Editors' pick: Originally published Jan. 21.
Small-cap stocks are taking a beating this month due to the market volatility, even more so than large-cap stocks.
The Russell 2000 Index is down 11.5% this year, while the S&P 500 is down more than 8% -- but that doesn't meant that all stocks are in the red. There are outliers even among small-cap stocks that have had significant outperformance in the first three weeks of the year.
But are small-cap stocks really the best place to put your money right now? Oppenheimer analysts noted this week that investors are better off buying large-cap growth stocks that have been oversold as opposed to small-cap value stocks that are seeing a bump.
Still, if you're looking to exposure to small-caps, here are 10 stocks among the Russell 2000 that have had the best performance this year. We've paired the list with commentary from Jim Cramer, if the stock is owned by his Action Alerts PLUS Charitable Trust Portfolio, or ratings from TheStreet Ratings, TheStreet's proprietary ratings tool, for another perspective.
TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equity market returns, future interest rates, implied industry outlook and forecasted company earnings.
10. Children's Place
Consumer Goods & Services/Apparel Retail
Market Cap: $1.3 billion
2016 Return: 16.4%
TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
"We rate Children's Place as a buy with a ratings score of B. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its growth in earnings per share, expanding profit margins, increase in net income, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings team include:
- Children's Place has improved earnings per share by 10.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, Children's Place increased its bottom line by earning $2.61 versus $2.31 in the prior year. This year, the market expects an improvement in earnings ($3.54 versus $2.61).
- 39.59% is the gross profit margin for Children's Place which we consider to be strong. It has increased from the same quarter the previous year. Along with this, the net profit margin of 8.44% is above that of the industry average.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500, but is less than that of the Specialty Retail industry average. The net income increased by 4.2% when compared to the same quarter one year prior, going from $36.94 million to $38.50 million.
- Children's Place's debt-to-equity ratio is very low at 0.06 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.76 is somewhat weak and could be cause for future problems.
- Children's Place, with its decline in revenue, underperformed when compared the industry average of 4.5%. Since the same quarter one year prior, revenues slightly dropped by 6.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full analysis from the report here: PLCE