This is the Value Investor podcast with Tracy Rinek, All Things Value All the Time. Welcome back value investors. So what's on Jack for Value in 2024? The major big cap indexes remain at or near their all time highs here to start 2024, but many strategists believe it may be time for the small caps.
I just discussed this with my colleague Andrew Rocco on the Zex Market Edge podcast here in January 2024. And that show called, should you buy small caps stocks in 2024 is on YouTube. So I recommend checking that out. Just go to zax.com slash YouTube to check out that podcast.
But I also said in that podcast that I wanted to cover it for value stocks as well, because as many of us know, small cap value is among the best performers of any asset class in the stock market for say the last hundred years now. But it's been a while since it has outperformed, even just small caps in general. So I took a look at the Russell 2000 ETF, the IWM, and it's up 28.3% over the last five years. And not all that great if you do it annualized.
It's not even 6% annualized. But the S&P 500 is up 77.4% during that period. And the QQQ ETF is up 145.7%. Most of that outperformance, well, really in the S&P and the QQQ are due to the magnificent seven and the outperformance there.
That's big percentages of those indexes, but they don't exist in the IWM. So that's why we're seeing the much lower number there. So we did have a rally in the small caps to end 2023. It was one of the bigger rallies in the last say 30 years or so more.
And that seems to be weakening now here in 2024. Investors are taking some gains off those big small cap gains that they had, including myself and some of my portfolios here at SACS. And they're not trusting what is going on with the small caps. But that doesn't phase me because I like to look at contrarian plays, all value investors do.
We like to find the deals and the bargains. And clearly the deals and the bargains are not in the magnificent seven right here, but could be in this asset class, the small caps where they've really underperformed, especially small cap value. So I decided to run a screen, as always, on this podcast for small caps. And I wanted them cheap.
Well, I also did want some growth in there because you really can't escape the growth with the small caps. That's part of the buying the small caps. So we do have a premium screen here at ZACS called small caps with big growth. So that sounds easy, but it also has evaluation factor in it.
It does look for low valuations. So I decided to run that one. And what else is in there? So it does look for sex ranks of number ones and number twos.
And those are the buys and the strong buys. So we do want that because we do want something good going with earnings estimates. Now remember with small caps, they're not as likely to be covered by analysts. So keep that in mind.
So even with the ZACS rank, they would have to have at least one analyst to get the ZACS rank because the ZACS rank is determined by changes in analysts estimates. So you're going to have at least one, but many small caps might only have one. So that one person decides to raise it, then they might get that better ZACS rank. But still means something good is going on there and that's what we want to look for.
The screen also looks for a close above $5 a share because I don't really want to deal with the dollar stocks. I know many of you like them, but if it's over $5 that is indicating to me that something else is kind of going on there and not everybody is thrown in the towel on the stock basically. Average volume has to be over $100,000. And then on value part price to sales ratio is what was used in the screen and it's below one always.
And remember what that means. So if it's .7 as an example, that's below one and that means we're getting the sales of that company for $0.70 on the dollar. We're getting them on sale 30% off. So we're paying less for that dollar of sales.
That's what we want. And then market cap on this is pretty low. It's pretty tight. I thought about changing it, but then decided not to, but the market cap is a billion dollars or below.
So definitely small cap, not micro cap, but very small. And you could go up to $2 billion. I've seen some people even go to like 2.5 as small caps as well. So that's what I did think about changing it to $2 billion.
But when I ran it, it did give me enough stocks and a billion. So I left it at a billion. And how many did it give? It gave me 14 stocks.
So that's pretty good. I looked at the list. Most of them, most of us would not recognize, right? This is the challenge of being a small cap investor.
For the most part, won't recognize the companies. You never heard of them. You have to do a lot of research on them. They're not as often covered by the analysts.
So you don't even have notes or analysts reports. You have to do it all on your own. You've got to listen to the conference calls or maybe you just live near where one of these companies is or you work there, your friend work there, a family member work there. And that's how you heard about them.
There's a lot of ways to find out about small cap companies. But screening using this X-rank is one of them. But as I mentioned, a lot of these companies don't even have analysts coverage. So they would not show up in the rank.
But these ones did, 14 stocks. One of them is very recognizable. So I did pick it for the five that I'm going to talk about because why not? Why not pick the one that most of us probably do know?
