26 Small Stocks

by Geoff Gannon

Over the last two years, Quan and I failed to find as many good, small stocks for the newsletter as we should have. We did Breeze-Eastern which was small. We also picked Ark (ARKR), Tandy Leather (TLF), and Village Supermarket (VLGEA). All of those are under $500 million in market cap. America’s Car-Mart (CRMT) is also on the small side. But, it’s a financial stock.

If your biggest problem with sifting through small stocks is getting rid of the low quality and high risk stocks in the group – there’s an easy screen for this.

Just look for stocks that:

  1. Have been public a long time

  2. Have a long history of profitability

  3. Have an adequate Z-Score

  4. Have an adequate F-Score

This won’t leave you with a list of good stocks. But, it will remove the junk. This is a value investing blog. So, we’ll insist on an enterprise value no higher than 10 times EBIT (ideally, it would be 10 times peak EBIT – but that’s harder to screen for).

If we apply these 5 criteria – 1) didn’t go public recently, 2) decent history of past profits, 3) decent Z-Score, 4) decent F-Score, 5) decent EV/EBIT – we are left with 26 U.S. stocks with a market cap under $500 million:

  • Armanino Foods of Distinction (AMNF)

  • Jewett—Cameron (JCTCF)

  • Medifast (MED)

  • Span-America (SPAN)

  • Espey Manufacturing (ESP)

  • IEH (IEHC)

  • Educational Development (EDUC)

  • Chase (CCF)

  • Shoe Carnival (SCVL)

  • Air T (AIRT)

  • Flanigan’s (BDL)

  • Comtech Telecommunications (CMTL)

  • Eastern (EML)

  • Miller Industries (MLR)

  • ADDvantage Technologies (AEY)

  • Collectors Universe (CLCT)

  • Houston Wire (HWCC)

  • Wayside Technology (WSTG)

  • Lakeland Industries (LAKE)

  • Taylor Devices (TAYD)

  • Zumiez (ZUMZ)

  • Core Molding (CMT)

  • Natural Gas Services (NGS)

  • Universal Truckload (UACL)

  • Acme United (ACU)

  • Preformed Line (PLPC)

This list excludes stocks I’ve already picked. Tandy, Village, and Ark would be on the list if that wasn’t the case.

Sorting through that list then becomes a matter of personal preferences and biases. For example, I’d be less likely to research Zumiez – which is a specialty retailer (it’s basically a mall based chain of stores selling skateboarding related clothes, etc. aimed at teens) because Quan and I rarely consider investing in retailers. I might be more likely to look at Collectors Universe and Miller Industries because they have big market share in their niches (collectibles grading and tow trucks respectively).

Talk to Geoff about 26 Small Cap Stocks

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