The "wheels came off" the markets again on Friday, as the S&P 500 fell 2.2%, amid the ongoing run of volatility that continues to roil investors. The S&P is now down about 2.6% year to date, which may seem surprisingly small given all of the volatility, but many investors might really be surprised to know that smaller companies are actually faring better.
The Russell 2000 Index and Russell Microcap Index are down only 1.1% and 0.5%, respectively, year to date. Normally, when markets are volatile, the smallest of the small are the first to be punished, but we have not seen that (at least yet) so far in 2018.
Don't get me wrong, if sentiment turns negative, and markets actually pull back, the smaller and more speculative names will be the first to be abandoned. However, even that sentiment does not dampen my affinity for small-caps and micro-caps. Here are a handful of smaller names that I own and/or find interesting. Word of warning, this is a rather motley crew of companies, not for the faint of heart.
I am doubling down here -- almost no one likes Fitbit. Morgan Stanley cut its rating to "underweight" last week, and the shares are down 16% year to date.
I don't see this stock ever getting back to the mid-$40 level where it once traded, but with nearly $3 per share in cash, and no debt, Fitbit may have a longer runway than is presumed to either become relevant again, or be sold.
Yes, cash can be transient and fleeting if it is being burned through, which I'll be keeping an eye on. FIT currently trades at just 1.88x net current asset value.
I've had a love-hate relationship with this stock for years. The love has now turned into frustration, but I still see significant value here. If you don't know Biglari, don't feel bad, it is a very odd company, and equally controversial. That controversy, including a difficult-to-understand structure, controversial CEO that calls all of the shots and is more than well compensated, disappointing performance, and lack of liquidity and information, have combined to create what I've termed the "Biglari discount."
The shares may be worth double their current price, but what is unclear is how that value will be unlocked. Among its holdings, BH owns about 20% of Cracker Barrel Old Country Store (CBRL) , the Steak n Shake restaurant chain, First Guard Insurance, and perhaps surprisingly, Maxim Inc. (as in Maxim Magazine), the acquisition of which still puzzles me.
FreightCar has had its share of stumbles, and negative earnings surprises the past couple of quarters, and will likely be unprofitable for 2018. The company may break even next year, but it's too early to tell, and analyst estimates are all over the map.
Trading at just below $14, however, the company has more than $10 per share in cash and short-term investments. Down 20% year to date, it should benefit from growing economy, but has some production issues to fix. RAIL currently trades at just 1.28x net current asset value.
I covered this one briefly at the end of last week, along with a handful of recovering down-and-out specialty retailers. The stock has been absolutely hammered over the past several years, but got a huge boost after reporting much better-than-expected fourth quarter results.
Fossil is another one that I don't see getting back to all-time highs -- it traded above $130 in 2012, and above $89 just three years ago -- but was perhaps overly punished. It may also be a potential takeover target -- a solid brand name with an enterprise value of just $900 million.
Parent of Bonefish Grill, Outback Steakhouse, Carrabba's Italian Grill, and Fleming's Prime Steakhouse and Wine Bar, Bloomin' operates in the overpriced restaurant sector, which I don't particularly care for. However, it may be in special situation territory, as an activist, Bloomington Capital, has taken aim.
Perhaps the sum-of-the parts are worth more than the whole (as was the case with Bob Evans). In addition, the sector has been ripe for M&A activity, with Fogo de Chao the latest victim. I am still contemplating this one and have not yet taken a position.