Global stocks are surging again now that the Federal Reserve has signaled its intent to lower interest rates sooner rather than later. The central bank’s liquidity backstop has allowed investors to expand their stock holdings at a time of sub-par growth in the world economy.
In this environment, FANG stocks aren’t what they used to be. Following years of high penetration and market dominance, many of these large-caps have witnessed slowing growth rates. Investors looking to capitalize on the latest tech boom may find more opportunity in the small-cap category. The following three stocks fit the bill.
- BlackBerry Ltd. (NYSE: BB)
- Box Inc. (NASDAQ: BOX)
- Proofpoint Inc. (NASDAQ: PFPT)
- Market Cap: $6.5 billion
- Annual Revenue Growth: -3% (February 2019)
- Free Cash Flow: $51 million
Very few companies have fallen by the wayside like BlackBerry. Once the leader in the smartphone industry, BlackBerry has seen its revenues plunge by 94% since 2010. But things are slowly changing for the better.
BlackBerry’s new focus is enterprise mobile device management. The company’s fourth-quarter results surpassed estimates thanks to strong licensing revenue. Despite revenue and profit falling for the year, CEO John Chen predicts revenue growth between 23% and 27% in fiscal 2020. The strong outlook is supported by a recent acquisition of Cylance, a leading artificial intelligence and cybersecurity company.
BlackBerry’s share price peaked above $10.00 back in March but has since fallen below $9.00. Despite the pullback, it has gained more than 24% year-to-date.
- Market Cap: $2.7 billion
- Annual Revenue Growth: 20.2% (January 2019)
- Free Cash Flow: $38 million
Headquartered in Redwood City, California, Box is an enterprise content management, workflow and collaboration platform that has expanded rapidly over the past five years.
Box operates in the fast-growing cloud computing segment, helping big businesses manage their documents and products across various secure locations. It has already attracted some big-name clients, including General Electric and AstraZeneca.
The company enjoys strong recurring revenue and has ample growth prospects, but a disappointing guidance outlook has weighed on share prices. At less than $20 a share, BOX may be a good opportunity for investors looking for exposure to emerging technology.
- Market Cap: $6.4 billion
- Annual Revenue Growth: 39.2% (December 2018)
- Free Cash Flow: $155 million
Proofpoint, the enterprise cybersecurity company, has been on an absolute tear for the past 10 years. Over that span, the company’s annual revenues have shot up 1,363%, with the pace of expansion showing little signs of letting up.
The company has already carved out a small niche in the market for email security and has already onboarded half of the Fortune 1,000 companies. Analysts are forecasting another five years of rapid growth for the security-as-a-service market, putting Proofpoint on track for even bigger gains. This means PFPT stock offers an attractive buy opportunity at current prices.
With FANG stocks facing regulatory scrutiny, small-cap plays offer plenty of upside for investors looking to get back into risk assets. Markets for cybersecurity, cloud computing, and enterprise software management are set to grow for many years to come, making BB, BOX, and PFPT solid bets for the future.
Disclaimer: Author holds no investment position in BlackBerry, BOX, or Proofpoint at the time of writing.
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.