Although it’s been a volatile December, the U.S. stock market is days away from recording another strong year. Outsized returns in many individual stocks have many investors looking for ways to spread some holiday cheer by embracing the risk-on trade.
It remains to be seen whether the recent pandemic concerns can put a major dent in the market’s festive run since last March. But with some expecting the newfound volatility to present more buy opportunities, a Santa Claus rally may be in the cards.
Small caps have lagged their larger peers year-to-date, but if and when risk-on mode returns, they will likely be a great place to be. Here are some last-minute stocking stuffer ideas for the bargain-minded small cap investor.
Is Standard Motor Stock Undervalued?
Standard Motor (NYSE:SMP) is one of the top auto replacement parts businesses in the country. The century old company was one of few consumer discretionary names that grew profits last year and it is expected to do the same both this year and next.
Engine parts and temperature control systems have been in high demand from heavy-duty industrial customers since the economic recovery began. Standard Motor is a go-to business globally in this space because of its strong brand recognition and dual manufacturing facilities in North America and Poland. The company has been able to ride its strong reputation to lucrative new business wins and market share gains, trends that are likely to persist heading into 2022.
Standard Motor had a second growth engine in the form of its newly acquired Trombetta business. The DC power products specialist is expected to make a major contribution to sales and enhance Standard Motor’s clout in the original equipment (OE) market which includes construction, lawn & garden, and other industrial manufacturers.
In addition to its growth prospects, Standard Motor’s financial statements are far from standard. It has a virtually debt-free balance sheet that will allow it to pursue organic growth and M&A opportunities as well as further stock buybacks. At 11x next year’s earnings forecast, Standard Motor is looking like a powerful small cap value play.
Is Endo International Stock a Good Turnaround Play?
Endo International (NASDAQ:ENDP) is an American pharmaceutical company domiciled in Ireland whose share price had slid back into penny stock territory. It’s been more downs than ups for the company over the last five years but there have been signs of a potential turnaround.
Pandemic challenges that limited patient flow and elective procedure volumes have largely subsided allowing Endo’s diversified business model to go to work. The company’s key Xiaflex product has since performed well due to higher demand to treat Peyronie’s disease and Dupuytren’s contracture patients.
Although Endo offers branded and generic drugs for urology, oncology, endocrinology, orthopedics, and pain conditions, its biggest segment is Sterile Injectables. The lead products here are Vasostrict for diabetes, Adrenalin for allergic reactions, and Aplisol which is used to help diagnose tuberculosis. The upcoming launch of Qwo, the first FDA-approved injectable treatment for cellulite, should also give this business a major boost.
While softer sales and competitive pressures in the generic drugs business remain headwinds, strength in other areas of Endo’s business could more than offset this. As cash flow improves and the high debt balance gets reduced, the stock will start to look more attractive to small cap institutional investors. At less than 2x forward earnings, buying and waiting for this comeback story to play out may be money well spent.
Is MoneyGram Stock a Buy?
Global money transfer company MoneyGram International (NASDAQ:MGI) is coming off a better than expected third quarter performance which may have marked a pivot point. Although earnings were down 19% compared to last year, the bottom-line result well exceeded consensus expectations.
As a rush of fintech startups and cagey industry veterans flood the financial services market in the post-Covid world, MoneyGram has been playing catch-up. While it still has its work cut out for it, heavy investments in its digital capabilities have significantly improved the company’s competitive position. The MoneyGram Online (MGO) platform is growing at a double-digit pace thanks to a growing consumer appetite for digital money solutions.
As this trend persists, MoneyGram’s key digital business should continue to generate strong profit growth. Analysts are forecasting that EPS will more than double next year to $0.57 as global funds transfer volumes increase and recently formed partnerships provide additional revenue streams. This means that the stock is trading at 14x forward earnings which is below the forward P/E of the S&P 600 small cap index. Given the expectation for peer-to-peer commerce to become more global as the decade progresses, it may be worth transferring some funds to MoneyGram stock.