While the big financials — the big banks in particular — continue to deal with legacy corruption issues and steal all the headlines for Libor scandals, foreign exchange scandals, mortgage scandals and multi-billion dollar fines, small caps largely stay under the radar.
And many are primed for big growth.
A weaker dollar and rising interest rates are two big tailwinds for small caps, and there are plenty that epitomize the opportunities available to savvy investors.
While many of these small-cap stocks can be found in one of three sectors — insurance, financial markets and real estate investment trusts (REITs), there are some exceptions.
Let’s look at seven small caps that promise big returns in the coming quarters.
Market cap: $953.6 million
The most fundamental thing to understand about insurance companies is that they collect huge piles of cash that clients pay as premiums. They distribute the monies for claims from their clients. The difference is their profit (less operations, taxes, etc, of course).
But insurance companies don’t just sit on their cash — they invest it. This return is a core part of profitability. Bad returns or too many claims to pay out hurt the bottom line.
A weaker dollar and rising interest rates means insurers’ investments will pay off better without the insurer moving up the risk profile to get better returns.
Universal Insurance Holdings, Inc. (NYSE:UVE[3]), is a diversified small cap with operations around the globe. It has recently expanded operations in Brazil and has a presence through various subsidiaries across Europe.
As a U.S.-based firm, rising rates mean better returns, and a strengthening euro will also help profitability in its European operations.
Its affiliation with the legendary Lloyds of London also means it has access to quality clients and good leverage on premium pricing.
Market cap: $608.3 million
CNinsure Inc. (NASDAQ:CISG[5]) has a very unique niche among small caps — it sells property and casualty and life insurance in China. It also does some work in the auto insurance business.
As China’s middle class (and upper class) grows, insurance is going to be a booming industry as people acquire real estate and more valuable goods that need to be insured.
CISG operates in 28 provinces, including the major cities of Beijing, Shanghai, Guangzhou and Shenzhen.
Market cap: $671 million
In the financial sector you simply have companies that make money working with organizations that are looking to maximize their profits.
Companies of all sizes have been sitting on huge piles of cash, as have many banks, brokerage firms, hedge funds and mutual fund companies.
What’s more, these companies are really in demand when the markets go through some sort of major transition. We’re seeing that now with oil prices, bonds and currencies. This is when specialists are in big demand — and you can find plenty of those in small caps.
INTL FCStone Inc (NASDAQ:INTL[7]) specializes in working with mid-sized commercial clients to help them maximize their trading and investing. Instead of having an in-house division manage the corporate coffers, companies hire INTL to do it for them.
INTL leans more towards derivatives (for hedging positions) and commodities trading but it’s a one-stop shop that can do it all. And it’s gaining some serious attention: the stock is up almost 100% in the past six months.
Market cap: $1 billion
Do you remember the stir of Michael Lewis’ book Flash Boys, regarding high-frequency trading? And do you remember how Washington and Wall Street were shocked by what was going on and talked about changes and reforms and reintroducing fairness and transparency into the system?
Nice words. But the reality is, high-frequency trading is alive and well, as are dark pools where big trading firms unload big chunks of stocks anonymously and get eaten in varying pieces by other unknown entities.
And that’s not a bad thing. HFT and dark pools are new technologies that serve a purpose. As long as they aren’t abused, and they are focused on gaming the system and helping markets operate more efficiently.
Investment Technology Group (NYSE:ITG[9]) is a major HFT firm. But it’s also more than that. It offers a variety of proprietary research, analysis and trading services for its global client base. That makes it an interesting small-cap stock to buy.
And many are primed for big growth.
A weaker dollar and rising interest rates are two big tailwinds for small caps, and there are plenty that epitomize the opportunities available to savvy investors.
While many of these small-cap stocks can be found in one of three sectors — insurance, financial markets and real estate investment trusts (REITs), there are some exceptions.
Let’s look at seven small caps that promise big returns in the coming quarters.
Universal Insurance Holdings, Inc. (UVE)
YTD Performance: +28.7%Market cap: $953.6 million
The most fundamental thing to understand about insurance companies is that they collect huge piles of cash that clients pay as premiums. They distribute the monies for claims from their clients. The difference is their profit (less operations, taxes, etc, of course).
But insurance companies don’t just sit on their cash — they invest it. This return is a core part of profitability. Bad returns or too many claims to pay out hurt the bottom line.A weaker dollar and rising interest rates means insurers’ investments will pay off better without the insurer moving up the risk profile to get better returns.
Universal Insurance Holdings, Inc. (NYSE:UVE[3]), is a diversified small cap with operations around the globe. It has recently expanded operations in Brazil and has a presence through various subsidiaries across Europe.
As a U.S.-based firm, rising rates mean better returns, and a strengthening euro will also help profitability in its European operations.
Its affiliation with the legendary Lloyds of London also means it has access to quality clients and good leverage on premium pricing.
CNinsure Inc. (ADR) (CISG)
YTD Performance: +54%Market cap: $608.3 million
CNinsure Inc. (NASDAQ:CISG[5]) has a very unique niche among small caps — it sells property and casualty and life insurance in China. It also does some work in the auto insurance business.As China’s middle class (and upper class) grows, insurance is going to be a booming industry as people acquire real estate and more valuable goods that need to be insured.
CISG operates in 28 provinces, including the major cities of Beijing, Shanghai, Guangzhou and Shenzhen.
INTL FCStone Inc (INTL)
YTD Performance: +71.6%Market cap: $671 million
In the financial sector you simply have companies that make money working with organizations that are looking to maximize their profits.
Companies of all sizes have been sitting on huge piles of cash, as have many banks, brokerage firms, hedge funds and mutual fund companies.What’s more, these companies are really in demand when the markets go through some sort of major transition. We’re seeing that now with oil prices, bonds and currencies. This is when specialists are in big demand — and you can find plenty of those in small caps.
INTL FCStone Inc (NASDAQ:INTL[7]) specializes in working with mid-sized commercial clients to help them maximize their trading and investing. Instead of having an in-house division manage the corporate coffers, companies hire INTL to do it for them.
INTL leans more towards derivatives (for hedging positions) and commodities trading but it’s a one-stop shop that can do it all. And it’s gaining some serious attention: the stock is up almost 100% in the past six months.
Investment Technology Group (ITG)
[YTD Performance: +38%Market cap: $1 billion
Do you remember the stir of Michael Lewis’ book Flash Boys, regarding high-frequency trading? And do you remember how Washington and Wall Street were shocked by what was going on and talked about changes and reforms and reintroducing fairness and transparency into the system?Nice words. But the reality is, high-frequency trading is alive and well, as are dark pools where big trading firms unload big chunks of stocks anonymously and get eaten in varying pieces by other unknown entities.
And that’s not a bad thing. HFT and dark pools are new technologies that serve a purpose. As long as they aren’t abused, and they are focused on gaming the system and helping markets operate more efficiently.
Investment Technology Group (NYSE:ITG[9]) is a major HFT firm. But it’s also more than that. It offers a variety of proprietary research, analysis and trading services for its global client base. That makes it an interesting small-cap stock to buy.
