No. of Recommendations: 5
I just established a composite position from these 4 roughly equal-weight positions. My thesis is pretty simple: a lot of investing is done via index funds, particularly SPX index funds, and that leaves smaller cap companies that are doing reasonably well relatively undervalued to large caps, even more than historically. I looked for small market caps (not enterprise value) as defined by MS/Etrade, low valuation (P/E < 15), any positive dividend yield, and filtered out prices too close to their 52 week low.
I immediately ruled out a lot of small regional banks, closed ended funds, and non-equities. I also looked at recent insider trading and short ratios - not in the screen, but to rule out red flags.
There's a lot of reasons this trade might be a bad idea. These companies can be small for reasons. In at least two of them, share ownership and voting control is problematic; also they could be wiped out in a recession more easily than a large firm. That being said, here are the four I chose after looking at several hundred (most data below is from Yahoo finance, some validated on best-effort basis in SEC filings - small company data can be iffy).
As always, use limit orders with microcaps.
Personally, and as a meta concern, I worry that this is a sign that I'm bored and indicative of a market top.
George Risk Industries, Inc. (RSKIASecurity line products, cable and wiring tools. Founded by George Risk, then run by his son, now run by his granddaughter.
Market cap $78M, $45M of that is cash with no debt. 5 year share performance +86.45%. 6.28% forward yield, increase over previous payment. Trailing P/E just under 10.
McRae Industries, Inc. (MCRAA)Manufactures and sells military combat boots for the United States Army. The company manufactures, sells, and distributes western, lifestyle, and work boots. Another closely held one, founded by Branson J. McRae, now in the 3rd generation.
Market cap $119M, also $45M of that is cash net of negligible debt. 5 year share performance of about 100% (eyeballing from charts). 1.15% forward yield, track record of dividend. Trailing P/E 13.7.
Bel Fuse Inc. (BELFA)Designs, manufactures, markets, and sells products that power, protect, and connect electronic circuits. Relatively recently completed a large acquisition, and I haven't modeled this into the below numbers, yet
https://ir.belfuse.com/news-releases/news-release-....
Market cap $1.04B, but existing data on balance sheet is wrong because of Enercon deal. 5 year share performance of +523.01%. 0.24% forward yield, history of small dividend (payout ratio is comparably small, at least). Trailing P/E 20.5.
FutureFuel Corp. (FF)Manufactures and sells diversified chemical, bio-based fuel, and bio-based specialty chemical products in the United States. 1970 Eastman Kodak spinoff.
Market cap $248M, and 115.06M cash rounding error debt. 5 year share performance of -51.43% (positive yoy). 4.23% forward yield, same as last payment. Trailing P/E 6.2.
