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- These seven safe small-cap stocks to buy have catalysts in play that should keep them moving higher.
- Amphastar Pharmaceuticals (AMPH): Reasonably priced play in the healthcare sector.
- Arcos Dorados Holdings (ARCO): Fast food franchisee in Latin America, could beat revenue and earnings expectations.
- City Office REIT (CIO): Office real estate investment trust (REIT) that could see a big increase in funds from operations (FFO).
- Clarus (CLAR): Outdoor equipment maker with a winning roll-up acquisition strategy.
- Encore Capital Group (ECPG): Debt collection giant, controversial business but profitable and resilient during tough economic times.
- Stride (LRN): Despite fading pandemic tailwinds, its move into adult education could more than make up for the difference.
- CVR Partners (UAN): High fertilizer prices could result in a raised payout for this master limited partnership (MLP).
If you think the latest round of market volatility is the last of it, think again. As the Federal Reserve keeps on with its aggressive approach to bring down inflation, volatility is likely to continue. That said, don’t take this to mean you need to get out of stocks, and head for the hills. Far from it. It’s simply time to change up one’s strategy. One way to do it is to pivot toward the best safe small-cap stocks to buy.
With these types of plays, you are getting the best of both worlds. On one hand, unlike, say, tech stocks, these names aren’t facing a plethora of unfavorable factors.
On the other hand, you aren’t missing out on big upside potential, either. Some of these names have performed well in recent months, despite the market’s overall performance. Others have pulled back, but could rebound thanks to company-specific catalysts.
These safe small-cap safe stocks are reasonably priced, with catalysts that could send them higher.
TickerCompanyCurrent PriceAMPHAmphastar Pharmaceuticals$33.96ARCOArcos Dorados Holdings$6.68CIOCity Office REIT$13.08CLARClarus$20.06ECPGEncore Capital Group$60.04LRNStride$35.68UANCVR Partners$129.97Amphastar Pharmaceuticals (AMPH)
The healthcare sector is a great place to find defensive stocks. Many great defensive healthcare stocks are large, well-known enterprises. Others, however, like Amphastar Pharmaceuticals (NASDAQ:AMPH), are small, and lesser-known.
At first glance, it may sound like it’s a risky biotech play, but that’s far from the case. As I discussed back in February, instead of taking a gamble to come up with the next big blockbuster drug, this pharma firm instead has a diverse portfolio of drugs/treatments. Key products include Primatene Mist, an over-the-counter asthma inhaler, as well as Naloxone, for the emergency treatment of opioid overdoses.
Already profitable, it’s also reasonably priced. At today’s prices, it trades for a price-to-earnings (P/E) ratio that’s under 20x. To top things off, it’s expected to see top and bottom-line growth continue in the coming year. A safe play, consider buying AMPH stock after its recent pullback.
This stock earns an “A” rating in my Portfolio Grader.
Arcos Dorados Holdings (ARCO)
Headquartered in Uruguay, Arcos Dorados Holdings (NYSE:ARCO) holds the McDonalds (NYSE:MCD) master franchise rights in Latin America and the Caribbean.
Although lately it has been impacted by the market’s downturn, ARCO stock remains up by double-digits year-to-date. Some of this may be due to investors shifting to high-moat, defensive plays like this one. It may also have something to do with the expected further strengthening of the company’s operating performance.
Back in March, analysts at BofA upgraded shares from a “hold” to a “buy,” with a $10 per share price target. In its upgrade, the sell-side analysts cited stronger-than-expected sales, plus margin improvements, as the reasons behind their bullish call. Right now, it trades at a valuation (17.9x) that’s arguably lower given its prospects. Arcos Dorados, which is Spanish for “golden arches,” in case you were wondering, is one to pick up after its recent weakness.
This stock earns an “A” rating in my Portfolio Grader.
City Office REIT (CIO)
Rising interest rates have put pressure on real estate investment trusts (REITs). City Office REIT (NYSE:CIO), for example, has slid nearly 30% since January. In turn, giving back almost all of its 2021 spike resulting from the windfall sale of its Sorrento Mesa portfolio of life science properties.
