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.
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.
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.
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.
This stock has been on fire this year, up almost 50% since the December lows. HealthEquity Inc. (NASDAQ: HQY) provides a range of solutions for managing health care accounts — Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs) and Flexible Spending Accounts (FSAs) — for health plans, insurance companies and third-party administrators.
Health Equity is engaged in technology-enabled services platforms that allow consumers to make health care saving and spending decisions. Its platform provides an ecosystem in which consumers can access their tax-advantaged health care savings, compare treatment options and pricing, evaluate and pay health care bills, receive personalized benefit and clinical information, earn wellness incentives and make educated investment choices to help in their tax-advantaged health care savings. Its products and services include health care saving and spending platform, health savings accounts, investment advisory services, reimbursement arrangements and health care incentives.
Portfolio managers love this company and 75 funds have the stock in their portfolios, according to the report.
The consensus price objective across Wall Street is $81.09. Shares closed just below that level on Tuesday at $79.68.
This small-cap play has seen some very solid insider buying over the past year. Entegris Inc. (NASDAQ: ENTG) is a global developer, manufacturer and supplier of micro-contamination control products, specialty chemicals and materials handling solutions for manufacturing processes in the semiconductor and other high-technology industries.
The company operates in three business segments: Specialty Chemicals and Engineered Materials, Advanced Materials Handling and Microcontamination Control.
Top analysts remain very positive on the stock and see it as a more defensive play for investors looking to buy the sector but wary of the equipment companies. The report shows that 74 funds own shares.
The Wall Street consensus price target of $41.71 compares with Tuesday’s close at $35.43.
This company rounds out the top five most-owned stocks and remains a very solid takeover candidate. Omnicell Inc. (NASDAQ: OMCL) is a leader in medication and supply dispensing automation, central pharmacy automation, IV robotics, analytics software and medication adherence and packaging systems. Omnicell is focused on improving care across the entire health care continuum, from the acute care hospital setting to post-acute skilled nursing and long-term care facilities and to the patient’s home.
Over 4,000 customers worldwide use Omnicell automation and analytics solutions to increase operational efficiency, reduce medication errors, deliver actionable intelligence and improve patient safety. Omnicell’s innovative medication adherence solutions, used by over 32,000 institutional and retail pharmacies in North America and the United Kingdom, are designed to improve patient adherence to prescriptions, helping to reduce costly hospital readmissions.
The posted consensus price target for the shares is $79.75, but the stock closed above that level on Tuesday at $83.95.
These five top small-cap growth plays are better suited for aggressive accounts. With first-quarter earnings reports still to come, it may make sense for investors interested in owning shares to buy partial positions now and see how the results come in.