Geoff Gannon January 29, 2016

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:

  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).