26 Small Stocks
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:
- Have been public a long time
- Have a long history of profitability
- Have an adequate Z-Score
- 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).