The one thing about small-cap stocks is that they thrive in rebound conditions.
While there are some economic storm clouds over significant nations like Germany and China, the United States continues to chug along. The trade war with China is the only thing holding the U.S. back from getting stocks in rally mode again. And the concern over the inverted yield curve is a bit more complicated than it used to be. As other major nations sink into low- to no-growth mode and negative interest rates, the U.S. has become the best option for foreign money, especially the bond market.
The U.S. dollar remains very strong. Investors are piling into short-term bonds for a safe place to park cash until there are better opportunities. The Brexit chaos is hurting the euro and the British pound. The trade war is hurting China’s yuan.
U.S. rates are low and getting lower, but at least they’re not negative. And being the world’s reserve currency doesn’t hurt right now.
The seven small-cap stocks to buy below are perfect choices for our current market conditions. They’re Portfolio Grader A-listers, and when the clouds clear, they’ll be great long-term choices as well.
Small-Cap Stock to Buy: North American Construction Group (NOA)
The North American Construction Group (NYSE:NOA) is a Canadian firm that has been around since 1953. It specializes in mining and heavy construction services, primarily in western Canada, where the country’s oil and gas and coal are located. Fundamentally, this is an energy play without direct exposure to energy prices.
NOA stock’s market cap is around $291 million and it delivers a roughly 1% dividend. The stock is still relatively cheap, even after it 30% year-to-date run. Low rates mean opportunity to develop new properties and upgrade old ones and the stock’s 60% growth in the past 12 months is testament to its strength and influence in this sector.
Plus, as a Canadian firm, it’s protected from the worst of the global markets since much of its business is focused on domestic production and production for U.S. markets.
Napco Security Technologies (NSSC)
Napco Security Technologies (NASDAQ:NSSC) makes security products, both digital and physical. It produces everything from fire alarm systems to access control systems. This means both providing access to physical properties as well as monitoring building security, and providing both digital and analog security and safety solutions for homes and businesses.
While Napco started on the analog side of security and safety systems, it has pivoted into the digital arena and has also made ground in the consumer market as well. With its years of experience addressing the needs of the commercial community, a consumer-facing move has been well received.
NSSC stock is up 97% year-to-date and 110% in the past 12 months. And even with a trailing price-to-earnings ratio of 51, it’s still a solid buy. What’s more, with a $586 million market cap, the company is well positioned for national expansion.
PaySign (NASDAQ:PAYS) looks like the prototypical small-cap stock. With a market cap just shy of $675 million, the stock is up over 340% year-to-date and almost 390% in the past year. And its forward P/E is around 40.
It hit both your fear and greed buttons simultaneously.
But the fact is, PAYS stock is having a momentum moment. It’s just the right stock for just the right time. Basically, it issues prepaid cards for corporate, consumer and government applications. Instead of cutting checks and putting them in the mail, companies now have services like PAYS stick the money on a card and mail it.
Companies are using it to pay employees, since it’s easier than messing with checks for part-time workers or consultants. State, local and federal governments are using it to refund taxpayers. Consumers use PaySign cards for mobile telephones.
The fact is, prepaid cards are a significant aspect of the financial technology revolution. And PAYS is one of the leaders.
Rent-A-Center (NASDAQ:RCII) is likely a name familiar to you from television commercials or from physical locations you drive past on your way to work. Started in 1986, this franchise operation has stores from Canada to Mexico and specializes in renting furniture, appliances, electronics, computers and even smartphones on a rent-to-own basis.
While there’s usually premiums on the items, it’s direct financing, so the product is yours at the end of the term. This is especially popular with consumers that have trouble getting credit or have to deal with credit terms that are too expensive.
Nowadays, RCII is also attracting Gen-Xers and millennials that aren’t so possession hungry and have student loan debt that hurts their credit scores — this younger group is also more mobile and doesn’t want to haul furniture from place to place.
RCII stock is up over 70% year-to-date, 77% in the past year, yet it still has a P/E of 10. What’s more, it recently announced that it will begin paying a small dividend.
The York Water Company (YORW)
The York Water Company (NASDAQ:YORW) was founded in 1816 and is the oldest investor-owned utility in the U.S. Back then, the greatest fear many people had was fire. As York, Pennsylvania grew, bucket brigades were no longer sufficient to offer protection. A public water source was necessary to manage the needs of the town as well as to protect it.
Now, The York Water Company services customers in 48 municipalities within Pennsylvania’s York and Adams counties. It also recently began to manage wastewater and wastewater treatment.
This may not be the sexiest industry, but it’s one of the most crucial to the fundamental operations of cities and counties. There’s a finite amount of potable water available on the planet and many times those resources face competition from industries and everyday citizens. In this area of Pennsylvania, farming is another water-dependent resource.
While YORW may not be a high-growth company, it is certainly a well-established one. That also makes it a potential takeover target for larger national water companies. Then again, it’s doing fine on its own, up 18% year-to-date and over 24% in the past year. It also delivers a solid 1.8% dividend.
Great Lakes Dredge & Dock (GLDD)
Great Lakes Dredge & Dock (NASDAQ:GLDD) has been around since 1890. That was when Benjamin Harrison was president. And the year the first American football game was played.
Basically, GLDD started to build Chicago’s Harbor Lock system to separate Lake Michigan from the Chicago River and to provide navigable waterways and shoreline protection. It’s the largest marine dredging company in the U.S. and has a number of overseas operations as well.
While this may seem an antiquated kind of niche market, there are two words to remember — “climate change.” One of its biggest divisions now is coastal protection from storms and rising sea levels. From Atlantic City to Palm Beach, GLDD is the go-to company for major coastal protection projects. And this business is only going to grow in coming years.
Up 53% year-to-date and almost 87% in the past year, GLDD stock is up for the challenges the future will bring.
iStar (NYSE:STAR) is a real estate investment trust that operates in a unique niche. It specializes in ground leases. A ground lease means a company leases undeveloped property from the owner and then develops it. At the end of the lease, the owner then takes possession back and gains a developed property. STAR also is the majority shareholder in Safehold (NYSE:SAFE), a ground lease firm that focuses on commercial development.
REITs are a hot sector now because rates are low, which means borrowing costs are low. And given their structure, they deliver solid dividends that outpace inflation. For example, STAR stock now delivers a 3% dividend even after the stock has run up 38% year-to-date and 48% in the past three months.
As long as rates are low, this is a great niche REIT for diversification.