In this episode I review the top 5 small cap stocks in the market today.
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Hi guys and welcome to another video. Now, if you are looking for the best small cap stocks to buy now then make sure to watch this video all the way to the end cause have I got 5 top small cap stocks for you today.
Established tech companies like Apple and Facebook are generally sound investments, but the law of large numbers can prevent large-cap stocks like these two from delivering multi bagger returns at this point in their corporate development.
That generally means that investors seeking bigger long-term gains need to set their sights on small-cap stocks with market capitalization rates below $2 billion. Let's take a look at five promising small-cap players that have room for outsized growth but still trade at reasonable valuations.
But before I show you my list of small cap stocks, if you are new to my channel please subscribe and hit that bell notification so you will know when I release more stock trading tips.
The first one up is Capri Holdings. Capri Holdings is a small cap luxury products company that owns the Versace, Jimmy Choo, and Michael Kors brands. They have a global presence including popularity in Mainland China which is an important luxury market.
The past two years have seen declining global GDP growth rates followed by a pandemic but going forward, they seem to be in a good place. They’ve been rapidly building out their ecommerce capabilities, and analysts expect a rebound in earnings. The stock is trading for a little over 10x forward consensus earnings estimates.
The second small cap on my list is Texas Pacific Land Trust. Now Texas Pacific Land Trust owns a big chunk of the oil-rich land in the Permian. They get royalties for letting companies drill on their land, use their water, and build infrastructure like pipelines or other assets. Their market cap remains below $5 billion despite impressive growth.
Unlike oil producers, TPL has very limited expenses. This means they have less operational leverage and higher profit margins. So, while many oil producers were absolutely crushed by low oil prices over the last year TPL was merely “inconvenienced” as their incomes took a hit but they remained profitable.
As energy prices normalize, TPL earnings are expected to normalize as well. They still have vast stretches of undrilled land and plenty of opportunity for growth ahead.
Small cap stock number three is Impinj. This is a leading manufacturer of radio frequency identification chips, readers and software. Companies use their chips to track products, optimize their supply chains and collect data.
This company generated strong sales before the pandemic, especially from brick-and-mortar retailers that needed to track their inventories and sales trends to counter e-commerce giants like Amazon. Its revenue rose 25% to $152.8 million last year, with an adjusted EBITDA of $1.6 million compared to a loss of 13.8 million in 2018.
But this year, it’s growth stalled as the pandemic disrupted supply chains and shut down retailers worldwide. Its revenue dropped 9% year over year to $102.5 million in the first nine months of 2020, and it posted an adjusted EBITDA loss of 8.4 million compared to a profit of $0.6 million a year earlier.
Those numbers look weak but the company's sales rose 6% sequentially in the third quarter as more businesses reopened. Analysts still expect it’s revenue to decline 15% this year as its bottom line remains in the red, but the situation should improve next year as the pandemic passes.
Impinj's stock is reasonably valued at seven times next year's sales, and it could attract a lot more investors as its core customers resume their orders to better track and organize their products for digital platforms.
Moving onto small cap stock umber four which is Infinera. Infinera's optical solutions help carriers boost the speed and capacity of their existing networks without laying down additional fiber. It accomplishes this by splitting the optical signals across different wavelengths.
Current-generation fiber networks transfer data at 100G to 200G speeds across long distances and 400G to 600G speeds across shorter distances. Many carriers are now testing out 800G solutions which mainly come from three companies: Infinera, Ciena and Huawei.
Trade blacklists and sanctions are preventing many carriers from buying Huawei's equipment, which leaves the market open for Infinera and Ciena. Many carriers don't want to tether themselves to a single supplier so they'll likely split their 800G contracts between Infinera and Ciena.
Infinera's revenue rose 10% year over year to $1 billion in the first nine months of 2020, and its adjusted net loss narrowed from 113.7 million to $62.5 million. Analysts expect its revenue to rise 4% for the full year due to slower sales of older products in the fourth quarter and for its net loss to narrow.
But next year they expect its revenue to rise 8% as sales of its ICE 6 800G products accelerates in the second half of the year with a full-year profit. That's a solid outlook for a stock that trades at just over one times next year's sales so it could attract a lot more investors as its growth accelerates.
The last small cap stock I want to discuss is Limelight Networks. Limelight Networks provides a content delivery network that delivers digital media content and software from websites and apps. Its notable customers include Disney's Marvel and Fox, Roku, Tencent, and the BBC.
Limelight's revenue rose 3% to $200.6 million last year but aggressive investments reduced its adjusted EBITDA by 44% to $18.1 million. But this year Limelight's revenue jumped 24% year over year to $174.8 million as stay-at-home trends during the pandemic boosted the consumption of online content. Its adjusted EBITDA more than tripled to $20.9 million dollars.
Limelight expects its revenue to rise 15 to 20% this year and for its adjusted EBITDA to surge 55 to 93%. It also expects to post a slim non-GAAP profit this year, compared to a net loss in 2019. Analysts expect its revenue to rise 9% next year, and for its non-GAAP earnings to more than double.
Limelight faces a lot of competition in the CDN space from companies like Akamai and Fastly but it also has a strong customer base and its stock is reasonably valued at two times next year's sales and about 60 times next year's adjusted earnings. Limelight's low enterprise value of $550 million also makes it a tempting takeover target for its bigger industry peers.
In my opinion shares of Capri Holdings, Texas Pacific, Infinera and Limelight Networks represent a potential buying opportunity if you like to diversify your portfolio with some small cap stocks with great potential.
So that’s it, these are the best small cap stocks for this month, thanks for watching and make sure to watch the next stock trading videos that should show up right about now.