Small-cap stocks benefit greatly from lower interest rates, as they typically carry higher debt levels than large-cap companies. Moreover, small-cap stocks offer diverse industry exposure beyond tech, including in medical, biotech, and chemical industries, providing growth potential across multiple sectors.
Therefore, for investors seeking high-upside opportunities, fundamentally strong small-cap stocks like Owens & Minor, Inc. (OMI), Orion S.A. (OEC), and Cerus Corporation (CERS) are worth considering.
Historically, small-cap stocks have outperformed large caps during economic recoveries. As inflation stabilizes and if the economy strengthens, small-cap stocks could benefit significantly. Small-cap stocks offer broad sector exposure, which helps reduce regulatory and sector-specific risks while providing diverse investment opportunities.
With inflation currently at 2.1%, just above the Fed’s target, rate cuts are anticipated in December. These cuts could reduce borrowing costs, stimulate consumer spending, and boost small-cap stock valuations. Alongside, the U.S. economy expanded by an annualized 2.8% in the third quarter, highlighting further optimism for the small caps.
Furthermore, small-cap stocks often yield higher returns in volatile markets due to increased investor demand for growth-oriented opportunities. Considering these conducive trends, let’s examine the fundamentals of the above-mentioned small-cap stocks.
Owens & Minor, Inc. (OMI)
Valued at $1.03 billion by market cap, OMI, along with its subsidiaries, operates as a healthcare solutions company worldwide. It functions through two segments: Products & Healthcare Services and Patient Direct.
On September 10, 2024, OMI announced a partnership with Google Cloud to enhance its QSight clinical inventory management system. This collaboration aims to improve inventory optimization for hospitals, leveraging Google Cloud's AI capabilities for real-time insights and predictive management.
In terms of the trailing-12-month EBIT margin, OMI’s 3.12% is 22.5% higher than the 2.55% industry average. Its 4.29% trailing-12-month levered FCF margin is 150.4% higher than the 1.71% industry average. Likewise, the stock’s 1.99x trailing-12-month asset turnover ratio is 384.8% higher than the 0.41x industry average.
OMI's revenue for the fiscal second quarter ended June 30, 2024, increased 4.2% year-over-year to $2.67 billion. Its non-GAAP operating income was $76.26 million, up 23% year-over-year. Additionally, the company’s non-GAAP net income and non-GAAP net income per common share were $28.15 million and $0.36, respectively, up 98% and 100% over the prior-year quarter.
For the quarter ended September 30, 2024, OMI’s revenue is expected to grow 3.4% year-over-year to $2.68 billion. Its EPS for the quarter ending March 31, 2025, is expected to rise 38.4% year-over-year to $0.26. It surpassed the Street EPS estimates in each of the trailing four quarters.
Over the past month, OMI’s stock has declined 8.2% to close the last trading session at $13.36. The average analyst price target of $20 indicates a 49.7% upside potential.
OMI’s POWR Ratings reflect an optimistic outlook. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth and Value. It is ranked #53 out of 138 stocks in the Medical - Devices & Equipment industry. To see OMI’s Momentum, Stability, Sentiment, and Quality ratings, click here.
Orion S.A. (OEC)
Valued at $898.69 million by market cap, Headquartered in Senningerberg, Luxembourg, OEC engages in the manufacture and sale of carbon black products. It operates through two segments: Specialty Carbon Black and Rubber Carbon Black.
In terms of the trailing-12-month Capex / Sales, OEC’s 10% is 28.9% higher than the 7.76% industry average. Its 16.18% trailing-12-month Return on Common Equity is 185.8% higher than the 5.66% industry average. Also, the stock’s 7.43% trailing-12-month Return on Total Capital is 52.3% higher than the 4.88% industry average.
During the fiscal second quarter ended June 30, 2024, OEC’s net sales rose 4% year-over-year to $477 million. Its operating income was $109.80 million. Similarly, the company’s adjusted net income and adjusted EPS were $24.50 million and $0.41, respectively.
Street expects OEC’s revenue for the quarter ended September 30, 2024, to increase 3.1% year-over-year to $480.67 million. Its EPS for the quarter ending December 31, 2024, is expected to rise 143.9% year-over-year to $0.41. OEC’s stock has declined 11.2% over the past year to close the last trading session at $15.40. The average analyst price target of $22 indicates a 42.1% upside potential.
OEC’s strong fundamentals are reflected in its POWR Ratings. It has a B grade for Value. It is ranked #38 out of 80 stocks in the B-rated Chemicals industry. Beyond what we stated above, we also have given OEC grades for Growth, Momentum, Stability, Sentiment, and Quality. Get all the OEC ratings here.
Cerus Corporation (CERS)
Valued at $282.29 million by market cap, CERS operates as a biomedical products company, focusing on developing and commercializing the INTERCEPT Blood System to enhance blood safety.
In terms of the trailing-12-month asset turnover ratio, CERS’ 0.89x is 117.3% higher than the 0.41x industry average.
CERS’s total revenue for the fiscal third quarter ended September 30, 2024, increased 7.2% year-over-year to $50.66 million. Its adjusted EBITDA was $4.39 million, compared to an adjusted EBITDA loss of $972 thousand in the prior-year quarter. Additionally, the company’s gross profit on product revenue was $26.20 million, up 20.1% from the year-ago value.
Analysts expect CERS’ revenue for the quarter ending December 31, 2024, to increase 8.4% year-over-year to $50.69 million. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past year, CERS’ stock has gained 14.5% to close the last trading session at $1.58. The average analyst price target of $4 indicates a 151.6% upside potential.
CERS’ POWR Ratings reflect its solid prospects. CERS has a B grade for Sentiment. Within the Biotech industry, it is ranked #121 out of 328 stocks. To access CERS’ additional ratings for Growth, Value, Momentum, Stability, and Quality, click here.
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OMI shares rose $1.00 (+8.33%) in after-hours trading Monday. Year-to-date, OMI has declined -37.73%, versus a 21.01% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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