As seen in a recent investor presentation, City Office REIT has plowed the proceeds into the purchase of more office properties in high-growth markets in the U.S. sunbelt. In turn, it’s expected to see a nice jump in Funds from Operations (FFO), the REIT equivalent of earnings.
Last year, it generated $1.31 per share in FFO. This year, guidance calls for between $1.56 and $1.60 per share in FFO. Add in its high forward dividend yield (5.7%), and there’s a lot that could make up for interest rate headwinds when it comes to CIO stock.
This stock earns an “A” rating in my Portfolio Grader.
Clarus (CLAR)
A maker of equipment for outdoor hobbies like hunting, mountain climbing and skiing, Clarus (NASDAQ:CLAR) has scaled up in recent years using a roll-up acquisition strategy. As seen in its 243% jump over the past five years, this strategy has clearly paid off for it.
Yet don’t view these solid returns as a sign that you’ve “missed out” on this under-the-radar opportunity. CLAR stock has plenty of room to head higher in the years ahead. It trades at a low valuation (12.9x) for a branded consumer products company. A re-rating over time could give it a further boost.
Not only that, assuming it keeps running the mergers and acquisitions (M&A) playbook (something an online stock commentator says is likely), it’ll continue to see a steady rise in sales and earnings, creating more value for Clarus shareholders. Treading water after dropping in January, consider it a buy.
This stock earns an “A” rating in my Portfolio Grader.
Encore Capital Group (ECPG)
Admittedly, owning shares in a debt collection company isn’t everyone’s cup of tea. But if you have no issue having exposure to this industry, Encore Capital Group (NASDAQ:ECPG) is a great opportunity. Encore is a global player in the debt collection industry.
It purchases receivables at high discount to face value, then profits by collecting more than what it paid. A feat that’s easier said than done. Even so, Encore has been able to do it successfully for many years. This, along with a low valuation (4.8x earnings) help to make up for the risky nature of its business. Not to mention, the fact this industry has long been in the crosshairs of regulators.
The type of business that could perform even better during tough economic times, ECPG stock is a great example of the sort of safe small-cap stocks to buy at this stage of the economic cycle.
This stock earns an “A” rating in my Portfolio Grader.
Stride (LRN)
Formerly known as K12, Stride (NYSE:LRN), is an education services provider. The pandemic-driven move to remote learning provided it with strong growth during 2020 and 2021. For the fiscal year ending June 2021, revenue was up over 47.6%. With the virus recovery, this growth of course has slowed down. Like everything else, general education has experienced its own “return to normal,” more or less.
However, while not in high-growth mode, its legacy business is holding steady. More importantly, Stride has a new area of growth: adult education. The company’s move into this segment has driven growth in recent quarters.
The end result?
Possibly, steady revenue and earnings growth between now and its 2025 fiscal year. Even with these positives, LRN stock is cheap, coming in at less than 15x earnings. Holding up, despite recent market volatility, with strong upside potential, consider it another name to add to your portfolio.
This stock earns an “A” rating in my Portfolio Grader.
CVR Partners (UAN)
The big spike in fertilizer prices has been a boon for CVR Partners (NYSE:UAN). A producer of nitrogen fertilizer products, shares in this master limited partnership (MLP) shot up in price during March and April.
Yet while it’s falling back in price now, you may want to snap it up. The driver of the fertilizer price spike (Russia’s invasion of Ukraine) continues. Supplies remain low, which will keep prices high. This in turn means it will see a big increase in profitability this year versus last year. As an MLP, a pass-through entity, it stands to pay out a lot of the earnings in the form of distributions.
Already yielding 6.66%, an even higher distribution means a solid return, whether or not UAN stock rises in the immediate future. With its latest move lower, the opportunity is opening up to “buy the dip” with this commodities play.
This stock earns an “A” rating in my Portfolio Grader.
On the date of publication, Louis Navellier has positions in AMPH and CLAR. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
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