So let's dive right in. See what's on these. Other than this first stock, I did not know about some of these others. And I just kind of chose them based on the name, basically.
One of them has manufacturing units. So I was interested to know what's that about. What are they manufacturing? But otherwise, I just don't want it.
This one sounds interesting. Let's go for that one. So that's how it is. That's how we roll in the small cap space.
OK, the first stock is Coppelli. This is the one we know. It is a restaurant chain. It actually started here in Chicago in the Lincoln Park neighborhood in the 1970s, I think.
And that original location is still there. If you're interested in these kinds of things, like I am, about old restaurant chains, you can come to Chicago and actually go to Poppelli number one, which is rare here in Chicago. Well, Tigger is P is in Paul B is in Paul B is a boy. So it just repeats PB, PB.
That's a tongue twister there. And Poppelli's kind of struggled over the years. And then we had COVID that didn't help any of the restaurant chains. Well, it's seemingly coming out of it a bit.
And strangely, I've been going to Poppelli some more recently. I've been back in the office. They do have a more expanded menu that they've been working on. And they've added a lot of interesting sandwiches along with some good salads now, too.
So things are looking up there and price the sales is just 0.8. And the market cap is 378 million. Now this stock did catch a bid during the small cap boom. And it was up 73% in the last three months.
And it's up over the last two years, 123.6%. So something good going on there is a Zax number two, which is the buy. And so some of these small restaurants, you know, if they can turn it around and catch some momentum again, then things start to look up. Now, they do have a forward P of 61, but we didn't use a PE for this stream.
We just use the price of sales. So that's Poppelli's ticker PDPB. The next stock, I want to say we've talked about this one, but I did not remember it. But when I went over to their website, it looked familiar.
It's Xberry Inc, which is X, P as in Paul, E-R-I. So the ticker is X, P as in Paul, E as in Edward, R as in Robert. So four letters, X, P-E-R. And they say they invent, develop, and deliver the technologies that create extraordinary experiences.
They have Tevo, and they were talking about, I watched some investor relations video, and they talked about how the Tevo's on-screen guide was revolutionary. And they want Emmys and Oscar nominations for their entertainment type of technology. They do have 30 million subscribers still. So that's kind of the area that they're in digital entertainment.
So market cap of 464 million, price of sales is 0.9. They're number two, again, which is the buy. Three months, they're up 20.4%. And two years though, they're still dragging down 55.5% over those two years.
So basically got sold off in the 2022 sell off and hasn't really come back unless you decided to buy it in the last three months. So that's Xberry, ticker X, P-E-R. Then the third stock is the one that had manufacturing in it. So I picked it, Virco manufacturing, ticker Visa and Victor, I, R as in Robert, C as in Cat, V-I-R-C.
Market cap here just 193 million. And they describe themselves as a leading manufacturer of office and school furniture. So didn't know that. They've been in business over 70 years, but get a load of how hot it is.
Three months, shares are up 58.4%. But over the last two years, Virco was up 251%. 251%. Wow.
So I didn't have to look at the earnings on this one. What's going on? Because remember, it was small caps with big growth. So the growth component in the screen really was on the earnings side.
And earnings for fiscal 20, 24 expected to be up 32%. And then fiscal 2025, 27%. We only have one estimate on this company. Price to sales is 0.7.
And it is as X number one, it's strong buy. I'm thinking office, that's not the reason, but school furniture, maybe. I don't know. But that's super hot.
And the stock, it is reflecting that. But still cheap on a price to sales ratio basis. So Virco manufacturing V-I-R-C. Number fourth stock is Enviri Corp.
And is a Nancy. V is a Victor, R is Robert, I, N-V-R-I. And they do environmental solutions. It looks like recycling for a lot of big companies.
They have 160 sites across the globe. Market cap of 690 million. Price to sales is 0.3. The R is X number one rank.
So that's also the strong buy. Over the last three months, the stock is up 27%. But over the two year period, it looks a lot like Xperi down 53% over that time period. So it did catch a bid when the small caps surged at the end of 2023.
But it's still really depressing if you bought this a couple of years ago. But maybe you didn't. So that's why we're looking at them. OK, number five is anywhere re-re.
So I didn't really know what this one was. Never heard of it. Never is H as in Harry O-U-S. So like House, H-O-U-S, but no E at the end.
