of small-cap stocks were major gainers. They usually have less coverage than analysts, allowing retail investors to get in “early”. And, of course, the growth potential is incredible.

However, investing in small capitals may not suit the most conservative investors, as they usually have large price swings. However, for investors who take on higher risks, it can be more tempting.

Three high-profile small hats paired with strong growth prospects and strong performance in 2022 include Quanex Building Products NX, Bel Fuse BELFB and CECO Environmental CECE.

Below is a year-to-date chart of all three companies with the S&P 500 incorporated as standard.


Image source: Zacks Investment Research

As we can see, all three stocks are doing well in the green year to date, reporting returns that are hitting the market. Let’s take a closer look at each one.

Bill Views

Bel Fuse BELFB designs, manufactures and markets a wide range of products that power, protect and conduct electronic circuits. The highly sought-after sports company Zacks is ranked #1 (a strong buy).

Analysts have been bullish across the board for the past 60 days, raising their earnings expectations significantly.

Zacks Investment Research
Image source: Zacks Investment Research

The company has a strong growth outlook — for the company’s current fiscal year (FY22), Zacks Consensus EPS estimate of $3.20 reflects a massive 50% rise in earnings year-over-year. And the growth doesn’t stop there – the top Bel Fuse streak is expected to generate 14% of growth in FY22.

Below is a graph showing the company’s revenue on a quarterly basis.

Zacks Investment Research
Image source: Zacks Investment Research

In addition, the company reported strong bottom line results – over the last four quarters, Bel Fuse’s average EPS surprise was 370%. Only in its most recent edition did Bel Fuse pencil in a 260% win over the bottom line.

Quanex Building Products

Quanex Building Products NX is a leading manufacturer of components sold to original equipment manufacturers (OEMs) in the building products industry. The company ranked Zacks #1 (Strong Buy).

Analysts raised their final forecasts across almost all time frames – a bullish sign.

Zacks Investment Research
Image source: Zacks Investment Research

In addition, NX carries an AB pattern score for growth, and here’s why – Zacks Consensus’ EPS estimate of $2.35 for the company’s current fiscal year (FY22) reflects a 35% multiplier increase in earnings Y/Y.

Top line growth forecasts also show strength; Quanex is expected to generate $1.2 billion in revenue during fiscal year 22, up 11% year over year.

Below is a graph showing the company’s revenue on a quarterly basis.

Zacks Investment Research
Image source: Zacks Investment Research

Just in the last quarter, the company posted a massive 80% profit win. And over the past four quarters, an average EPS surprise of 30% has been noticeable.

CECO Environmental Group

CECO Environmental CECE is a leading environmentally focused and diversified industrial company whose solutions protect people, the environment and industrial equipment worldwide. Currently, the company is rocking Zacks #2 (purchase) rank.

Over the past 60 days, analysts have moved their earnings estimates upward significantly across all time frames.

Zacks Investment Research
Image source: Zacks Investment Research

Similar to the stocks listed above, the company’s outlook reflects significant growth — Zacks Consensus EPS estimate of $0.63 for the current CECE fiscal year (FY22) records a three-digit rise of 125% year-over-year in earnings.

Looking at the top-line estimates, Zacks Consensus’ fiscal year sales estimate is $22,394 million, which is a significant 21% increase over fiscal year 21 annual revenue of $324 million.

Below is a graph showing the company’s revenue on a quarterly basis.

Zacks Investment Research
Image source: Zacks Investment Research

In addition, CECE has consistently reported higher-than-estimated final results recently, exceeding the Zacks Consensus EPS estimate in three consecutive quarters. Only in its most recent edition, the company made a profit of 63%.

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Investing in small businesses comes with many perks, like “getting in early” at the next big thing. They also offer much higher growth potential and are often under the radar of analysts.

However, investors should be aware of the high volatility nature of small cap stocks.

Those who invest in space are usually more risk-takers, as it is quite possible for some of these companies to never get off the ground floor.

All three companies mentioned above deserve a place on any small scale trader’s watch list.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 of the best stocks for the next 30 days. Click for this free report

Quanex Building Products Corporation (NX): Free Inventory Analysis Report

CECO Environmental Corp. (CECE): Free Stock Analysis Report

Bel Fuse Inc. (BELFB): Free Stock Analysis Report

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The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.

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