Fund Managers Are Wild About 5 Red-Hot Small-Caps Stocks

Investing

Published: March 13, 2019 7:00 am

Last Updated: January 30, 2020 11:32 pm

Since the market lows in late 2018, the Russell 2000 Index has been on fire, and the recent pullback in the index may give investors the opportunity to jump in and grab some of the top companies in the index. The Russell 2000 is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. Many of the stocks offer more aggressive investors some serious upside potential.

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In a new research report, RBC did some intense digging in the small-cap arena and came up with some fascinating research. The report noted this:

We’ve analyzed the fourth quarter stock level holdings of 403 actively managed, diversified US equity funds tracked by Morningstar that are focused on Small Cap investing. Our sample was broad, pulling in data from 163 funds that benchmark to the Russell 2000, 129 funds that benchmark to the Russell 2000 Growth index, and 111 funds that benchmark to the Russell 2000 Value index. Mutual funds and separate accounts are included, while ETF’s/passive funds and most quant funds are excluded. In this report, we highlight several screens of the most well owned names.

We were intrigued by the “Darling of Small Cap” group, which were the most popular stocks in Small Cap Core, Growth and Value Funds. The top five were the ones that the most funds owned. Generally, crowded stocks are that way for a reason, as they offer investors good fundamentals.

Ligand Pharmaceutical

This sizzling biopharmaceutical stock is held by the most funds and offers some serious upside. Ligand Pharmaceutical Inc. (NASDAQ: LGND) is engaged in developing or acquiring technologies that help pharmaceutical companies to discover and develop medicines. Its products include Evomela, IV voriconazole, Duavee, Viviant/Conbriza, Nexterone and Noxafil-IV.

The company said this week it expects revenue and earnings per share (EPS) to grow at a compound annual growth rate in the mid-teen percentages for the next five to 10 years. During the recent analysts day, Ligand backed 2019 guidance for total revenue of approximately $118 million, including $48 million from royalties, $27 million from materials sales and $43 million from contract payments. The company affirmed 2019 forecasts for adjusted diluted EPS of more than $32.25, including a one-time gain on the sale of the Promacta royalty of $29.05 per share and $3.20 per share from operations.

The Wall Street consensus price target for the shares is a stunning $210.40. The stock closed way below that level on Tuesday at $113.35.

Emergent BioSolutions

This is another biotech company the fund managers own in a big way. Emergent BioSolutions Inc. (NYSE: EBS) engages in the development, manufacture and commercialization of medical countermeasures. It offers specialty products for civilian and military populations that address accidental, intentional and naturally occurring public health threats. Its business units include Vaccines and Anti-Infectives, Antibody Therapeutics, Devices, and Contract Development and Manufacturing.

Emergent recently signed a contract with the U.S. State Department to establish a “long-term, reliable, and stable supply chain for medical countermeasures that address chemical warfare agents.” The company said the indefinite-delivery, indefinite-quantity contract has a minimum value of $7 million and a maximum of $100 million. The terms of the deal call for an initial five-year contract with five additional one-year option periods.

Emergent will be supplying two of its current medical countermeasures addressing chemical threats. Under this contract, the company will maintain the capability to manufacture and deliver various medical countermeasures as defined by the State Department.

The consensus price target was last seen at $70.50, and the shares ended Tuesday at $56.98 apiece.