Notes From a Stock Picker: Three Names Where I See Value Now
Rotation into small-cap leadership gives stock pickers the chance to do what they do best.
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Rotation out of semiconductors SMH and big-cap technology and into the Russell 2000 Small Cap Index IWM continues on Wednesday. ASML Holdings ASML was unable to bounce back, and the recovery in Nvidia NVDA has not been very energetic so far. The Magnificent Seven (MAGS) is in the red but overall market breadth is quite good, with around 6,700 gainers to 2,200 decliners.
The main reason that I prefer small-cap leadership is because it favors stock picking, and stock picking is what I do. There is nothing I enjoy more than hunting for the next big mover, and it works best when the primary focus is on good charts and solid fundamentals. Too often, this market is driven primarily by a preference for a certain class of stocks like the Magnificent Seven or semiconductors, and fundamentals and charts don't matter.
One of my favorite small-cap biotechnology names is Humacyte HUMA, HUMAW. I've discussed it often, and on Wednesday morning there is an article in The Wall Street Journal that discusses its cutting-edge technology with the subtext: "Scientists have grown arteries using human cells to better treat injured patients. They've already been effective in Ukrainian soldiers."
I believe HUMA has a very bright future, but it is currently waiting for the FDA to approve its ATEV lab-grown blood vessel. It is now over two months past the deadline, and there is no clue as to when it may act. When this roadblock is lifted, I expect the stock to do well, but timing is the problem.
One new position that I am slowly adding is Universal Stainless & Alloy Products USAP. It trades very thinly, so it's hard to buy, but the chart is developing well and on the verge of a breakout. The company manufactures specialty steel used for aerospace and power generation.
What is most attractive about USAP is its valuation. It only has one analyst following it, but it trades with a PE of about 12 on earnings of $3.40 in 2024. It has a $4.40 estimate for 2025, which is around 30% growth and results in an excellent PE/G ratio.
Another very thin stock I'm watching closely in front of earnings in November is Sensus Healthcare SRTS, which manufactures radiation therapy devices used for the treatment of skin cancer. It had a very strong second quarter and indicated that it had strong sales momentum into the third quarter. I expect a strong report. The chart is developing, but it trades so thinly that it can move quite erratically at times.
I'll try to update my shopping list on Thursday, but it is growing quickly with all the positive action in small caps. If you are a stock picker like me, this is the time to do your research and focus on good charts and fundamentals.
At the time of publication, DePorre was long NVDA, HUMA, USAP and SRTS.
