The economy has been recovering gradually with increased COVID-19 vaccinations being administered.  But investors did not react positively to the news of a new coronavirus variant named omicron, which was found first in South Africa, and the markets have remained volatile throughout the week. Also, record-high inflation data for October, reported last month, did little to improve market sentiment.

However, initial reports suggest that the fears related to the omicron coronavirus variant may have been exaggerated; the variant has so far been found to cause mild illness. Dr. Angelique Coetzee, chair of the South African Medical Association, said, “Currently, there is no reason for panicking, as we don’t see severely ill patients.” Also, JP Morgan Chase & Co. (JPM) expects the S&P 500 to surge beyond 5,000 in the first half of 2022.

Against this backdrop, quality small-cap stocks may be better positioned to grow in the coming months due to cheap valuations, robust economic growth, and a relatively ‘benign impact from looming tax policy changes.’ Fundamentally solid small-cap stocks Genesco Inc. (GCO), Huttig Building Products, Inc. (HBP), and Friedman Industries, Incorporated (FRD) may not be making headlines but have significant growth potential. So, we think it could be wise to scoop up their shares now.

Genesco Inc. (GCO)

With a market capitalization of $963.36 million, GCO in Nashville, Tenn., is a wholesaler and retailer engaged in sourcing, design, marketing, and distributing footwear and accessories. The company’s segments include Journeys Group; Schuh Group; Johnston & Murphy Group; and other licensed brands.

On September 22, Iconix Brand Group Inc. signed a licensing agreement with GCO. The agreement gives GCO the exclusive footwear license in the U.S. and Canada for the heritage athletic brand-named Starter. This is expected to boost the company’s revenue because it will allow it to design and manufacture Starter footwear for men, women, and kids.

GCO’s net sales for its fiscal second quarter, ended July 31, 2021, increased 42% year-over-year to $555 million. The company’s operating income came in at $12.90 million, compared to a $21.99 million loss in the prior-year period. Also, its net earnings were $10.93 million, compared to a $19.03 million loss in the year-ago period.

Analysts expect GCO’s EPS and revenue for its fiscal 2022 to increase 593.2% and 33.5%, respectively, year-over-year to $5.82 and $2.39 billion. It has surpassed Street EPS estimates in each of the trailing four quarters. And the stock has gained 111.9% in price so far this year to close yesterday’s trading session at $63.76.

GCO’s strong fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

It has an A grade for Growth, Value, Momentum, and Quality. It is ranked #3 out of 63 stocks in the A-rated Fashion & Luxury industry. Click here to check the other ratings of GCO for Stability and Sentiment.

Note that GCO is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.

Huttig Building Products, Inc. (HBP)

HBP is a distributor of millwork, building materials, and wood products used in new residential construction and in-home improvement, remodeling, and repairs. Its products are divided into millwork, general building products, and wood products. Also, it has a market capitalization of $234.23 million. HBP is headquartered in St. Louis, Miss.

On September 30, HBP entered a new $250 million senior credit facility. The company’s VP and CFO, Philip Keipp, said, “Our new credit facility will immediately provide us with increased financial flexibility as we continue to execute our strategy.”

For its fiscal third quarter, ended September 30, 2021, HBP’s net sales increased 15.3% year-over-year to $245.30 million. The company’s operating income increased 177% year-over-year to $19.10 million, while its net income increased 206.5% year-over-year to $18.70 million. In addition, its EPS came in at $0.68, up 183.3% year-over-year. The stock has gained 133% in price year-to-date to close yesterday’s trading session at $8.55.

HBP’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system.

It has an A grade for Growth and Value and a B grade for Momentum and Quality. It is ranked #1 of 54 stocks in the B-rated Industrial – Building Materials industry. To check the other ratings of HBP (Stability and Sentiment), click here.

Note that HBP is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Stocks Under $10 portfolio. Learn more here.

Click here to check out our Industrial Sector Report for 2021

Friedman Industries, Incorporated (FRD)

With a market capitalization of $71.68 million, Longview, Tex.-based FRD is involved in steel processing, pipe manufacturing, processing and steel, and pipe distribution in the U.S. The company operates through two segments: Coil and Tubular.

FRD broke ground on constructing its new coil processing facility in Sinton, Texas, in August 2021. Its operations are expected to commence in April 2022, which could significantly boost its production.

FRD’s net sales for its fiscal second quarter, ended September 30, 2021, increased 272.3% year-over-year to $92.57 million. The company’s net earnings came in at $13.17 million compared to a $0.25 million loss in the year-ago period. Also, its EPS was $1.91, compared to a $0.04 loss in the year-ago period. The stock has gained 51.3% in price year-to-date to close yesterday’s trading session at $10.38.

FRD’s strong fundamentals are reflected in its POWR Ratings. It has an A overall rating, which equates to a Strong Buy in our proprietary rating system. It has an A grade for Growth, Value, and Momentum and a B grade for Quality.

It is ranked #9 out of the 33 stocks in the A-rated Steel industry. Click here to see the additional POWR Ratings for FRD (Stability and Sentiment).

GCO shares were trading at $65.45 per share on Friday morning, up $1.69 (+2.65%). Year-to-date, GCO has gained 117.51%, versus a 22.10% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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