As the economy continues to grow, it's a great time to consider small-cap (short for small capitalization) stocks. A stock is considered a small-cap if it has a market capitalization between $300 million and $2 billion. Often, smaller companies provide opportunities for growth that larger companies cannot.
This is due to the law of large numbers. This means it's more difficult for larger companies to grow as they get bigger. Plus, small-cap stocks have historically outperformed their larger-cap peers. From December 31st, 2000 to December 31st, 2020, the small-cap Russell 2000 index returned 308.4%, significantly outperforming the 184.5% gain of the large-cap S&P 500 index.
Small-cap stocks also benefit from an economic recovery as they are more sensitive to the economy. So far this year, the Russell 2000 is already up 13.6%. This means that as the economic recovery continues, small-cap stocks like Greif Inc. (GEF), Inter Parfums, Inc. (IPAR), and Abercrombie & Fitch Company (ANF) are definitely worth considering.
Greif Inc. (GEF)
GEF is a producer of industrial packaging products and services with manufacturing facilities located in many countries. The company offers a comprehensive line of rigid industrial packaging products, such as steel, plastic drums, rigid intermediate bulk containers, closure systems for industrial packaging products, and transit protection products.
The company is seeing great improvement in many of its key end markets. For instance, the industrial sector has shown a pickup in activity over the past few months, driven by a ramp-up in global economic activities. GEF is generating solid sales to lubricant and bulk chemical customers. This is due to improved auto demand and improving industrial conditions.
Plus, tanks and coating sales were up as a result of better auto and construction demand. Sales to pharma and personal care markets also remain strong, and the firm's pricing actions are helping to mitigate the impact of higher costs and aid margins. This is a result of its restructuring activities, which have included optimizing and integrating operations.
The company has an overall grade of A, which translates into a Strong Buy rating in our POWR Ratings system. GEF has a Growth Grade of B as the company has grown earnings an average of 41.3% a year over the past five years. Earnings are expected to rise a whopping 80% year over year in the current quarter.
GEF also has a Value Grade of A, which isn't surprising as it has a trailing P/E ratio of 14.95. Plus, its price-to-sales ratio of 0.6 is well below the industry average. We also provide Momentum, Stability, Sentiment, and Quality Grades for GEF, which you can find here. GEF is ranked #1 in the Industrial – Packing industry. You can find other top stocks in this industry by clicking here.
Click here to check out our Industrial Sector Report for 2021
Inter Parfums, Inc. (IPAR)
IPAR operates in the fragrance business and manufactures, markets and distributes fragrances and fragrance related products. It sells its product under the brand names JIMMY CHOO, bebe, Paul Smith, Abercrombie & Fitch, COACH, and others. The company sells its products to department stores, perfumeries, specialty stores, and domestic and international wholesalers and distributors.
IPAR reported strong sales numbers for the second quarter as the company's product launches and strategic alliances have yielded excellent results. In particular, the company is very encouraged about the recent launch of its MCM fragrance. It is showing strong demand in parts of continental Europe, the United States, and South Korea.
China's Sephora stores just launched the product, and the U.K. is likely to start selling soon. The company has also continued to roll out products introduced in the first quarter, such as Oscar de la Renta's Alibi, GUESS's Bella Vita, and Hollister's Canyon Escape. The firm has more fragrances expected to launch over the next few months, including a Lanvin women's line and Abercrombie & Fitch's new duo.
IPAR has an overall grade of B and a Buy rating in our POWR Ratings system. The company has a Growth Grade of A, partially driven by a strong history of earnings and EBITDA growth. EBITDA is up 50.5% over the past year, and analysts forecast earnings to soar 330% year over year in the current quarter. IPAR also has a Quality Grade of B due to solid fundamentals.
The company had $294 million in cash as of the most recent quarter, compared with only $1 million in short-term debt. IPAR also has a gross margin of 61.9%, which is well above the industry average and the S&P 500. For the rest of IPAR's grades (Value, Momentum, Stability, and Sentiment), click here. IPAR is ranked #22 in the A-rated Fashion & Luxury industry. You can find other top-ranked stocks in this industry here.
Abercrombie & Fitch Company (ANF)
ANF is a specialty retailer that sells casual clothing, personal-care products, and accessories for men, women, and children. It sells directly to consumers through its stores and websites, including the Abercrombie & Fitch, Abercrombie kids, and Hollister brands, with most stores located in the United States.
The company has made significant progress in expanding its digital and omnichannel capabilities. This has helped it better engage with its consumers and led to strong digital momentum in the first quarter. Digital net sales increased 45% year over year while contributing 52% of the company's total sales.
The digital business is benefiting from the addition of new customers and strong digital marketing efforts. Sales have also been aided by high customer retention and higher spend per customer. ANF plans to continue investing in its digital capabilities by adding curbside and ship from store services. The firm is also looking to optimize capacity at its distribution centers to meet this increased digital demand.
ANF has an overall grade of B, translating into a Buy rating in our POWR Ratings system. The company has a Value Grade of B, which makes sense with a trailing P/E of 14.35 and a forward P/E of 15.43. Its price-to-sales is also quite low at 0.7. ANF also has a Quality Grade of A, which is backed by a rock-solid balance sheet.
The company has a current ratio of 1.8, indicating it has more than enough liquidity to handle short-term obligations. As of the most recent quarter, ANF had a cash balance of $909 million with no short-term debt. To gain access to all of ANF's grades (Growth, Momentum, Stability, and Sentiment), click here. ANF is ranked #26 in the A-rated Fashion & Luxury industry.
Click here to check out our Retail Industry Report for 2021
GEF shares were trading at $61.19 per share on Monday afternoon, up $0.57 (+0.94%). Year-to-date, GEF has gained 32.44%, versus a 18.19% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.3 Top Small-Cap Stocks to Buy for August appeared first on StockNews.com