And they're in US residential real estate services, franchise, brokerage, relocation, title, and so on. So real estate. 741 million market cap. Price to sales ratios is 0.1.
Number two, livestock on the Zax rank. Over the last three months, shares have surged. Up 48.7% but they've been up more. But they have weakened in the last month.
So down 14% in the last month now after that big rally starting the end of October there. And yeah, so real estate two years though, this one is like some of the others, still down 59.9%. A lot of those real estate stocks got hammered in 2022 when the Fed started raising rates because everyone feared the collapse of the housing market. And they still somewhat do.
And anyone on the real estate brokerage side or involved in the buying and the selling of homes or mortgages for homes, that has been in a recession since 2022. Lots of layoffs, real estate agents struggling because sales are down 30% to 40% pretty much nationwide. So if you're not selling anything, you're not seeing any income coming in. It's really, really difficult in that industry.
So we can talk about how new homes sales are down, but then the builders are hanging in there with their high margins and all that. But other areas and other parts of the industry have a little bit different business model. And when sales, the volumes of homes sold, falls this sharply. It's real dark times.
So I can see why these shares are down about 60% over the last two years. But maybe some hope has been built in here. And that's why the big rally over the three month period of almost 50% in that period. So that's anywhere reticker HOS.
So anyone can run these screens or you can just go to the ZAC screen or even if you're not a premium member, you can't run this exact screen. If you're not a premium member, but you can kind of create your own. You won't get the ZAC rank in there without being premium member. But you can still screen for small caps with some of the value factors, whether or not it's spread into sales, PE, price of book, or maybe screen with a peg in order to get growth component in there.
And you can still kind of see what's coming up on the ZACs, well, on the small caps side. Now I do like adding the ZACs rank for small cap screens. Andrew and I can discuss this a bit in the market edge podcast that we did because rising earning estimates can narrow the screen. That's what I want.
I want something good going there. That's why I looked at the Virco, right? It's up to 150%. Like what's going on there?
And it's got the good ZACs rank. So that's where using the rank, I can find some of the top of the small caps where something positive is going on. And that's hard to do without the rank because you might just get like dozens of small caps that are cheap. But how do I know?
Unless I'm really diving in on the whole list that I'm getting there. So that's why I like to run these screens for all of you guys who aren't premium members for this podcast so that you can get access to the ZACs rank and the small cap screens without being a premium member and get some ideas of what's going on out there. And just some ideas to add to your watch list perhaps and to do some further research on to kind of see what's going on with these small caps. So as Andrew and I discussed in the Market Edge podcast, it is difficult to pick individual stocks in the small cap space.
You really do kind of have to know something about it. Like so with top Elies, for instance, I have gone there. I am in Chicago, very familiar with their brand. I know their products.
So that kind of thing is important for small cap stocks. You really do want to know something about the product or the company if you can. So that's why it is hard to be the small cap investor. But will the small caps really be the breakout this year?
You can always stay with the indexes with the IWM or whatever other index you want to use. There's several Vanguard small caps. You can do a small cap value ETF as well if you just want to capture the value side. But yeah, this is going to be an interesting year on the small cap side.
And also the large caps. Can the large caps keep this rally or at least the magnificent seven? Can they keep it up or will we see some opportunities in these areas where stocks are on sale like the small caps? We're going to see.
It's going to be an interesting one. Okay. So there was popellies ticker PB, PB. Then we had X-fury which has the T-voe and they've won the Emmys and that's E or that's X.
P as in Paul, E as in Edward R as in Robert X P E R. Then we had Virko manufacturing the office and school furniture guys that's surging. V as in Victor I R as in Robert C as in Cat V I R C. Then we had Enviri Corp which is N as in Nancy V as in Victor R as in Robert Y.
And then we finished it up with the real estate brokerage firm. But those are somewhat struggling. It's got the good number two by rank and that's H as in Harry O U S like house but with no E H O U S. And as always I'm bringing you value stocks every week here on the Value Investor podcast in 2024.
I hope you'll join me here and subscribe somewhere either on Apple. We're on Apple podcast of course Spotify. We are on SoundCloud but under the Zax market at just the search under Zax market at you get both of those shows on SoundCloud. But you can also get us on YouTube now.
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