5 worthy candidates for small-stock comeback

WAITING for small stocks to stage a comeback is like: A. Watching grass grow B. Watching paint dry C. Watching snails race

D. All of the above.

The answer, of course, is D. This year through April 12, large-capitalization stocks (as represented by the Standard & Poor’s 500 Total Return Index) have risen 7.86 percent. Small-capitalization stocks (measured by the Russell 2000 Index with dividends reinvested) have declined 0.8 percent.

As a small-cap fan, I wish that were an anomaly. Alas, it’s not. Large-cap stocks have beaten small-caps eight of the past 10 years, including the past three years in a row.

Generally, large-cap stocks are more international, more stable and have a fatter cushion against setbacks. But I’m fond of the small-caps, which are often more innovative, quicker to change strategy when needed and less covered by Wall Street.

I feel that individual investors have a better chance to find undiscovered gems among the small fry.

Here are five small-cap stocks I like now:

Dorian

a fleet of 22 ocean tankers for transporting liquefied petroleum gas (mainly propane and butane) internationally. It has a spotty earnings history but has been racking up strong profits the past two years. Its net profit margin recently was 55 percent.

I think the stock is attractive at nine times estimated earnings for the fiscal year that recently started.

Photronics

Based in Brookfield, Connecticut, Photronics Inc. (PLAB) makes photomasks, which are used in manufacturing integrated circuits and flat-panel displays. Only three Wall Street analysts cover it, and only one of them recommends it.

The stock looks appealing to me, nonetheless.

International Money

International Money Express Inc. (IMXI) helps people from Latin America who are working in the United States to send money home. The company has more debt than I normally prefer, but has grown its earnings more than 23 percent per year over the past five years.

Some people may shy away from this stock, reasoning that Donald Trump, if elected President again, may choke off immigration from Latin America (both legal and illegal). I don’t know who will win the election, but I think the forces behind Latin American immigration are strong and will persist.

Quanex

Quanex Building Products Corp. (NX), with its headquarters in Houston, Texas, makes windows, doors and other building products. It has shown a profit in eight of the past 10 years.

In one of those paradoxes in which Wall Street abounds, most analysts foresee fairly flat earnings ahead and their average price target for the stock is only $38.50, compared to an April 12 price of $35.87.

John B Sanfilippo

Nuts, anyone? John B. Sanfilippo & Son Inc. (JBSS) processes peanuts, almonds, cashews and other nuts, and sells them under both its own brands (Fisher, Orchard Valley Harvest, Sunshine Country) and as house brands. It has a 15-year profit streak going, and has grown earnings at an 11 percent annual clip over the past decade. It’s almost completely ignored by Wall Street.

The record

Over the years, I’ve written 26 columns recommending a few small-cap stocks. The average one-year return (including dividends) has been 16.2 percent. That compares with 8.5 percent for the Standard & Poor’s 500 Total Return Index and 10.3 percent for the Russell 2000 Index of small-caps.

My picks from a year ago doubled the Russell index but just edged out the S&P, 25.7 percent to 25.4 percent. Warrior Met Coal Inc. (HCC) was the best performer, up 66.6 percent. Intrepid Potash Inc. was the worst, down 25.8 percent.