With the Nasdaq Composite Index back at record highs, investors are shifting their focus to the fast-growing technology sector. However, they must tread carefully, given the overvaluation risks facing the sector and overall market.
Against this backdrop, we are taking a look at three small-cap stocks to find some good bargains even at today’s prices. Small caps experienced weakness toward the end of the first quarter but have had a strong run for much of 2019.
- TESSCO Technologies Inc. (TESS)
- Unisys Corporation (UIS)
- Brooks Automation Inc. (BRKS)
TESSCO Technologies Inc. (NASDAQ: TESS)
- Market Cap: $157 million
- Annual Revenue Growth: 8.8% (2018)
- Free Cash Flow: -$12.79 million
TESSCO Technologies is a telecom company that provides wireless communications products and network infrastructure to the U.S. market. Founded in 1982, TESSCO generates more than half a billion dollars annually in revenue and is well positioned to capitalize on the continued growth of mobile communications and Internet of Things (IOT) services. IOT represents one of the largest addressable markets over the next ten years, with Cisco calling it the $4.6 trillion opportunity for businesses and governments.
TESSCO made the Forbes list of America’s best small companies in 2012. Although it has dropped off the radar, it has quickly emerged as one of the year’s top performers. TESS stock has gained a whopping 47% year-to-date, far outpacing the Nasdaq Composite Index. TESS is also a dividend stock, having recently yielded 4.3%, which is well above the technology sector average.
Unisys Corporation (NYSE: UIS)
- Market Cap: $569 million
- Annual Revenue Growth: -3% (2018)
- Free Cash Flow: -$42 million
Unisys is a global IT company specializing in technology management, software solutions, and data centres. At just $11.00 per share, the Pennsylvania-based company could be poised for a huge rebound following years of restructuring.
2018 could very well have been the turnaround year for Unisys; for the first time since the financial crisis, the company managed to post year-over-year revenue growth. It generated nearly $2.83 billion in sales in fiscal 2018, which is still well below the 2009 level of $4.60 billion.
The stock has been a perennial underperformer in recent years and is currently trading at nearly half of its September highs. However, new product growth and the sudden surge in technology revenues suggest UIS could be on track to regain some of its lustre. Just don’t expect dot-com blowout highs for this 33-year-old company.
Brooks Automation (NASDAQ: BRKS)
- Market Cap: $2.25 million
- Annual Revenue Growth: -8.8% (September 2018)
- Free Cash Flow: $61 million million
For the first time since fiscal 2013, Brooks Automation posted negative revenue growth last year. But that shouldn’t scare away potential investors because Brooks Automation is a highly specialized company that services key industries like semiconductors and life sciences.
As the name implies, Brooks Automation provides automation solution for various manufacturing processes from semiconductors to clean energy and up to drug discovery. Despite the recent revenue decline, the company has nearly tripled its sales since the financial crisis.
BRKS stock peaked near $40 last summer before it plunged along with the broader market. Since bottoming on Dec. 17, the stock has rebounded more than 31%. It’s currently available for less than $32.
In the presence of a bull market revival, investors can do really well with micro- and small-cap stocks. TESSCO Technologies, Unisys Corporation and Brooks Automation provide good value and attractive growth prospects for investors looking to uncover some promising tech plays.
Disclaimer: Author holds no investment position in TESSCO Technologies, Unisys Corporation, or Brooks Automation.
The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.